Our Federal Budget Submission: A Plan to Make Housing Attainable Again
Policy ideas to help builders build, families buy, and renters find stable homes.
Each year, the House of Commons Standing Committee on Finance launches pre-budget consultations, allowing Canadians to submit a brief giving their ideas on what should be, and not be, in the upcoming federal budget. Last year, nearly 1,000 organizations and individuals submitted a brief, from 3M Canada to the Yukon Anti-Poverty Coalition. Those briefs inform both the committee’s work and the government’s work in creating the federal budget, with each brief being made publicly available, creating a repository of ideas and research.
MMI, as we do most years, submitted a brief, and, as in most years, we did so on the last possible day, which was last Friday. Although MMI’s mandate is all things young/urban/middle-class, our brief this year, as with last year, focuses entirely on housing, as it is the most pressing issue facing young, urban, middle-class Canadians. Our brief makes ten recommendations: five relating to the need for the government to develop a middle-class housing plan, and five on immediate actions the government can take to make housing more attainable for Canadians.
Below is a copy of our submission; a PDF version is available for download at the bottom of the page.
Recommendations
Recommendation 1: Set an explicit goal to end the middle-class housing crisis by 2035.
Recommendation 2: Develop a set of annual key performance indicators which are aligned with the 2035 goal.
Recommendation 3: Recognize the importance of family-sized homes and the desire for the option of homeownership in future housing plans.
Recommendation 4: Have federal government policies create a greater distinction between new and resale homes.
Recommendation 5: Create policy certainty, particularly around immigration.
Recommendation 6: Extend the enhanced HST rebate on new owner-occupied housing beyond one year and expand it to all provinces.
Recommendation 7: Make development charges exempt from the federal portion of HST through a transparent direct-to-buyer model.
Recommendation 8: Implement the promised MURB program and ensure it is designed to create gentle-density housing.
Recommendation 9: Tie future federal housing and infrastructure funding to provinces and municipalities to the adoption of pro-gentle density housing reforms.
Recommendation 10: Increase the number of gentle-density options in the CMHC Housing Design Catalogue.
Background
The federal government has instituted several measures to help end the middle-class housing crisis, including its recent agreements with the province of Ontario to provide a full HST rebate on homes under $1 million and to cut development charges by up to half. The combined impact of these moves will cut the cost of new homes by 15-20 percent, make new homes competitive with resale homes, increasing housing starts.
More work needs to be done, however. Earlier this year, the CMHC released projections showing that housing starts will fall in each of the next three years. The HST and DC reforms will help reverse that trend, but they are insufficient to meet the government’s 500,000 annual housing-start target.
The need for short-term action and a medium-term plan
The federal government has set an ambitious target of reaching 500,000 annual housing starts by the year 2035. An ambitious target is admirable, but it is no substitute for a goal.
A housing target is a means, it is not an end. It is not a goal. A young family in search of a home does not care how many housing starts there were last year; they care about finding a home they can afford in their community that meets their needs.
Canada’s lack of a middle-class housing goal creates a policy vacuum that the Office of the Federal Housing Advocate has attempted to fill with a recent report advocating a 2060 target to address the middle-class housing crisis. That goal, if adopted, would cement a future of intergenerational inequality for Generations Z, Alpha, and Beta, threatening to tear apart the country’s social and economic fabric.
However, given the nationwide decline in housing starts, the federal government needs to act immediately.
In that spirit, MMI makes the following ten recommendations to help develop a long-term housing plan while also addressing immediate policy needs.
Recommendations relating to the development of a middle-class housing plan
Recommendation 1: Set an explicit goal to end the middle-class housing crisis by 2035.
The federal government needs a housing plan with a clear goal, with a reasonable time frame, and a set of quantifiable objectives, such as “every middle-class, dual-earner couple in their 30s should be able to afford to purchase or rent a new, entry-level home, in any community in the country, suitable for a household of five, by 2035.” This 2035 date is aligned with the end date of the federal government’s commitment to double housing starts within a decade.
The purpose of our suggested goal is not for the federal government to engage in central planning, deciding where homes are built and at what price. Rather, it is to set up the conditions for success and to understand what is working well in the current housing system and what requires improvement. Defining a clear goal clarifies the trade-offs in public policy, ensuring optimal value for money.
And, most importantly, a clear goal should be based on the attainability of new housing. Governments should not be in the business of manipulating resale home prices. Rather, it should be about ensuring that builders can create suitable options that families can afford, that the market can respond to changing conditions, such as unexpected population increases, and that governments fill in the gaps with below-market-rate housing where necessary.
Recommendation 2: Develop a set of annual key performance indicators which are aligned with the 2035 goal.
These performance indicators should not be limited to raw housing start numbers. They should consider the types of homes families need and how affordable they are to purchase or rent, using key performance indicators such as rent-to-income and price-to-income ratios.
These KPIs should not be based on whether a middle-class person or couple can afford their current circumstances, but rather whether they can afford to move to a new city or have another child. Existing metrics, such as core housing need, estimate whether a family, as it exists today, can afford to have its housing needs met in the community where it currently lives. It says nothing about whether they can move, nor does it estimate whether they can afford another child. However, research shows that housing affordability constraints reduce family size, as many families sensibly opt not to have children they cannot afford. Our goals should not just ask whether a family can afford its current circumstances, but also whether it could move to another city or have another child.
The KPIs should recognize that both higher incomes and lower home prices are both pathways to eliminating the affordability crisis. They should also focus on lowering the price of basic new housing, not resale, by reducing the “cost of delivery” of new homes to create new housing options for everyone, from young people to seniors, and let market conditions determine the price of resale homes.
This will require enhanced data collection, as our current data is not fit for purpose. For example, unlike our global counterparts, the CMHC does not record a project in their housing start data until the foundation meets grade. It is a poor real-time indicator of the health of the housing construction sector, as it reflects investment decisions made anywhere from one to three years before a start is recorded. These are solvable problems; the CMHC could track excavations, as the U.S. and Australia do, to provide a better real-time indicator of new construction activity.
Recommendation 3: Recognize the importance of family-sized homes and the desire for the option of homeownership in future housing plans.
When it comes to housing, “a unit is not a unit”. Different families have different needs. The federal government should establish more detailed housing targets, categorizing them by year, geography, housing type, cost, and intended market. Through such targets, governments can better monitor where housing supply is keeping pace with demand and identify areas that may require further policy reforms.
The federal government has several pre-existing tools available to aid in these calculations, including the Housing Assessment Resource Tools (HART) project, the RoCA 3.0 Benchmark, and the Montréal Method. In particular, the chosen methodology should be able to provide targets differentiated by unit type/size, as well as separate targets for ownership and rental housing, which is possible using most standard methods, including RoCA 3.0.
For example, the report Families on the Move uses the RoCA 3.0 method to show that, across Ontario in 2021, the province had a shortage of 500,000 homes, with the majority of the shortage occurring within the ground-oriented ownership housing category.
Because housing needs are highly sensitive to immigration targets and population growth, these housing start targets should be revised immediately whenever the federal government announces new immigration targets or Statistics Canada issues revised population projections.
Recommendation 4: Have federal government policies create a greater distinction between new and resale homes.
Governments across Canada are focused on increasing the supply of new housing, as they have correctly recognized that there is no solution to the housing crisis that does not involve increasing the rate of housing construction. However, housing policies at all three levels of government often fail to distinguish between new and existing homes, which can lead to two major unintended consequences: decreased affordability by stoking demand, and reduced supply by choking off much-needed investment.
The combination of increased affordability and robust supply growth can only come by addressing the cost-of-delivery crisis. These delivery costs include everything from construction to land to various taxes, fees, and charges.
Lowering construction costs increases the viability of home construction, leading to more homes being built. This increase in housing supply puts downward pressure on both new and existing homes as they compete in the marketplace. Similarly, as construction costs rise, so too do the prices of new and existing homes. Take municipal development charges, for example. High and rising development charges make some projects unviable, slowing housing construction, putting upward pressure on new and existing homes.
Governments can address the cost-of-delivery crisis by cutting taxes on housing construction. The linkage between these taxes and construction is not always obvious. The GST on housing, for example, is, at its core, a housing-construction-related tax, as it applies only to newly built homes. This is why enhanced GST New Housing Rebates lower homebuilding costs and improve affordability.
The GST New Housing Rebate contrasts with affordability policies that are agnostic to whether the homes are new or preexisting, such as the federal First-Time Home Buyers’ Tax Credit. Because the tax credit does not target construction costs, it simply increases demand in the system without increasing supply, leading to higher prices, though it does so in a way that advantages first-time homebuyers over other groups.
There is a fundamental difference between lowering the cost of new builds and boosting demand for existing homes. Some governments have recognized this; British Columbia, for example, has a helpful property transfer tax exemption for newly built homes.
Unfortunately, too many federal policies do not distinguish between new and resale homes. One example is the foreign buyer ban, which is intended to protect the existing housing stock from being bought up by investors. However, because the ban does not differentiate between buying existing homes and financing the construction of new homes, it is likely to reduce overall supply, as an important source of pre-construction condo financing has been blocked.
This is a fixable problem. Australia recognized that buying up existing homes and providing financing for new homes are two substantially different activities, with differing impacts on the housing supply. As such, their foreign buyer ban exempts new or near-new purchases by foreign buyers to help increase the amount of capital available to builders. Canada should institute a similar provision to help increase the housing supply.
It is one thing for governments to influence who can buy existing homes; those policies can have merit, but when those policies are applied to new homes, they slow the growth of the housing supply, exactly the opposite of what governments are hoping to achieve.
Recommendation 5: Create policy certainty, particularly around immigration.
There are a number of policies set to expire in the coming years, including the aforementioned foreign buyer ban. Development timelines are long, so policy uncertainty increases project risks, making them more difficult and expensive to finance.
In recent years, population growth from immigration and non-permanent residency has swung wildly, from adding 1.2 million persons in 2023 to a small population decline in 2025. Canada’s current Immigration Levels Plan only includes plans for 2026, 2027, and 2028, with the targets and ranges for 2027 and 2028 listed as “notional”.
Uncertainty about the future trajectory of population growth makes it impossible for builders, developers, and infrastructure builders from municipalities to utilities to effectively plan. The number of new apartment units and water treatment plant expansions needed varies substantially depending on whether our population is growing by 200,000, 500,000, or 800,000 through international migration. Both the public and private sectors are reluctant to take on new projects amid this level of uncertainty, and when they do, they face higher financing costs due to the perceived risk of default.
The federal government can substantially reduce this risk by having Immigration Level Plans extend for ten years rather than three, and by clarifying the conditions under which they may deviate from their notional targets and ranges.
Recommendations relating to immediate policy reforms
Recommendation 6: Extend the enhanced HST rebate on new owner-occupied housing beyond one year and expand it to all provinces.
Governments across Canada are focused on increasing the supply of new housing, as they have correctly recognized that there is no solution to the housing crisis that does not involve increasing the rate of housing construction. However, housing policies at all three levels of government often fail to distinguish between new and existing homes, which can lead to two major unintended consequences: decreased affordability by stoking demand, and reduced supply by choking off much-needed investment.
The recent agreement between the federal government and the province of Ontario to provide a 100% HST waiver for one year on new, owner-occupied housing will make homes more attainable for middle-class families. This policy expires on March 31, 2027; it should be extended for at least one more year and, ideally, made permanent.
In Canada, basic necessities like groceries, prescription drugs, and medical devices are exempt from HST (or, more accurately, “zero-rated”). Which means when a 0.1% goes to buy caviar and foie gras, they are not charged HST on those purchases.
However, housing, which both international and national law recognize as a human right, is subject to HST when an owner-occupant purchases a new home. We can certainly understand placing HST on luxury homes, but forcing a young couple buying a modest home to raise a couple of kids to pay HST on that purchase, while keeping caviar and foie gras exempt from HST, is indefensible.
Recommendation 7: Make development charges exempt from the federal portion of HST through a transparent direct-to-buyer model.
Typically, in Canada, developers are required to pay for development cost charges and related fees when they obtain their building permit. They carry these fees on their construction loans, which increases the amount of capital required for the project and requires them to pay interest during the construction period, adding thousands of dollars to the cost of a home. The developer then incorporates the development charge and interest costs into the home’s price. The buyer of the home then has to pay GST (and, depending on the province, provincial sales taxes) on the embedded development charges and interest costs, creating a tax-on-tax.
These expenses can be avoided if development charges (and related fees) were treated like other new housing purchase-related taxes and paid as a separate line item on a purchase agreement. Charging at closing would save buyers thousands of dollars in interest costs, and charging as a separate line item would allow governments to exempt development charges from GST, eliminating the development charge tax-on-tax. As detailed in the report How a Direct-to-Buyer Development Charge System Can Save Homebuyers $68,000, switching to this model saves new homebuyers tens of thousands of dollars.
A direct-to-buyer development charge system has the following features:
Transparency: Instead of being buried in the final price, development charges are shown as a separate line item on a purchase agreement, making them visible to the homebuyer and ensuring they know exactly how much they are paying in development charges.
Price Inclusion: The price of the home would include the visible development charges so that the buyer can incorporate them into their mortgage. They would not be treated as closing costs, and the development charge rate would be “locked in” at the time of the purchase agreement, protecting the buyer from future increases in development charges.
Tax Exemption: Since development charges are now listed as a separate line item rather than being included in the final price, governments can make this line item tax-exempt. Currently, embedded development charges are subject to GST, PST, and land transfer taxes, resulting in a tax-on-taxes scenario. Eliminating this tax-on-tax saves can save buyers tens of thousands of dollars.
Savings through cutting out the intermediaries: Under the current system, development charges are carried on the construction loan for a project, which racks up thousands of dollars in interest expenses, which is great for lenders, less so for homebuyers. The developer then passes along the development charges, the interest expenses, plus a profit margin on both, to the end homebuyer. By cutting out the intermediaries, homebuyers can achieve substantial savings.
While the federal government cannot directly implement a closing-line-item development charge model, it could require it as a condition of signing on to infrastructure funding programs. They could also encourage provinces to make this change by committing to exempting line-item development charges from the GST.
Recommendation 8: Implement the promised MURB program and ensure it is designed to create gentle-density housing.
During the 2025 election, the federal Liberals campaigned on re-instituting the 1970s-era Multi-Unit Rental Building (MURB) tax provision. Such a provision, if well-designed, can facilitate the private sector in building much-needed missing-middle rental housing and channel investor dollars toward new construction, rather than competing with families for single-family homes. The federal government should launch consultations on the program’s design to ensure that rental projects that begin construction on or after January 1, 2027, are eligible for the tax provision.
The introduction of MURB should be coupled with a time-limited incentive for investors who currently own non-purpose-built rental properties and sell those units to non-investors, if they reinvest the proceeds into a project eligible for the MURB tax provision. This incentive could include a temporary reduction in capital gains taxes on such sales. Such a measure would simultaneously stimulate the development of new rental housing and get existing single-family homes out of investors’ hands and back into family ownership.
Recommendation 9: Tie future federal housing and infrastructure funding to provinces and municipalities to the adoption of pro-gentle density housing reforms.
Through programs such as the Housing Accelerator Fund and the Build Communities Strong Fund, the federal government is providing tens of billions of dollars to provinces and municipalities to create housing-enabling infrastructure. The federal government should ensure it receives the full value of that investment by requiring provinces and municipalities to create the necessary conditions to enable the construction of gentle-density homes. At a minimum, the federal government should require the creation of a form-based, gentle-density zone (R-GZ) for all new greenfield low-rise developments and reform development charges.
Recommendation 10: Increase the number of gentle-density options in the CMHC Housing Design Catalogue.
The CMHC housing design catalogue can help small-scale developers build gentle-density housing in existing neighbourhoods. Unfortunately, the options are limited for Ontario, with just seven available designs, only one of which has four bedrooms. Increasing the diversity of options, from ADUs to stacked townhouses, can lower barriers to developing gentle-density options in existing neighbourhoods.
About the Missing Middle Initiative
The Missing Middle Initiative, housed at the University of Ottawa’s Institute of the Environment, seeks to revive Canada’s urban middle class. We’re devoted to addressing the challenges facing young urban Canadians, who are finding it harder to join the middle class. Through research, a Substack newsletter, thought pieces, videos, and the Missing Middle Podcast, we explore the barriers preventing young Canadians and new families from entering the middle class and the policy solutions needed to help them achieve this.
We are big believers in creating a vision of success, a North Star that can help guide one’s thinking and choices. For Canada’s young, urban middle class, our vision of success is as follows:
Missing Middle Initiative’s North Star: A Canada where every middle-class individual or family, in every city, has a high-quality of life and access to both market-rate rental and market-rate ownership housing options that are affordable, adequate, suitable, resilient, and climate-friendly.
Download a PDF version of MMI’s federal budget submission here:
