Canada is at a critical juncture, grappling with a dual crisis of housing affordability and stagnant productivity. According to Charles St-Arnaud, the chief economist at Servus Credit Union, addressing these intertwined issues will necessitate unprecedented levels of investment, prompting urgent questions about funding sources and potential economic ramifications.
The Housing Affordability Crisis
For over a decade, Canadian house prices have surged beyond the reach of average incomes, largely due to low interest rates, insufficient supply, and robust population growth. This has resulted in a nationwide affordability crisis that requires immediate action. The Canada Mortgage and Housing Corporation (CMHC) has projected that Canada will need approximately 4.8 million new housing units over the next decade to remedy this situation, while the Parliamentary Budget Office offers a more conservative estimate of 3.8 million units simply to prevent further declines in affordability.
Given the cost of constructing new homes—estimated at between £500,000 and £750,000 per unit, encompassing all associated expenses—this translates to a staggering investment of between £2.4 trillion and £3.6 trillion for the required housing stock. Even accounting for the homes that would have been built in the absence of this crisis, the additional financial burden to close the housing gap would still lie between £1.2 trillion and £1.7 trillion. To put this into perspective, residential investment in new construction reached approximately £115 billion in 2025, indicating that a more than twofold increase in investment is essential over the next decade to restore affordability.
Underperformance in Competitiveness
Compounding the housing issue is Canada’s troubling record on competitiveness and productivity, which has seen decades of underinvestment in vital areas such as machinery and intellectual property. This has left Canada’s capital stock per worker at a staggering 40% below the average of the OECD’s top ten most productive nations, a gap that has been widening since the 2015 oil price downturn.
To bridge half of this gap in the next ten years, capital stock per worker would need to grow between 3.2% and 3.5% annually, a significant leap from the average growth rate of just 1.1% since 2000. This level of growth translates to a required investment of £4 trillion to £4.5 trillion over the next decade, or an additional £2.9 trillion to £3.7 trillion beyond existing projections. Even maintaining competitiveness would necessitate an extra £1 trillion to £1.8 trillion in investments. Overall, the total investment needed to address both challenges ranges between £6.4 trillion and £8.1 trillion over the next ten years.
The Funding Dilemma
The core economic principle of “savings equal investment” suggests that for investment to occur, savings must precede it. With corporations and government likely to remain net borrowers, it falls to households and foreign investors to provide the necessary savings. Households have been net borrowers since the late 1990s, exacerbating the challenges faced by businesses seeking to invest. Shifting this trend towards net savings will prove difficult, particularly given the ongoing affordability challenges.
Foreign investors currently stand as the primary source of additional savings for Canadian investments. However, an over-reliance on foreign capital introduces the risk of Canada becoming an “extractive” economy, where profits are siphoned off to foreign entities rather than being reinvested domestically. This could limit the positive impact of these investments on the Canadian economy and potentially grant foreign interests undue influence over national policies.
To attract the monumental capital required, Canada may need to implement higher interest rates or returns, which, paradoxically, could render some essential investments economically unviable. This creates a self-limiting cycle that necessitates prudent policies aimed at fostering domestic savings and investment.
The Path Forward
The road ahead for Canada is fraught with challenges. While achieving improved housing affordability and enhanced competitiveness is within reach, it will require a scale of investment and structural adjustments that have not been seen in recent decades. Failure to rise to this occasion means accepting a future where Canada continues to lag behind its peers on the global stage.
Why it Matters
The implications of Canada’s current trajectory are profound. If the country fails to mobilise the necessary resources to tackle both housing affordability and productivity, it risks not only economic stagnation but also a declining quality of life for its citizens. The challenge is not merely one of numbers; it is a defining moment for Canada’s future, with the potential to either strengthen the economy or deepen the divide between prosperity and hardship. Addressing these issues now could set a precedent for sustainable growth, while inaction may lead to long-lasting repercussions that could reverberate through generations.
