Key Considerations for Investors and Developers
Canada’s housing crisis remains top of mind for Canadians as we settle into the third consecutive Liberal government under the newfound leadership of Mark Carney. Across the political spectrum, there is consensus that affordability has reached a breaking point despite differing solutions to mend the crisis.
This begs the question: How can federal policy support long-term housing stability without cannibalizing the private sector’s role in development?
Chart 1: Canada’s Housing Affordability Crisis*
* Average house price-to-average gross household income ratio, with an adjustment factor to account for interest rates (5-year fixed discounted mortgage rate) and monthly homeowner expenses (estimations of property taxes, utilities, maintenance and insurance).
Source: CMHC1
Under his Building Canada Strong plan, Carney has set a bold target to double the pace of new home construction in Canada to 500,000 new homes annually.2 The plan proposes the creation of a new federal development agency, facilitating the permit process, providing concessionary financing for developers, and offering tax relief for first-time buyers. Yet questions remain in the private sector about the feasibility and necessity of such policies. The Liberal Party’s 2017 National Housing Strategy delivered just 10% of the promised 131,000 affordable rental units.3 This shortfall has led many in the private sector to conclude that the government is more effective as a capital investor rather than a developer. As summarized by Sherry Larjani, the President and Founder of Toronto’s Spotlight Development, “Housing should be left to the experts we have now.”4
“The success or failure of the Liberal plan depends on all components working together: policy, capital (both public and private), resources (production), and sentiment (the market). If the government can encourage capital investment through policy and kick-start production through incentives, perhaps the market will follow. In this era of uncertainty, there are a lot of ifs.“
Optimism from the private sector remains for one of Carney’s more promising pledges, which includes revisiting the Multi-Unit Residential Building (MURB) Program. MURB was a federal fiscal policy initiative credited with driving Canada’s largest apartment construction boom between 1974 and 1984 by providing tax breaks and incentives. The program spurred widespread private investment in purpose-built rental housing, resulting in the creation of thousands of affordable units that still form part of Canada’s most affordable rental stock today.4
Developers have also urged the Liberal Party to adopt elements of Conservative Party leader Pierre Poilievre’s platform, particularly his proposal to replicate Section 1031 of the U.S. Tax Code.4 This provision allows real estate investors to defer capital gains taxes on the sale of a property by reinvesting the proceeds into another qualifying property.5 The intent is to keep capital circulating within the market, encouraging new acquisitions by offering tax-deferral incentives.
In the U.S., this model of encouraging private-sector participation has proven effective in increasing housing supply. Despite its vastly larger population, the U.S. housing shortage is twelve times smaller on a per capita basis than Canada’s. This success has primarily stemmed from two federal tools that attract massive private investment: tax-free municipal bonds and a low-income housing tax credit for affordable housing. In 2024 alone, these incentives cost the U.S. Treasury $59.1 billion, 1.2% of all Federal Revenue, but leveraged nearly $500 billion in private capital for housing development.3
By contrast, Canada has yet to implement comparable incentives at scale. Many in the development industry believe that without new measures to unlock private capital, Ottawa’s housing ambitions will continue to fall short. While Carney’s proposed $36 billion spending commitment, including support for prefabricated housing, is a positive step, RBC estimates that addressing Canada’s housing shortfall will require $2 trillion in investment over the next five years.3 To narrow this gap, the pool of investable capital must grow substantially. Most agree that sustained, large-scale private investment, spurred by targeted federal tax policies, will be critical to expanding housing supply to improve affordability for Canadians.
Key Insights
- Despite Carney’s $36 billion pledge, RBC estimates Canada needs $2 trillion over five years to close the housing gap, highlighting a major funding shortfall.
- The U.S. housing shortage is twelve times smaller on a per capita basis than Canada’s – a success which has been credited to federal tools that attract massive private investment.
- Large-scale private investment, spurred by targeted federal tax policies, will be critical to expanding housing development and improving affordability for Canadians.
Interested in learning more about the impact of government policy on Canada’s CRE market? Check out our Q1 2025 Market Minutes episode!
Market Minutes Q1 2025: How Carney’s Development Plans May Impact Canadian Commercial Real Estate
From the need for affordable housing to Mark Carney’s development ambitions, this conversation sheds light on some of the most pressing issues shaping the market today.
Let’s continue the conversation
Footnotes
- CMHC. (2025). Canada’s housing supply shortages: moving to a new framework. Retrieved June 19, 2025. ↩︎
- Liberal. (2025). Building Canada Strong. Retrieved June 12, 2025. ↩︎
- RBC. (2025). A Housing Trifecta: How governments can tap private capital to improve supply, sustainability and affordability. Retrieved June 19, 2025. ↩︎
- Storeys. (2025). Canadian Developers Respond to Carney’s Win, Liberal Policies. Retrieved June 12, 2025. ↩︎
- Zeifmans. (2022). Exploring Section 1031 Rollover in US Real Estate for Canadians. Retrieved June 19, 2025. ↩︎
