While housing took a backseat to the Trump trade war in the 2025 federal election, the Liberal platform included some important new plans to boost the development of new affordable housing. High up-front costs for new housing, reduced population growth and uncertainty about the economic prospects in the face of Trump tariffs are all constraining the housing sector.
The new federal plan seeks to expand financing and capital for developers of low- to middle-income housing and would restore a 1970s-era tax incentive for investment in multi-unit rental buildings. In addition to these incentives for the private sector, the most transformative of the proposals is an ambitious plan to re-engage the federal government in building new publicly owned housing through a new Build Canada Homes (BCH) initiative that would “act as a developer to build affordable housing at scale, including on public lands.“
Commentators on the right are already coming out in force rallying against this push for public-led housing development. In fact, BCH is a promising model for developing new housing supply—in particular housing for low to middle income households that has not been built by the private sector. BCH could also be an important and necessary break from a dominant mindset that sees for-profit developers as the primary builders of housing and private landlords as the primary source of rental housing.
Challenges with the housing market
For-profit developers can only deliver new housing supply that makes a sufficient return on investment. That is, they are building to what the market will bear, with the expectation of reaping current market prices for their units. In the case of ownership housing, developer profits are a residual after all costs of building are accounted for, including buying land, paying for labour and materials for construction, financing costs and any local government development charges.
The limitations of for-profit development are now on full display. New construction is grinding to a halt in bigger cities, particularly Toronto and Vancouver. While developers and their allies blame local government development charges and fees, they are a relatively small part of the problem—and are largely aimed at accommodating the physical and social infrastructure associated with new growth.
In the lead-up to the federal election, the Conservatives were pointing fingers at municipal “gatekeepers” and calling for reducing or eliminating municipal development charges. However, in a for-profit development model eliminating these charges won’t necessarily lower prices but will likely lead to increased profits for developers.
Local costs of new housing expansion—such as water, sewer, electricity lines—must be paid for somehow. The Liberals’ election promise to support housing-related infrastructure needs at the municipal level is helpful and builds on the 2024 Canada Housing Infrastructure Fund, which budgeted $6 billion over 10 years to this end.
The biggest costs for new projects are high construction and land costs, the latter of which is boosted by zoning changes permitting higher density development. Financing costs have also increased substantially in the wake of higher interest rates. While short term interest rates have come down, longer term rates remain elevated.
Finally, private developers need to make a profit before any shovels hit the ground, anywhere from 15 to 25 per cent of the final sale price. For developers the most profitable units to build have tended to be under-sized units aimed at investors looking to flip the property before construction is complete or else rent out the finished units. High costs of building can mean rental income that is less than mortgage payments and strata fees.
On the demand side, reduced population growth from immigration in 2025 and 2026 is part of the story. But ultimately, the high cost of ownership housing relative to incomes is a wall that many immigrants and young people cannot climb, at least not without affluent parents to help out with down payments and co-signing mortgages.
The case for non-market housing
To fix this broken market at its source, we need to greatly expand the development and delivery of non-market housing. Even at its best, for-profit development can meet the needs of middle to upper income households, but is unable to deliver the affordable housing needed by low- to middle-income households.
For many years, housing advocates have called for the scaling up of non-profit development of coops and other non-market housing as a key ingredient to achieving the broader goal of affordable housing. CCPA’s Alternative Federal Budget calls for a million new homes in this vein over the next decade to address backlogs and to ensure that new development is aimed at the low to moderate income households that need it.
While the federal 2017 National Housing Strategy (NHS) included an aspirational goal of making housing a human right, in practice, the NHS was largely aimed at subsidizing private development in exchange for some units in each project meeting a fairly low bar for affordability. While new rental supply, even at market rates, eases the rental market as a whole compared to the alternative of doing nothing, it is still contingent on profitable investments for developers.
The NHS failed to deliver a large-scale build out of community or social housing that would make a meaningful difference for less affluent households. This is the type of housing that the federal government supported from the 1960s to the early 1990s, and includes a wide range of co-ops and other non-market housing, often developed in partnership with the provinces and non-profit organizations. Other countries in Europe and Asia also have much higher levels of public and non-market housing compared to Canada, where only four per cent of the housing stock is non-market.
The good news is that public policy can reduce upfront housing costs, leading to lower rents on resulting projects. The trick is to lower the whole stack of building costs—land, construction, financing and development charges—which, in turn, lowers the resulting rents. Federal policy can positively affect each of these cost drivers, including federal contributions towards housing-related infrastructure and use of public land, as noted above.
Deeper affordability could be achieved through cross-subsidies with even lower rents for specific households offset by others paying closer to market rent. Rather than all one-bedrooms renting at the break-even rent, for example, one third of the units could rent at market rate in order to allow another one-third to rent at lower than break-even rent. Many combinations are possible, as long as the total rental income from the building is at break-even levels.
A more well-developed non-market housing sector could also lower costs by having more integrated management and maintenance spanning multiple buildings, or through developing co-op housing where members contribute sweat equity to the management of collective housing.
Building green and at scale
For climate and affordability reasons, BCH should focus on medium-density, multi-unit rental housing, mostly wood-frame construction, built to high energy efficiency standards and using clean technologies like electric heat pumps. Canada has already developed a lot of expertise in green construction but these efforts need to be scaled up.
Greatly reducing or eliminating parking requirements also lowers construction costs—it is expensive digging big holes in the ground for parking spaces—especially when in close proximity to transit. This can be part and parcel of more housing development aimed at building complete communities where walking and biking plus transit can accommodate the vast majority of trips.
In terms of the cost of construction for labour and materials, BCH has big hopes for modular or prefabricated construction technologies transforming the industry, with work shifting to a mix of factory jobs and final assembly on-site. The feds could also help by subsidizing training and supporting the development of supply chains.
Recent studies point to modular construction techniques lowering construction hard costs by about 20 per cent compared to regular construction, while trimming building times up to 50 per cent. While this holds long-run potential, achieving cost-savings requires some economies of scale in production so that bigger panel factories can supply many projects across the country.
Building these en masse would enable economies of scale that would also support stronger development of supply chains within Canada. For example, HVAC equipment is largely imported from the United States but domestic capacity could be ramped up, especially with a large multi-year pipeline of development planned.
Shifting to modular construction based on economies of scale and learning-by-doing should lead to big leaps in productivity. But that also means less labour per home built, so it’s important that this be offset by a firm commitment to build at sufficient scale to maintain the existing workforce.
Use of standardized templates or blueprints, such as the 50 designs recently published by the Canada Mortgage and Housing Corporation, can also help. BCH should aim to build zero-carbon, energy-efficient housing and develop supply chains for imported materials like HVAC systems.
Done properly, there need not be any cost penalty to building housing that is both affordable and green. And building these units at scale would also reduce pressures in the private rental market that are keeping rents high.
BCH costs and benefits
Adding new density creates land value out of thin air. Where possible this value should be used to meet affordable housing objectives in both public and private developments, while ensuring projects remain economically viable so that they actually get built. Public land currently zoned for low density could be rezoned for higher density, meaning all of the land lift is captured for the public good.
Building publicly-owned buildings on public land through BCH would create long-lived assets that pay for themselves over time through the resulting rental income. Until recently, the federal government was considering selling its public land to for-profit developers. This would have been a big mistake.
Keeping developments public also fits into Prime Minister Carney’s plans to separate capital and operating spending in the federal budget, meaning infrastructure and other long-lived capital investments would be separated from ongoing expenses. This is the case in some provinces already, such as British Columbia, where capital projects are listed separately and are amortized over a longer period of time in the operating budget.
The shift helps enable the bigger federal public capital spending that is needed for bold initiatives like energy corridors and port infrastructure as well as public housing through BCH. In any event, the resulting BCH developments would generate rental income over the ensuing decades, eventually paying for themselves.
Let’s hope BCH can be rolled out quickly and at the scale needed. One way to do so would be for the Canada Lands Corporation, the Crown corp that holds land for the federal government, be repurposed into BCH. This would merge with some of the functionality that exists at the main federal operator, the Canada Mortgage and Housing Corporation (CMHC), while maintaining CMHC for its role in mortgage insurance, data collection and related expertise.
While many details remain to be articulated, if it can ramp up fairly quickly, BCH would be well-timed in light of the flagging state of private housing construction. The current macroeconomic context points to a continued slowdown, with interest rates not falling as much as anticipated, certainly nowhere near low enough to spark the type of construction boom Canada has witnessed in the recent past. If anything, higher long-term interest rates are prevailing due to concerns about inflation and overall economic uncertainty.
BCH would ultimately be complementary to other plans aimed at supporting non-profit housing developers through capital grants and low-cost financing. Most importantly, BCH could be a major contribution to the feds living up to the rhetoric of the National Housing Strategy by truly making housing a human right.
