Canada’s economy has developed a serious housing habit. Real estate isn’t just where Canadians live or invest their savings, it’s driving our entire economy. Home prices have soared far faster than incomes, and new construction can’t keep up with population growth.

At the same time, productivity and innovation are languishing. This is no coincidence. When so much of our collective wealth and effort is tied up in housing, it leaves less fuel for the industries and ideas that drive real prosperity.

The culprit isn’t greedy realtors or developers; this is a direct result of government policies. Excessive development fees, slow approvals, and restrictive zoning have squeezed housing supply.

The result is an affordability crisis and an economy that’s too reliant on real estate. It is starving our other industries of the capital and talent they need to grow.

An Economy Built on Real Estate

In recent years, real estate has overtaken every other sector to become Canada’s largest industry by GDP.

As of last year, the real estate and rental sector generated roughly $303 billion in output. That’s far larger than traditional powerhouses like manufacturing ($203 billion) and oil and gas ($118 billion). When you add related services like mortgages and construction, real estate now makes up about 28% of Canada’s economy.

In plain terms, 1 out of every 4 dollars of GDP in Canada now comes from housing, property transactions, and financing. This is far above historical norms and higher than in many peer countries. 

It shows up in our employment numbers too. In 2023, Canada’s construction industry employed about 1.58 million workers. That's nearly 8% of all jobs – and that’s not counting real estate agents, mortgage brokers, property managers, and other related roles.

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But what happens when a country starts staking its growth on building and selling houses to itself?

It distorts the economy. It boosts short-term GDP but hurts industries that create long-term growth.

Canada spends double the share of its GDP on housing compared to the U.S. Housing was, by far, the largest destination for Canadian investment dollars in the 2010s.

But our investment in productivity-boosting areas like machinery, equipment, and technology is lagging. We spend only around 5% of GDP on non-housing business investment, roughly half the rate of the U.S.

In short, we’re plowing money into houses instead of factories, R&D labs, or startups.

The Opportunity Cost of an Overheated Housing Market

Every dollar spent on housing is a dollar not going toward building a business, funding innovation, or improving industrial productivity. When so much of our national wealth is tied up in home prices, it weakens our ability to generate wealth in other ways.

Housing comes with a big opportunity cost - and Canada is feeling it.

Investor Martin Pelletier explains it: “The problem with real estate is that it’s a non-producing asset… once it goes into real estate, that money’s gone.”

You can’t extract more economic value from a house just by paying more for it. There’s no magical productivity boost when a bungalow in Toronto jumps from $500,000 to $1 million in five years. It’s the same house, just with twice the debt attached.

In contrast, a dollar invested in a new software company or high-tech machinery can generate income, exports, and jobs. That’s the difference between productive and unproductive investment.

But in recent years, we have spent as much on home renovations and transaction costs as we've invested in machinery, equipment, and IP combined. That’s a staggering fact.

As a result of our flagging business investment, our productivity growth now trails other countries. Our ability to compete globally is falling behind. It’s hard for Canadian firms to compete globally when they’re underinvesting in technology and efficiency.

Another hidden cost of high housing prices is talent loss. If young people can’t afford to live in thriving cities, they’ll take their skills elsewhere - or never develop them at all.

Why take the risk of starting a business if it means you’ll never afford a home? Why move to Toronto or Vancouver for a great job if you can’t even find a reasonably priced rental?

Royal Bank CEO Dave McKay warned that if we don’t solve affordability, “we don’t attract the talent, we don’t retain the next generation.”

An economy too focused on real estate can end up pushing out the very workers and innovators who fuel long-term growth. Skilled workers are already leaving Canada for better opportunities in the U.S.

That’s a major threat to the Canadian economy. We risk losing not only tech professionals but also essential workers like doctors and engineers. Canada boasts one of the world’s most educated populations - but if housing remains unaffordable, we may lose that advantage too.

Canada’s housing affordability has deteriorated more than almost any other advanced economy in recent years. Since 2015, Canadian home prices have climbed far faster than incomes (house price-to-income ratio +37%), outpacing most of our OECD peers​. In contrast, countries like Germany (+7%) and Japan (+12%) saw much smaller increases, and some nations even improved affordability​. visualcapitalist.com

Policy Failures: Fees, Red Tape, and Restrictive Zoning

So how did we get here? It’s easy to point fingers at speculators or developers. But industry players are ultimately responding to the incentives and constraints set by policy.

The real problem is government policy and red tape. It has choked the supply of housing, driving up prices in the process. For years, municipalities have layered on development fees, slow approvals, and restrictive zoning. These barriers act like a heavy tax on new housing, slowing construction and raising costs.

Start with development charges – the fees cities charge builders to fund new infrastructure like roads and sewers. In principle, “growth pays for growth” sounds reasonable. In practice, development charges in many Canadian cities have gone through the roof, adding a huge premium to the cost of each new home.

Consider Ontario: between 2004 and 2024, an analysis of 27 municipalities found every single one increased development fees far above the inflation rate (which was 54% over that period). Some cities hiked these charges by as much as 800%.

Today, government-imposed charges (development fees, levies, taxes) make up about 31% of the price of a new home in Ontario. In the Greater Toronto Area, development charges alone can add up to $184,000 to the cost of an average new house​.

Cities pass more of the cost of infrastructure onto homebuyers. That raises housing costs, so fewer homes get built. That, in turn, reduces tax revenue, making cities even more reliant on high fees.

Some cities have taken a different approach. A comparable new home in Calgary faces about $22,000 in development fees, a fraction of Toronto’s. It’s no surprise that housing is more affordable where the extra costs are lower.

Then there are restrictive zoning rules and land-use prohibitions. For decades, Canada’s fastest-growing cities have limited most residential land to single-family homes only.

In Toronto, most of the city’s residential land was, until recently, off-limits to anything but detached houses. This has been called the city’s “yellowbelt” - stable, low-density neighborhoods where growth is frozen.

The story is similar across the country. In Vancouver, around 70%–80% of residential land was zoned for single-family homes until recent reforms. Many suburbs still fiercely resist denser projects.

The goal was to protect neighborhood character. The result has been a severe shortage of housing where demand is highest. New development has been pushed to far-flung suburbs or squeezed into a few high-density zones - neither of which has kept up with demand.

As RSM Canada put it, “lengthy approval times and restrictive zoning laws… put a hammerlock on development.” Simply put, we’ve designed our cities in a way that makes it incredibly hard to add housing.

Even when a developer manages to buy land and propose a project, they face painfully slow approval timelines. Rezoning, environmental reviews, and building permits create a bureaucratic maze.

The average residential project in Ontario takes about 25.5 months (775 days) to get permits and approvals. A global “ease of building” index ranked Canada 34th out of 35 OECD countries for construction permitting speed. Only Slovakia ranked lower.

Each delay increases costs. Architects and engineers must stay on retainer. Land financing builds up interest. Construction crews sit idle. One study found that approval delays can add 8%–14% to total construction costs per year. These costs, of course, get passed to the homebuyer or renter in the end. 

It’s not that governments have been entirely oblivious to these problems. We’re starting to see some policy shifts – but many are half-measures relative to the scale of the crisis.

Ontario’s latest housing plan aims to cut red tape and encourage density. The province will “streamline planning regulations and approvals processes”. It will also force cities to set minimum housing targets.

The federal government launched a $4-billion Housing Accelerator Fund. This new fund will reward cities that speed up approvals and update zoning. Ottawa also removed the 5% GST on new rental construction to encourage more building.

These are positive steps. But they tinker at the edges of a broken system. As long as cities rely on high development fees and restrictive zoning, new housing will remain scarce and expensive.

Why More Affordable Housing Helps Everyone – Even the Industry

There’s a common belief that lower home prices would hurt the real estate industry and the economy. After all, if houses cost less, wouldn’t builders, agents, and lenders make less money?

In the short term, a speculator flipping a house for profit might want prices to keep rising. But the health of the housing sector, and the economy, depends on volume and sustainability, not endlessly rising prices.

A market where homes are affordable relative to incomes will see more activity. More families will buy homes. More projects will get built. That means more transactions, more jobs, and more economic growth.

We’re already seeing the downside of high prices. The rapid price rise of the past decade, combined with higher interest rates, has slammed the brakes on housing development.

When only a small fraction of families can afford to buy, sales dry up. When projects no longer make sense financially because of fees and land costs, construction slows.

In the Greater Toronto Area, new condo sales fell 81% in 2023 compared to the 10-year average. Developers have shelved or postponed many projects because they fear units won’t sell at prices that cover inflated costs.

Construction activity is dropping fast. The number of cranes in Toronto has fallen by over 20% this year. Each crane represents jobs for dozens of tradespeople.

Realtors, who only earn commissions when deals close, are seeing slower business. Landlords are earning lower rental yields, with many now in negative cash flow.

Retailers and furniture companies feel the impact too. If people aren’t moving into new homes, they’re not buying appliances, furniture, or renovation materials. The entire ecosystem around housing thrives on turnover and volume growth, not high prices.

For years, Canada’s real estate sector grew on rising prices. But if homes become unaffordable, the industry’s customer base dries up. A stable, accessible housing market would bring more consistent growth. The real estate sector might lose the sugar high of fast price increases. But it would gain a stronger foundation for long-term health.

The sooner policymakers and industry leaders recognize this, the sooner we can break out of the high-price, low-volume trap.

The Path Forward and Rebalancing the Economy

Rebalancing Canada’s housing market won’t be easy. But it’s both necessary and achievable. The good news is that we know what needs to be done. Now we need the political will to make it happen. Here’s how we can start turning things around:

1) Build More Homes, Faster.

Canada needs a construction surge similar to a post-war rebuilding effort. CMHC estimates that we need to build millions of additional housing units by 2030 to restore affordability.

To hit this target, we must speed up every step of the development process. Municipal approvals should happen in months, not years.

Provinces can impose "fast track" rules. For example, if a city fails to approve a project that meets all requirements within 12 months, it could automatically be allowed to proceed.

We should embrace technology to speed up permitting and reduce delays. Endless consultations that give a small minority the power to block housing that benefits everyone must stop. Time is money, and we have no time (or money) to waste on bureaucratic delays.

2) Overhaul Zoning and Unlock Land.

We need to rethink how we use urban land. Single-family-only zoning needs to end.

Cities like Minneapolis and countries like New Zealand have already eliminated exclusionary zoning. They now allow duplexes and triplexes in previously single-family zones and the sky hasn’t fallen.

Canadian cities and provinces should follow their lead by upzoning in areas close to transit and jobs. This doesn’t mean 50-storey towers on every residential street. It means gentle density (townhouses, low-rise apartments, and multiplexes) woven into existing neighborhoods.

We should also repurpose underused land. Obsolete commercial sites, old industrial lots, and excess parking lots can be converted into housing.

The federal government, as a major landowner, can help too. Surplus federal lands in urban areas could be released for affordable housing development.

3) Rethink Development Costs and Incentives.

We need to find better ways to fund infrastructure without penalizing homebuyers.

If we keep loading the cost of every park, road, and pipe onto new homes, housing will never be affordable. Infrastructure costs should be spread across the broader tax base. Everyone benefits from growth, not just the people buying new homes.

4) Boost Productivity in Construction.

Building more housing isn’t just about policy and money; it’s also about capacity. Canada faces a shortage of skilled trades.

We can fix this by expanding training for construction workers. We should also embrace modern building techniques.

Modular and prefab construction methods can cut costs and speed up timelines if scaled up. Other countries have already shown that this works, Canada needs to catch up.

5) Keep Speculative Demand in Check.

Going forward, we should be cautious about policies that artificially stimulate housing demand. Instead, focus demand-side policies on curbing the speculative purchases that distort markets.

Homeownership should be about securing a place to live, not about flipping for a quick profit.

6) Embrace Innovation and Entrepreneurship.

Canada’s future depends on fostering a culture that values efficiency, innovation, and smart risk-taking.

The U.S. leads the world in risk capital and startup funding. Canada lags behind in both investment and tech adoption.

Too often, businesses and consumers stick to outdated methods because they’re familiar, even when better options exist. This hesitation slows growth and makes us less competitive.

Governments should incentivize private investment in innovation and remove barriers for startups. Industries need to modernize, not cling to old habits.

On that note, if you're a property manager, realtor, or landlord, check out my startup Tuze (www.tuze.ca). It’s designed to boost your productivity and cut lost revenue with smarter technology.

A More Stable Future

Ultimately, the goal of these reforms is to realign our economy. We need to move from one that is overly reliant on inflating home values to one built on real productivity and opportunity.

If we cut excessive fees and red tape, housing could become… boring again. That’s a good thing. It could go back to being the foundation for Canadians, the roof over our heads that enables us to thrive in other endeavors.

A stable housing market would let policymakers and Canadians focus on other critical areas. Areas such as building talent, encouraging entrepreneurship, and investing in high-growth industries. Those are the things that create wealth rather than just shuffle it around

So, Canada stands at a crossroads.

Down one path is the status quo: unaffordable housing, weak growth, and rising frustration.

The other path is a rebalanced future. More homes. Lower prices. A stronger, more diverse economy.

Getting there will take courage. It means unwinding years of bad policy and pushing back against entrenched interests. But the payoff will be huge.

Imagine a Canada where young families can afford a home without winning the lottery. Where businesses can attract top talent because housing isn’t a barrier. Where banks fund new ventures instead of just monster mortgages.

We have the tools and the knowledge to make this happen. Now we need the will. Canada’s housing policies have long been part of the problem — they can, and must, become part of the solution.

By cutting fees, speeding up approvals, and embracing growth, we can bring housing costs down and unleash the true potential of our economy. In doing so, we won’t be diminishing the real estate sector – we’ll be saving it from itself and securing a better future for young Canadians.