What is the Missing Middle in Canada’s Housing Market?

Will the Canadian real estate market ever return to where it was before the coronavirus pandemic? The consensus is that there is no going back, meaning that prices will likely remain higher than before the public health crisis.

Despite the correction over the last 15 months due to the Bank of Canada’s monetary tightening campaign, sales activity is being revitalized and price growth is back, which could leave many hopeful homebuyers sitting on the sidelines of the market.

For example, national home sales surged more than 11 per cent in April, according to the Canadian Real Estate Association (CREA)‘s latest data. The MLS Home Price Index (HPI) rose 1.6 per cent month-over-month, while the average national home price has climbed more than $100,000 since January to $716,000.

Before the pandemic, the conventional wisdom was that if you wanted to achieve the dream of home ownership, families would have to leave the cities or relocate to another province where prices were depressed, be it the Prairies or the Maritimes. Home ownership in major urban centres such as Toronto or Vancouver, could prove to be challenging for the typical individual or family.

This has forced a chorus of industry experts and organizations to plug the gap in the missing middle of Canada’s housing industry.

But what is the “missing middle,” exactly?

What is the Missing Middle in Canada’s Housing Market?

In Canada, the missing middle consists of insufficient availability of medium-density housing supply somewhere between single-family residential properties and high-rise condominiums. Nationwide, advocates have championed the need for this new type of housing to facilitate affordability and close the gap between supply and demand.

Here is a brief list of housing options that would support the evolving needs of diverse communities – young professionals, families, seniors, and low- and middle-income households – across the country:

• Townhomes
• Duplexes and triplexes
• Courtyard housing
• Low- and medium-rise apartments

“Missing middle housing is called such because it has gone ‘missing’ during the past 60 or 70 years. This includes duplexes, triplexes, four-plexes, row houses, townhouses and other housing types, like courtyard apartments and live–work housing developments,” Canada Mortgage and Housing Corporation (CMHC) said in a 2019 report. “In recent years, most new housing in Toronto has been high-rise buildings, with condos becoming substitutes for purpose-built rental housing.”

Proponents assert that these housing options can tackle multiple issues simultaneously: housing affordability, urban density, and keeping the character of neighbourhoods intact.

But if the answers to today’s housing market problems are simple, why have policymakers not proposed these tools at the three levels of government? Experts say there are plenty of reasons.

Red Tape

Industry observers contend that several factors have contributed to the missing middle in the Canadian real estate market.

The one issue that routinely pops up, especially at the municipal level, is that zoning regulations generally prioritize single-family homes and prohibit medium-density development. This is particularly true in major urban centres like Toronto and Vancouver. Another challenge at the local level is the lengthy approval process, which can take several years to receive before anything is constructed.

“In too many Ontario cities, it defies common sense that you can take a bungalow and turn it into a monster four-storey home for one wealthy family, but you cannot build affordable townhomes for multiple families without red tape, runaround, and exorbitant costs,” said Ontario Real Estate Association (OREA) CEO Tim Hudak in a 2021 statement. “Exclusionary zoning policies are at the heart of Ontario’s housing affordability crisis in high-growth areas, and it’s time the Province steps in to modernize these archaic laws.”

According to CMHC, the other issue is high land and construction costs. With the construction industry facing a labour shortage, raw material prices extremely high, and interest rates at their highest levels since before the global financial crisis more than a decade ago, the investment required to build housing is enormous. As a result, many builders will opt for large towers to take advantage of the considerably expensive land.

Industry professionals have discussed this issue at length throughout the pandemic-era housing boom. The key to addressing the missing middle in the housing sector is for municipal governments updating zoning regulations to encourage, incentivize, and facilitate the creation of properties like triplexes and low-rise apartments. In addition, officials could relax restrictions, streamline the approval process, and fast-track permits for developers that wish to manufacture medium-density projects. Tax breaks and grants could also be extended to developers committed to inserting a specific number of missing middle units in their endeavours.

Vital for the Future

Ultimately, it will be critical for Canada’s future – from the economy to the real estate market – to embrace a broad array of housing options that are affordable, sustainable, and inclusive for all categories of residents. This will ensure that more Canadians can obtain the dream of home ownership without abandoning the communities they grew up in, or draining their bank accounts.