How Canada’s Middle-Class Housing Crisis Is Undermining Its Future

Why pricing out young families is weakening productivity, entrepreneurship, and social cohesion.

Highlights

• Just because you own your home does not mean you’re insulated from Canada’s middle-class housing crisis. When housing prices detach from middle-class wages, as they have in Canada, it does not just impact those who do not own a home; it harms productivity, public services, entrepreneurship, and the broader economy.

• High and rising home prices slow economic growth. High housing costs price workers out of opportunity-rich cities, crowd out business investment, and act as a startup tax on young entrepreneurs. This slows GDP growth, reduces innovation, and limits job creation.

• The housing crisis is quietly reshaping our society. Out-of-reach home prices are reducing family formation, accelerating inequality, entrenching intergenerational wealth gaps, and turning meritocracy into patrimonial capitalism, where what your parents own matters more than what you earn.

• The housing crisis is destabilizing our institutions. Essential worker shortages, longer commutes, rising homelessness, and growing political polarization are structural consequences of pricing two generations out of ownership.

• And yes, we brought receipts. Every one of these claims is backed by serious academic research. You don’t have to take our word for it; we’ve linked to the studies.

Owning up to our mistakes

Probably the biggest mistake we routinely make, whether it’s in pieces such as New Starter Homes Are Now Twice as Expensive, Relative to Income, as in 2004, or on our podcasts, is that we assume our audience cares as much about middle-class housing affordability as we do. Or that they see it as a problem at all! After all, even with the substantial reduction in the home ownership rate over the past 15 years, the majority of Canadian families own their homes. This could cause many to believe that home prices becoming disconnected from middle-class wages is not a serious problem; in fact, they may view it as a good thing.

That viewpoint, while understandable, fails to account for the economic and societal impacts of pricing two generations of young, middle-class Canadians out of home ownership. When home prices grow substantially faster than incomes, there are dozens of negative impacts; here are just ten.

Ten reasons why everyone should care that housing is no longer attainable for young, middle-class Canadians

1. Productivity: High and rising housing costs reduce productivity and economic growth, as workers are priced out of the communities that could best use their skills.

2. Innovation: High and rising housing costs “crowd out” innovation and business investment.

3. Entrepreneurship: High and rising housing costs act as a “startup tax”, reducing entrepreneurship.

4. Essential Worker Shortages: High and rising housing costs create chronic labour shortages of essential service workers such as teachers and nurses in our cities.

5. Children: High and rising housing costs reduce family formation and birth rates.

6. Traffic: High and rising housing costs lengthen commutes, increase congestion, and lower the quality of life for families.

7. Inequality: High and rising housing costs accelerate societal inequality and reduce meritocracy.

8. Political polarization: High and rising housing costs reduce social cohesion and increase political polarization.

9. Climate change: High and rising housing costs reduce our ability to address climate change.

10. Homelessness: High and rising housing costs increase homelessness.

The negative impacts of a lack of affordability are not limited to these ten reasons, and these may not even be the most ten imporant reasons.

These ten, however, are reasons we can back up with substantial academic evidence. Because we brought receipts! Follows is the evidence for each of our ten claims.

#1 High and rising housing costs reduce productivity and economic growth, as workers are priced out of the communities that could best use their skills.

If workers are priced out of the communities and jobs, where they would be the most productive, it is both a loss for the worker (who earns less than they otherwise would), but it is also a net negative for the economy as a whole, as we are not getting the most out of their skills.

Citations:

• Deloitte & CHRA. (2023/2024). “The Impact of Community Housing on Productivity.”

  • Core Finding: Bringing Canada’s non-market housing stock up to the OECD average would boost economic productivity by 5.7% to 9.3%. This would solve a geographical mismatch by allowing essential workers to live near high-value jobs, adding an estimated $67 billion to $136 billion to Canada’s GDP.

• Ganong, P., & Shoag, D. (2017/Updated 2025). “Why Has Regional Income Convergence in the U.S. Declined?” Published via The Becker Friedman Institute/Journal of Urban Economics.

  • Core Finding: In the past, both high-skill and low-skill workers moved to high-income areas. Today, only high-skill workers move, while low-skill workers are actually moving away from productive cities because the net-of-housing income is lower there than in cheaper, less productive areas.

• Hsieh, C. T., & Moretti, E. (2019). “Housing Constraints and Spatial Misallocation.” Published in American Economic Journal: Macroeconomics.

  • Core Finding: Stringent housing supply restrictions in high-productivity US cities (specifically New York, San Francisco, and San Jose) lowered aggregate US GDP growth by 36% between 1964 and 2009.

#2 High and rising housing costs “crowd out” innovation and business investment.

Housing costs reduce productive investments by shifting capital away from startups, research, and technology and toward speculation. When housing prices are skyrocketing, both banks and individual investors shift their capital away from the “real economy” (businesses) and into the “mortgage economy.”

Citations:

• IMF Working Paper (2025): “Housing Booms and Productivity Growth.”

  • Core Finding: This study finds a strong negative correlation between real house price growth and productivity. Rising prices create a “collateral channel” where banks prioritize mortgage lending because it is perceived as safer and more profitable than commercial lending. This starves small businesses and innovative firms of the credit they need to expand.

• Chakraborty, I., Goldstein, I., & MacKinlay, R. (2018/Updated 2024): “Housing Price Booms and Crowding-Out Effects in Bank Lending.”

  • Core Finding: Using US data, the researchers found that banks in areas with housing booms significantly reduced commercial lending. For every 1% increase in local house prices, there was a measurable drop in investment by local non-real estate firms.

• CD Howe Institute (2025): “Canada’s Investment Crisis: Shrinking Capital Undermines Wages.”

  • Core Finding: High housing costs act as a “capital sink.” Because so much of a household’s disposable income and a bank’s capital is tied up in servicing massive mortgages, there is less “seed money” available for the next generation of Canadian entrepreneurs.

#3 High and rising housing costs act as a "startup tax", reducing entrepreneurship.

For young entrepreneurs, the lack of affordable housing means they have neither the savings (seed capital) to start a business nor the collateral (equity) to secure a loan.

Citations:

• Ratté, S. (2026). “Housing Affordability and Canadian SMEs: Turning a Challenge into an Opportunity.” BDC Economics.

  • Core Finding: 50% of Canadian business owners report that high housing costs are negatively impacting their operations. Crucially, the study notes that high rents act as a barrier to entry for young entrepreneurs, who must prioritize high-salary, stable jobs to cover housing rather than taking the risk of starting a firm.

• Schmalz, M. C., Sraer, D. A., & Thesmar, D. (2017/Updated 2025). “Housing Collateral and Entrepreneurship.” Published in the Journal of Finance.

  • Core Finding: This seminal study found that a $100k increase in a homeowner’s equity leads to a 20% increase in the probability of starting a business. Because young people are increasingly locked out of homeownership, they lose access to this informal venture capital (home equity loans). Renters, meanwhile, are shown to have significantly lower startup rates because they lack this “collateral safety net.”

• Boar, C., et al. (2025). “Liquidity Constraints in the U.S. Housing Market.” National Bureau of Economic Research (NBER).

  • Core Finding: 82% of U.S. households are liquidity-constrained due to housing. This lack of liquid cash means that even those with great ideas cannot afford the 0-to-1 phase of a startup. The study suggests that high house prices in superstar cities like San Francisco and New York force young talent to work for established giants rather than start their own competitors, purely to cover the high cost of living.

#4 High and rising housing costs create chronic labour shortages of essential service workers such as teachers and nurses in our cities.

When the income needed to afford even modest housing exceeds the starting salary of a nurse or teacher, it creates a care economy crisis.

Citations:

• Healthy Debate / SE Health. (2025). “Housing the frontline: Solving the health workforce crisis starts with a place to live.”

  • Core Finding: In 2023, the national “housing wage”, the hourly income required to afford a modest two-bedroom rental without exceeding 30% of earnings, was $22.40. However, in cities like Toronto, this “housing wage” is over $33.70. For Licensed Practical Nurses (earning an average of $27.85) and Nurse Aides ($21.85), these cities have become unliveable leading to high vacancy rates and a reliance on agency staff who commute from hours away.

• Keystone Policy Center. (2025). “Teacher Perspectives on Housing Affordability.”

  • Core Finding: In many districts, over 50% of educators spend more than 40% of their income on housing. This lack of affordability creates a trend of career switching, where teachers leave the profession for local service jobs (like car dealerships or restaurants) that pay more relative to the cost of living, simply to avoid the “commute penalty” of living on the urban fringe.

• Bipartisan Policy Center. (2024). “Exploring the Affordable Housing Shortage’s Impact on American Workers.”

  • Core Finding: In high-cost areas like Greater Boston, two-thirds of businesses cited housing costs as the primary factor in their inability to recruit qualified candidates. Low-income and essential workers who spend more than 50% of their income on rent are significantly more likely to experience forced moves, which leads to job attrition and destabilizes the public services (schools and hospitals) they provide. When essential workers are forced to make long commutes, the entire city suffers a productivity drain.

#5 High and rising housing costs reduce family formation and birth rates

The mechanism is simple: if young people cannot afford housing, particularly family-sized housing, they are less likely to get married, have children, and have their first child at a later age and will have fewer children overall.

Citations:

• Couillard, B. K. (2025). “Build, Baby, Build: The Causal Effects of Rising Housing Costs on Fertility.” University of Toronto.

  • Core Finding: Rising rents since 1990 account for 51% of the total decline in the U.S. fertility rate between the 2000s and 2010s. The study found that if rents had remained flat, 13 million more children would have been born.

• Zaleski, J. (2025). “Give People Housing and They Will Have Kids: House Prices and Fertility across U.S. Counties, 2000–2023.” University of Toronto Department of Economics.

  • Core Finding: High house prices are associated with significantly lower fertility, with the link being strongest in dense urban counties where affordability constraints are most acute.

• Dettling, L. J., & Kearney, M. S. (2014/updated 2023). “House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby.” National Bureau of Economic Research (NBER).

  • Core Finding: A $10,000 increase in house prices leads to a 2.4% decrease in fertility rates among non-homeowners. While it slightly increases fertility among existing owners (due to the wealth effect), the net impact on the younger, child-bearing population is sharply negative.

#6 High and rising housing costs lengthen commutes, increase congestion, and lower the quality of life for families.

When families have to “drive until they qualify” to find a home, they often end up trapped in lengthy commutes to and from work. Not only does this reduce their quality of life, but it also increases traffic congestion for everyone.

Citations:

• Blumenberg, E., & Wander, M. (2023). “Housing Affordability and Commute Distance.” Published in Urban Geography.

  • Core Finding: In the Los Angeles metropolitan area, a lack of affordable housing near job centers (a “low jobs-housing fit”) is directly associated with significantly longer commute distances. Low-wage workers in the high-cost L.A.-Orange County area have commute distances that are twice as long as those in more affordable inland areas, as they are “pushed out” of the urban core.

• Leviten-Reid, E., et al. (2025). “Astronomical Cost of Living: Challenging Housing, Transportation, and Commuting Experiences Among Care Workers.” Published in Critical Public Health.

  • Core Finding: Out-of-control housing costs lead to spatial dislocation, forcing essential workers to move farther from urban centers. This study, which highlights the “astronomical” cost of living for essential workers (healthcare, childcare), who are often the most affected by the distance between home and work, found that many Canadians now spend 40% to 50% of their pre-tax income on housing alone, leaving them with no choice but to accept gruelling commutes to find cheaper rent.

• Statistics Canada. (2024/2025). “Housing and Transportation Cost Index (H+T): Research Paper.”

  • Core Finding: In Canada, as families move away from the city center to save on housing costs, their transportation costs often rise to rival or exceed those savings. This report highlights that “location-efficient” housing (dense, central housing) is often cheaper in the long run, but the housing crisis prevents families from accessing it, trapping them in high-cost, high-commute lifestyles.

#7 High and rising housing costs accelerate societal inequality and reduce meritocracy.

In a true meritocracy, success is determined by talent and hard work. However, the housing crisis is replacing merit with “patrimonial capitalism,” in which the primary determinant of your quality of life is the wealth you inherit rather than the income you earn. This inheritance gap creates a two-tier society of housing “haves” and “have-nots.”

• Blanden, J., & Machin, S. (2017/Updated 2024). “Home Ownership and Social Mobility.” Published via the Centre for Economic Performance (LSE) and NBER.

  • Core Finding: Rising house prices have significantly reduced intergenerational mobility. Success is increasingly tied to “postcode luck”, whether your parents owned property in a high-growth area, rather than your own academic or professional achievements.

• Pfeffer, F. T., & Killewald, A. (2019/Revised 2024). “Generations of Advantage. Multigenerational Correlations in Family Wealth.” Published in Social Forces.

  • Core Finding: Housing wealth accounts for the majority of the correlation between parents’ and children’s wealth.

• Statistics Canada. (2025). “Intergenerational Housing Mobility: The Role of Parental Wealth in Housing Market Entry.” Published in Economic and Social Reports.

  • Core Finding: Adults born in the 1990s whose parents were homeowners are twice as likely to own a home as those whose parents were renters. The study concludes that parental property ownership is now the primary predictor of a young person’s ability to enter the housing market.

• Tal, B. (2024/2025). “Gifting for a Down Payment: The New Structural Reality of Canadian Housing.” CIBC Capital Markets Research.

  • Core Finding: The “down payment gift” has transitioned from a rare boost to a structural necessity for market participation. Over 31% of first-time buyers received a financial gift from family to purchase their home. The average gift size has surged to $115,000, creating a “merit gap” that a solo saver cannot reasonably bridge through labour alone.

#8 High and rising housing costs reduce social cohesion and increase political polarization.

Historically, as young people acquired assets like housing, they tended to become more invested in the status quo. Now, high prices are pushing a generation toward political alienation and populist extremes.

• Ansell, B. (2014/Updated 2024). “The Political Economy of Ownership: Housing Market and the Welfare State.” Published in the American Political Science Review.

  • Core Finding: Rising house prices lead to a divergent political reality. Homeowners become more fiscally conservative and protective of property values, while renters, feeling excluded, pivot toward radical redistributive policies. This creates a clash of interests that fuels polarization.

• Adler, D., & Ansell, B. (2020/2024). “Housing and Populism.” Published in West European Politics.

  • Core Finding: In regions where housing prices have stagnated but costs of living remain high, or where young people are entirely priced out of “superstar” cities, there is a measurable surge in support for populist parties (both left and right). The sense of being left behind is primarily rooted in the inability to achieve the basic milestone of homeownership.

• United Nations Economic Commission for Europe (UNECE). (2023/2024). “Social Cohesion - Selected Examples of Threats.”

  • Core Finding: The housing crisis creates a dual-class society, pitting those who got in early against those struggling to survive, leading to social resentment and polarization. Relative deprivation and inequality (driven largely by housing wealth disparities) are categorized as a primary economic threat to social cohesion. This inequality fosters a sense of recognition deficit among those excluded from the housing market, undermining societal bonds.

#9 High and rising housing costs reduce our ability to address climate change.

There is a Maslowian trade-off in public policy: when people are struggling to meet their most basic need for shelter, their bandwidth for long-term global issues like climate change diminishes, creating an Economic Precarity vs. Environmentalism gap. Environmental concern is often a post-materialist value that becomes a luxury for those in housing distress.

• O’Connor, R. E. (2024/2025). “Maslow’s Hierarchy of Needs and the Psychology of Climate Action.” Published in SGS Bulletin.

  • Core Finding: The study demonstrates that commitment to climate action is highly dependent on satisfying “lower-order” motivational needs, such as housing and safety. When middle-class households are “stuck” at the level of physiological survival (paying rent/mortgage), their motivation for “higher-order” environmental behaviours is overridden by immediate economic desires.

• Been, V., et al. (2024). “Assessing the Environmental Arguments for and Against New Housing Development.” Published via Local Housing Solutions.

  • Core Finding: When middle-class residents feel their economic security is threatened, they often adopt Environmental NIMBYism, using environmental regulations to block new density. This creates a paradox in which the housing crisis prompts the public to use green laws to prevent the very density needed to lower carbon footprints.

• Pew Research Center (2022/Updated 2025). “Public’s Top Priority: Strengthening the Nation’s Economy.”

  • The Core Finding: As of late 2025, 79% of Americans cite the cost of housing as a primary concern, worse than a year ago. While 64% of Americans still say protecting the environment is important, only 34% believe climate policies should be pursued if they hurt the economy or increase consumer costs. This suggests a ceiling on climate support that is directly tied to the housing-market temperature.

#10 High and rising housing costs increase homelessness.

The high price of middle-class housing does not just impact the middle class. Housing is a connected ecosystem; when middle-class housing becomes scarce and expensive, it creates downward pressure: middle-income earners outbid lower-income earners for modest housing, who in turn are pushed into precarious living situations or homelessness.

• Colburn, G., & Aldern, C. P. (2022/Updated 2024). Homelessness is a Housing Problem: How Structural Factors Explain U.S. Patterns. University of California Press.

  • Core Finding: The authors demonstrate that high market-rate rents and low vacancy rates are the strongest predictors of homelessness in U.S. cities. When middle-class housing is unaffordable, it increases the rent floor for everyone. For every $100 increase in median rent, there is a corresponding 9% to 15% increase in homelessness.

• Mast, E. (2021/Updated 2025). “The Effect of New Market-Rate Housing on the Low-Income Housing Market.” Published in The Review of Economics and Statistics.

  • Core Finding: For every 100 new market-rate apartments built, between 45 and 70 vacancies are created in lower-income neighbourhoods as people move up the ladder. Conversely, when middle-class housing isn’t built, that upward move never happens, and the bottom of the market faces hyper-competition and eviction.

• Quigley, J. M., & Raphael, S. (2001/Revised 2023). “The Economics of Homelessness: The Evidence from North America.” Published via the Journal of Economic Perspectives.

  • Core Finding: In cities with high median home prices, the safety net of cheap rental housing disappears. This creates a vulnerability threshold where middle-class price spikes directly increase the number of people living on the streets by making the lowest-tier housing essentially extinct.

Winning hearts and minds through evidence

We don’t expect you to care about Canada’s middle-class housing crisis as much as we do, though we also know we’re not alone on this. We do, however, hope that the importance of addressing the crisis becomes better understood.