Canada’s Housing Crisis: Why Secondary Cities Are the Key to Affordability
Canada’s housing affordability crisis has reached a tipping point. Despite significant investments in housing, prices in major cities like Toronto and Vancouver continue to rise, leaving many Canadians struggling to find affordable homes. A 2024 report by the C.D. Howe Institute challenges the conventional wisdom that building more homes in large cities will solve the problem. Instead, it proposes a transformative solution: developing secondary cities into thriving urban centers. This approach could not only ease affordability pressures in major cities but also create a more balanced and sustainable real estate market across the country.
The Supply-Demand Imbalance
For years, policymakers have focused on increasing housing supply in Canada’s largest cities, assuming this would address affordability. However, the data tells a different story: building more homes in Toronto and Vancouver has done little to curb rising prices. Instead, these efforts have fueled demand, attracting more people to these cities and driving prices even higher.
Construction vs. Population Growth: A Misaligned Strategy
In 2024, Toronto and Vancouver accounted for 29.7% of Canada’s housing starts, despite housing just 15.8% of the population. This disproportionate focus on major cities has created a cycle where new housing supply attracts migration from smaller cities and rural areas, increasing demand and keeping prices high.
Price-to-Income Ratios: A Growing Affordability Gap
The price-to-income ratio—a key measure of housing affordability—has risen dramatically in Toronto and Vancouver over the past two decades:
- Toronto: 6.2 in 2000 → 13.4 in 2024
- Vancouver: 5.8 in 2000 → 14.1 in 2024
These figures highlight the growing disparity between wages and housing costs, making homeownership increasingly unattainable for many Canadians.
Migration Impact: Supply Fuels Demand
The C.D. Howe Institute’s research reveals that for every 1% increase in housing stock in Toronto or Vancouver, 0.8% of the potential price relief is offset by interprovincial migration. This means that building more homes in these cities attracts new residents, negating much of the intended affordability benefits.
Global Context: Canada’s Unique Housing Market
Canada’s housing market stands out globally for its rapid price growth. Between 2010 and 2024:
- Toronto and Berlin led global house price growth, with increases of +142% and +138%, respectively.
- Canada’s house prices grew 63% faster than the OECD average, despite 22% higher per-capita housing investment.
These trends underscore the need for a new approach—one that goes beyond simply building more homes in major cities.
The Role of Agglomeration Effects in Housing Affordability
The report highlights the concept of agglomeration effects, which explains why larger cities like Toronto and Vancouver continue to attract people despite their high housing costs. Agglomeration effects occur when cities grow in size and density, leading to increased economic productivity, innovation, and higher wages. However, these benefits come at a cost: rising housing prices and congestion.
Threshold Size of Cities
Cities like Toronto and Vancouver have surpassed their "threshold size," where the benefits of agglomeration are outweighed by the rising costs of living. Beyond this point, housing affordability deteriorates, and quality of life diminishes due to congestion and infrastructure strain. This is why focusing solely on increasing supply in these cities is unlikely to solve the affordability crisis.
The Need for Secondary Cities
To address this imbalance, Canada must develop secondary cities that can offer similar economic benefits without the extreme housing costs seen in larger cities. By creating new hubs of economic activity, Canada can distribute population growth more evenly and reduce the pressure on major metropolitan areas.
The Case for Geographic Rebalancing
The C.D. Howe Institute emphasizes that geographic rebalancing is essential to solving Canada’s housing crisis. This involves creating more attractive secondary cities to distribute population growth more evenly across the country.
Migration Dynamics
Focusing housing supply in major cities like Toronto and Vancouver encourages migration from smaller cities and rural areas, exacerbating affordability issues in these urban centers.
- Key Statistic: In 2024, 17.5% of Canada’s housing starts were in Toronto, and 12.2% were in Vancouver—both exceeding their share of the national population. This imbalance highlights the need to redirect growth to secondary cities.
Economic Spillover Effects
By developing secondary cities, Canada can create new hubs of economic activity, reducing the reliance on Toronto and Vancouver as the primary drivers of growth. This would also help smaller cities benefit from agglomeration effects, making them more competitive and self-sustaining.
Infrastructure and Amenities
To make secondary cities more attractive, governments must invest in infrastructure, public transit, and amenities that improve quality of life. For example, cities like Kitchener-Waterloo have benefited from GO Transit expansions, which have made them more accessible and desirable for both residents and businesses.
The Economic Benefits of Secondary Cities
Developing secondary cities is not just about housing affordability—it’s also about creating a more balanced and resilient economy. The report highlights several key economic benefits of this approach:
GDP Growth and Productivity
Concentrating economic activity in a few large cities can boost GDP, but it also creates vulnerabilities. By diversifying growth across multiple cities, Canada can reduce its reliance on Toronto and Vancouver while fostering innovation and productivity in other regions.
Job Creation
Secondary cities have the potential to create thousands of new jobs in high-value industries like technology, green energy, and advanced manufacturing.
- Example: The Ruhr Valley in Germany has attracted over 1,200 green technology firms, creating a sustainable economic base for the region.
Quality of Life
Smaller cities often offer a better quality of life, with lower housing costs, shorter commutes, and access to nature. These factors can make them attractive to young professionals and families, driving population growth and economic development.
Long-Term Sustainability
By developing secondary cities, Canada can create a more balanced urban landscape that supports sustainable growth. This approach reduces the strain on infrastructure in major cities while ensuring that smaller cities have the resources they need to thrive.
Emerging Markets Watchlist
Several Canadian secondary cities are already showing strong potential for growth, making them attractive for homebuyers, investors, and policymakers:
1. London, ON
- Projected Growth (2025–2030): 18% population, 22% price appreciation.
- Catalysts: $1.2 billion Stellantis EV battery plant, Western University’s medical AI cluster.
2. Guelph, ON
- Current Vacancy Rate: 1.2% (rental), 2.1% (ownership).
- Key Infrastructure: High-speed rail to Toronto (45-minute commute by 2027).
3. Québec City, QC
- Affordability Metric: Price-to-income ratio of 5.2.
- Growth Driver: $600 million AI research park (Mila collaboration).
4. Kelowna, BC
- Demographic Shift: 35% population growth since 2015 (under-40 professionals).
- Niche Development: Wine country tourism + remote work hubs.
A 5-Pillar Framework for Developing Canadian Secondary Cities
To replicate the success of global examples like Raleigh-Durham and the Ruhr Valley, the C.D. Howe Institute proposes a comprehensive framework for developing secondary cities in Canada. This includes targeted subsidies, infrastructure investments, and policy reforms to make smaller cities more competitive and attractive.
Conclusion
Canada’s housing crisis demands a bold, strategic approach. By focusing on secondary cities as engines of growth, we can create more affordable, sustainable, and competitive urban centers. This strategy not only addresses housing affordability but also fosters economic resilience and innovation across the country. For policymakers, homebuyers, and investors, the message is clear: the future of Canada’s housing market lies in fostering the growth of secondary cities. With the right strategies in place, Canada can build a brighter, more affordable future for all.
Source: C.D. Howe Institute’s 2024 report, “Making Housing More Affordable in Canada: The Need for More Large Cities.”
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.
