Having More Big Cities, Rather Than Bigger Cities, Could Fix Canada's Housing Crisis

A recent study by the C.D. Howe Institute suggests that Canada's housing affordability issues could be better addressed by developing more mid-sized cities, rather than concentrating growth in major urban centers like Toronto and Vancouver. The report argues that focusing solely on expanding these "superstar" cities may inadvertently encourage people from smaller towns to relocate to these metropolises, thereby maintaining or even increasing already high housing prices.

The study emphasizes that drawing individuals away from smaller communities is counterproductive to revitalizing these areas and achieving affordable housing nationwide. By enhancing the appeal of "secondary" cities, Canada can leverage the benefits of urbanization—such as economic opportunities and cultural amenities—while providing housing at more reasonable costs.

Between 2009 and 2019, cities like Toronto and Vancouver experienced significant increases in home prices without corresponding income growth, exacerbating affordability challenges. For instance, Toronto saw an 81.7% gap growth rate between home prices and GDP during this period. In contrast, Calgary's GDP growth outpaced its home prices, resulting in a -11.9% gap growth rate, indicating better affordability.

Internationally, Toronto ranks second only to Berlin in house price growth between 2010 and 2024, surpassing cities like Sydney, London, and New York. Nationally, Canada leads developed countries in home price growth and household debt-to-GDP ratio, while lagging in the ratio of disposable income to home prices, highlighting the severity of the affordability crisis.

The traditional approach to this crisis has been to build more homes in the largest cities. However, the study points out that despite substantial housing developments in cities like Toronto and Vancouver—where housing starts in 2024 were 17.5% and 12.2% respectively, exceeding their share of Canada's population—affordability has not improved.

The report concludes that to effectively tackle housing affordability, Canada should focus on making smaller cities more attractive. This strategy would allow these cities to benefit from urban advantages and offer lower-cost housing, providing a more balanced and sustainable solution to the nation's housing challenges.