The Long Road to Housing Affordability in Canada and the U.S.

The housing affordability crisis in Canada and the U.S. has evolved into a structural challenge that real estate investors can no longer ignore. With housing costs outpacing incomes, demographic shifts reshaping demand, and policy interventions struggling to keep pace, the traditional models of real estate investment are under strain. For investors, the stakes are clear: long-term exposure to these markets must now be rethought through a lens of resilience, adaptability, and alignment with systemic trends.

Structural Downtrends: A Shared North American Crisis

In Canada, the affordability gap has widened dramatically. Housing costs now consume nearly 30% of household income in major cities like Toronto and Vancouver, while mortgage payments remain near record levels despite interest rate cuts according to the 2025 State of the Nations housing report. The influx of 400,000 newcomers in 2025 alone has exacerbated supply constraints, with zoning restrictions and a lack of medium-density housing (e.g., duplexes, townhomes) stifling new construction. Meanwhile, the U.S. faces a similar impasse: housing prices have outpaced disposable incomes by 60% since the Global Financial Crisis, and the supply of affordable rental units has dwindled to historically low levels.

Demographic shifts compound these issues. In the U.S., the rise of single-person and multigenerational households has created a demand for smaller, more affordable homes, yet the existing stock remains skewed toward larger properties. In Canada, aging populations and urbanization are driving demand for purpose-built rental housing, but construction delays and labor shortages have left a 1.5 million-unit shortfall in 2024. These trends are not temporary-they are structural, requiring investors to rethink asset allocation and risk management strategies.

Investor Adaptations: Shifting Gears in a Changing Landscape

Real estate investors in both countries are already pivoting. In Canada, the focus has shifted toward income-generating assets like multifamily rentals and purpose-built housing, which offer stability amid volatile homeownership markets. Developers are also repurposing underutilized commercial properties-such as office buildings and retail spaces-into mixed-use developments that combine housing, retail, and amenities. For example, Metro Vancouver's office-to-residential conversions reflect a broader trend of adapting to housing shortages, though economic viability remains a hurdle.

In the U.S., small investors are capitalizing on lower-priced markets in the South and Midwest, where 62.5% of all investor home purchases in 2025 occurred. These investors prioritize cash-flow-positive properties in areas with steady rental demand. Meanwhile, institutional players are increasingly targeting affordable housing funds, recognizing the sector's dual potential for financial returns and social impact. Modular housing and retrofitting older units for energy efficiency are also gaining traction as cost-effective solutions to address supply gaps.

Why Long-Term Exposure Must Evolve

The structural nature of these challenges demands a reevaluation of long-term investment strategies. First, investors must prioritize flexibility. For instance, Canada's projected 2025–2026 housing market rebound hinges on lower interest rates and government incentives, but these are not guaranteed. Relying on such conditions without contingency plans could expose portfolios to volatility. Second, risk management must account for demographic and regulatory shifts. In the U.S., proposed budget cuts to housing support programs and rising insurance premiums due to climate-related disasters could further strain affordability. Investors who fail to factor in these variables risk overexposure to unaffordable markets.

Third, innovation in asset classes is critical. Modular housing offers a scalable solution to construction bottlenecks, while affordable housing funds provide diversification and alignment with ESG (Environmental, Social, and Governance) goals. In Canada, the renovation and home improvement sector is already contributing significantly to residential investment, offering an alternative to new construction. Investors who integrate these alternatives into their portfolios can hedge against traditional market risks.

The Path Forward: Policy, Patience, and Precision

Addressing housing affordability requires more than market adjustments-it demands policy engagement. Canada's National Housing Strategy and Housing Accelerator Fund aim to reform zoning laws and boost affordable housing supply according to OECD Economic Surveys, but success depends on federal-provincial coordination and construction sector capacity. In the U.S., momentum for zoning reforms and state-level mandates (e.g., California's density bonuses) signals a shift toward pro-housing policies according to OECD Economic Surveys. Investors must align with these initiatives, leveraging public-private partnerships to mitigate risks and capitalize on emerging opportunities.

For now, the road to affordability remains long. But for real estate investors, the path forward lies in rethinking exposure through strategic diversification, technological integration, and a commitment to systemic change. As the OECD Economic Surveys note, "Housing affordability is not just a market issue-it is a societal imperative." Those who adapt today will be better positioned to navigate tomorrow's challenges.