The housing crisis in Canada has reached a critical juncture. With rising real estate prices and a dwindling number of affordable options, it is crucial that Canada rapidly increases housing stocks in high-demand markets.
However, several key challenges hinder this necessary growth, including pervasive Not In My Backyard (NIMBY) sentiment, which refers to residents opposing proposed developments in their local area.
Existing homeowners often resist growth and urban densification from fears of increases in traffic and noise, decreases in property value and losing familiarity with the surrounding environment. Political and social factors, including the distrust of governments and developers, also play a role.
NIMBYism, often viewed as a clash between local interests and governmental efficiency, stems from the inherent trade-off involved in many development projects. These projects tend to have concentrated costs for local residents while their benefits are spread more diffusely.
As a result, local residents naturally oppose such proposals to protect their immediate surroundings.
NIMBY opposition can lead to lengthy public approval discussions, higher development costs due to delays, and the failure to meet local community housing needs. These concerns are logical and deserve consideration. Homeowners naturally ask, "What's in it for me?"
Promoting equity within the system is widely accepted as a potential solution to mitigate the effects of NIMBYism. We need strategies that offer tangible benefits to existing homeowners to gain their support for increasing housing stocks where it is most needed.
Increasing homeownership
Homeownership in Canada is declining. The 2021 Canadian Housing Survey reported that the growth of renter households outpaced the growth of owner households, pushing down the homeownership rate in Canada from 69 per cent in 2011 to 66.5 per cent in 2021.
The survey found young Canadians between the ages of 30 to 34 years old saw a greater decline, with homeownership rates falling from 59.2 per cent in 2011 to 52.3 per cent in 2021.
Higher interest rates have made it more difficult for home buyers to enter the housing market. This has decreased demand and driven developers to shift focus to purpose-built rentals instead of single-detached housing, which saw a 20 per cent decline in starts in 2023.
Fewer individuals benefit from the real estate price boom, and younger Canadians are entering the housing market much later in life, if at all. This delay in homeownership erodes the sense of belonging and community, and individual wealth, which is integral to societal well-being.
Supporting young Canadians in increasing their ownership in housing, even in fractional forms, is essential to reversing this trend. For many Canadians, homeownership represents the largest asset holding.
Given the growth in housing prices, enabling more people to tap into this booming market can significantly enhance household wealth. Increased ownership in any existing and proposed developments will also decrease NIMBYism.
So, what's the solution?
One promising solution to the housing crisis lies in real estate investment trusts (REITs). REITs are a type of real estate financing vehicle that pools capital from multiple investors in exchange for financial returns. These trusts offer a way to increase the housing supply by focusing on affordability and innovation.
The rise in demand for purpose-driven investment products presents an opportunity for localized REITs, in particular. Localized REITs focus specifically on investing in properties and developments that benefit local communities.
Purpose-driven localized REITs have proven successful in farming, suggesting that a similar approach could also be effective in housing.
By localizing REITs in terms of the location of assets and investors, we can reduce NIMBYism and provide a pathway for homeowners to see benefits from these trusts. This pathway includes building well-maintained homes that are developed and tailored to meet communities' needs, while also ensuring new developments adhere to environmental, social and governance principles.
Such an approach will also make it easier for small investors to understand value propositions based on the underlying local assets and projects of the REITs.
Property developers interested in specific markets can launch these REITs, or municipalities can establish them as B Corporations with clear goals and objectives. A localized approach ensures the benefits of development are directly felt within communities, addressing the "What's in it for me?" concern and overcoming NIMBY opposition.
Supporting REIT growth
Governments can play a pivotal role in supporting the growth of such REITs through tax and other financial incentives. For instance, linking soft loans and incentives for property developments to REIT ownership can encourage investment and participation.
Public-private partnerships can further streamline the process by decreasing application and permit approval timelines. They can also increase neighbourhood amenities like parks and community centres. This kind of incentivization not only increases wealth, but also fosters a sense of belonging, which is crucial for building strong, vibrant communities.
Addressing Canada's housing crisis requires a multi-faceted approach that includes increasing housing stocks, overcoming NIMBYism, and promoting homeownership, particularly among younger Canadians.
By leveraging localized REITs and government incentives, we can create a more inclusive, prosperous and cohesive society. It is time to move beyond short-term objections and focus on long-term solutions that benefit all Canadians through wealth creations.
Tirtha Dhar receives funding from the Social Sciences and Humanities Research Council of Canada and Agriculture and Agri-Food Canada.
Leslie Legge does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
