For millions of Canadians, the dream of affordable housing feels increasingly out of reach. The experience of sticker shock when looking at real estate listings or signing a new lease has become a national phenomenon, creating widespread financial stress and anxiety. The central question is simple but profound: Why has housing in Canada become so expensive?

While the public debate often defaults to blaming a single cause, the reality is that there is no lone culprit. Canada’s housing crisis is the result of a “perfect storm” of interconnected factors that have been brewing for decades. This is the full story on the complex roots of the crisis.

Part 1: The Foundational Imbalance – Not Enough Homes

The most fundamental cause of the crisis is a classic case of supply and demand. For years, Canada has failed to build enough homes for its growing population. According to the Canada Mortgage and Housing Corporation (CMHC), the country has a severe housing supply deficit. Their analysis suggests Canada needs to build millions of additional homes by 2030 to restore any semblance of affordability. This is not a new problem, but a chronic, long-term failure of planning.

Part 2: The Demand-Side Accelerants: A “Perfect Storm”

While supply was constrained, a number of powerful forces supercharged demand for housing, pouring fuel on the fire.

The Era of “Cheap Money”

For most of the 2010s and through the pandemic, Canadians had access to historically low interest rates. As the Bank of Canada kept its policy rate near zero, it became cheaper than ever to borrow money. This dramatically increased the size of mortgages people could afford, encouraging more buyers to enter the market and allowing them to bid prices up to unprecedented levels.

Rapid Population Growth

In recent years, Canada has experienced a period of record population growth, driven by both permanent immigration and a surge in temporary residents. An analysis by Desjardins highlighted that this rapid growth created unprecedented demand for housing that the construction industry simply could not meet, leading to a significant shortfall of available units.

The Financialization of Housing

Housing in Canada is increasingly treated not just as shelter, but as a prime investment asset. The market has attracted significant capital from investors who purchase properties not to live in, but as a way to generate returns. This “financialization” adds another layer of demand, pitting regular homebuyers against professional investors and further driving up costs, a trend analyzed by the Canadian Centre for Policy Alternatives.

Part 3: The Supply-Side Handcuffs: Why We Can’t Build Fast Enough

Even if the will to build more homes existed, several structural barriers have made it difficult for supply to respond to demand.

Restrictive Zoning and “Red Tape”

In most Canadian cities, the majority of residential land is restricted by “exclusionary zoning” bylaws that only permit single-detached homes. This makes it illegal to build more affordable, medium-density housing like duplexes or small apartment buildings. As detailed by think tanks like the Fraser Institute, these restrictive land-use regulations and long, complicated approval processes act as a major bottleneck on new construction.

The Construction Labour Shortage

Canada is facing a severe and growing labour shortage in the skilled trades. Even with zoning reforms, there are simply not enough carpenters, electricians, plumbers, and other tradespeople to build homes at the required pace. It’s estimated that the industry needs hundreds of thousands of new workers in the coming decade to keep up with demand and replace a wave of retiring workers, a challenge highlighted by a report on the construction labour force.

Conclusion: A Crisis Decades in the Making

There is no single cause of Canada’s housing crisis. It is the predictable result of a “perfect storm”: surging demand fueled by cheap money and rapid population growth, colliding with a chronically constrained supply handcuffed by restrictive policies and industry limitations. This crisis was decades in the making and, as we explored in our previous article, it will require a comprehensive “all-of-the-above” strategy to solve.