Canada's housing affordability crisis is complex, but a new report by the Canadian Urban Institute (CUI) sheds light on a crucial, and often overlooked, factor: the high cost of infrastructure needed to support new housing construction. The report, titled "Providing Infrastructure for More Housing" (June 2024), estimates that every new home built in Canada requires an average investment of $100,000 in essential infrastructure.

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This significant price tag encompasses a wide range of necessities, beyond just the expected water and sewer lines. New housing developments necessitate upgrades and expansions to existing infrastructure, including:

• Water and Wastewater Systems: Treatment plants, distribution networks, and storm drainage systems all require significant investment to handle the increased demand from new residents.
• Transportation Infrastructure: Roads, bridges, and public transit systems need expansion and improvement to accommodate additional traffic and residents.
• Schools and Community Facilities: As new neighborhoods take shape, the demand for schools, fire halls, libraries, and recreational facilities grows, requiring construction or upgrades to existing structures.

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Addressing the Housing Shortage

Canada is facing a significant housing shortage. To restore affordability to 2004 levels, Canada Mortgage and Housing Corporation (CMHC) estimates a need for an additional 3.5 million housing units by 2030. This translates to building over 500,000 homes annually for the next seven years – a pace that dwarfs historical averages.

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While expediting the approval process for new housing developments is crucial, the CUI report emphasizes that infrastructure investment must keep pace. Without a significant increase in funding for infrastructure, the ambitious goal of increased housing supply may remain out of reach.

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Funding the Infrastructure Gap

The CUI report acknowledges the financial constraints faced by municipalities, which are primarily responsible for public infrastructure in Canada. Municipalities often hesitate to take on additional debt or raise property taxes to finance infrastructure projects due to political pressures.

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The report proposes alternative financing models to bridge the gap:

• Secured Payments Over Asset Lifetime: Shifting from requiring upfront pre-payment for infrastructure to a system of secured payments spread over the lifespan of the asset would ease the financial burden on developers and municipalities.
• Land Value Capture: This approach captures a portion of the increase in land value generated by new development to help finance the required infrastructure.
• Private Sector Investment: The report encourages exploring partnerships with private investors and leveraging tools like utility and development corporations to share the financial risk and expertise.

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Collaboration is Key

The CUI report underscores the need for collaboration between all levels of government, the private sector, and municipalities. Innovative financing models and a shared commitment to infrastructure investment are essential to unlock the full potential of Canada's housing construction efforts.

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Beyond Big Cities

The report acknowledges the specific challenges faced by smaller and rural municipalities. They may lack the financial resources and expertise to secure funding for infrastructure projects needed to support new housing development. Tailored solutions and support from federal and provincial governments will be crucial to ensure a nationwide approach to tackling the housing affordability crisis.

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Conclusion

Canada's housing affordability crisis requires a multi-pronged approach. The CUI report highlights the often-overlooked significance of infrastructure investment in enabling new housing development. By adopting innovative financing models, fostering collaboration, and addressing the specific needs of smaller municipalities, Canada can build the infrastructure needed for a more affordable and sustainable housing future.

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Source: Canadian Urban Institute