For Prime Minister Justin Trudeau to fulfil his ambitious promise to build nearly four million new homes by 2031, over $750 billion would need to be spent on developing infrastructure.
To return to 2004 levels of housing affordability, over $100,000 would need to be spent per home on infrastructure alone, according to a new report from the Canadian Urban Institute.
Canada’s housing affordability reached an all-time low in April.
The Canada Mortgage and Housing Corporation concluded that Canada would require an additional 3.5 million houses built by 2030 to return to affordability seen in 2004.
At the rate of construction seen in 2022, when the corporation issued its analysis, 2.3 million units would be built between 2021 and 2030. The amount of housing starts would have to increase to 5.8 million. However, between 2021 and 2023, housing starts decreased by over 11%.
“The level of increased annual housing construction — over 500,000 homes annually — is equivalent to building a new city the size of Calgary — each year, for seven years!” said the Canadian Urban Institute’s report.
Prime Minister Justin Trudeau promised his government would build 3.87 million new homes by 2031. To accomplish this, he would have to build 1.096 houses per minute for 2,449 days straight, 3,526,560 minutes straight, without missing a beat.
Various types of infrastructure are required to support an increase in new housing builds. Local streets and utility connections require additional sidewalks, water and wastewater lines, and more. Community neighbourhoods require recreation facilities and other public services. Municipalities as a whole need additional public transit, roadways, and more.
“More than 60% of all public infrastructure — from local roads and transit systems, through recreation and community facilities, to waterworks and fire halls — is the responsibility of Canada’s 3,500 municipal governments. The tax base and other revenue sources of municipalities do not come close to meeting the many demands on local governments, including for community infrastructure,” reads the report.
The report titled, A Jump Start: Providing Infrastructure for More Housing, said that Canada’s infrastructure deficit is hard to calculate but likely runs into the hundreds of billions of dollars.
“While municipal approvals for new housing and greater construction capacity are both important, without enabling civic infrastructure, housing cannot be built,” reads the report.
The Federation of Canadian Municipalities estimates that infrastructure would cost $107,000 per new home.
“If applied to a housing-production target of 5.8 million homes over the next seven years, that yields a huge projected infrastructure cost. It certainly exceeds anything that could be produced using the conventional public funding and financing tools available to municipalities,” reads the report.
If building 5.8 million homes resulted in an infrastructure cost of $107,000 per home, it would cost $620.6 billion in infrastructure.
However, the report analyzed other research from various organizations that estimated infrastructure would cost $130,000 per home, bringing the cost of infrastructure required to support building 5.8 million homes to $754 billion.
The report stated that the cost of infrastructure far exceeds what municipalities can support. It added that the majority of Canada’s municipalities are small, face infrastructure requirements, and have limited financial resources to tackle their needs.
To address the four primary risks facing municipalities, the Canadian Urban Institute offered four practical solutions.
The first solution mirrors buying a home. The report suggested that instead of pre-paying for infrastructure with capital upfront, municipalities should amortize the cost similar to a mortgage and pay it over its lifetime.
Secondly, the report suggested that a beneficiary-pay structure be adopted where developers and future users of infrastructure pay for infrastructure during its full life-cycle.
Various financial models were suggested to reduce municipalities’ financial risk, some of which include private capital.
Lastly, the report suggested more focus on small municipalities. 182 of Ontario’s 414 municipalities (44%) have populations of less than 10,000 people. The report suggested designing simple and easily accessible financing agreements for municipalities.
The report concluded that the infrastructure costs necessary for new housing cannot be met without a significant infusion of new revenues and private capital. The proposed measures aim to bridge this gap and accelerate housing-enabling infrastructure delivery.
Meeting the new infrastructure demands will “require a considerable long-term investment by both the public sector and the private sector. It is a daunting but necessary venture and like some Canadian winter journeys, it may require a ‘jump start,’” concluded the report.
