In a newly released report, A Jump Start: Providing Infrastructure for More Housing, the Canadian Urban Institute (CUI) is proposing four new approaches to investing the billions of dollars needed to build supporting infrastructure to advance millions of homes across the country.  In combination, the recommendations should lower costs to homeowners, help mitigate risks for municipalities, capture value from infrastructure investments, and attract more public and private investment.

“Canada’s housing crisis is in large measure an investment crisis,” said Mary W. Rowe, CEO, Canadian Urban Institute.  “Yes, Canada needs more housing, but to realize this goal, we need the necessary infrastructure — the water lines, streets, sewers, storm drains, and all the other essential municipal services — that make new homes possible.”

The report finds that the estimated cost of housing-enabling infrastructure across Canada averages over $100,000 per new home.  Considering Canada’s housing targets, the report suggests there are likely hundreds of billions of dollars required to fund the housing-enabling infrastructure needed across the country.

“Municipalities often face challenges financing the critical infrastructure they need to help unlock new housing developments, whether they are relying on municipal debt, property taxes, utility rates, government grants or levies on developers,” said Ehren Cory, CEO, Canada Infrastructure Bank (CIB). “This report demonstrates there are a variety of new financing supports, such as leveraging private capital, that can help municipalities to build the infrastructure needed for housing ahead of population growth.”

One hopeful example of innovative tools is CIB’s “Infrastructure for Housing Initiative,” which provides low-cost loans for critical infrastructure such as water, roads, or transit. The federal government has also introduced $6 billion in their latest budget to construct or upgrade housing-enabling infrastructure. These are both welcomed, but Rowe suggests much more is needed to solve the housing and investment challenge.

The report recommends municipalities move away from requiring pre-paid development charges, to an approach that provides secured payments over the lifetime of the asset—a similar financing approach as a mortgage. Taking such an approach to financing the supporting infrastructure could reduce housing costs in the near term and provide a more flexible infrastructure financing environment.  This practice is already followed successfully in several provinces, such as Québec.

Second, municipalities should develop new financing tools that allow them to share the real costs of infrastructure among all those who benefit from it, including developers. Developing a suite of tools such as land value capture and tax increment financing. and a policy environment that captures the value of public investment can help cities deliver more of the services needed to create truly complete communities.

Third, leverage private capital to invest in public infrastructure through measures such as utility and development corporations. Financial risks should be shared with institutional investors that are in a better position to absorb them. Infrastructure projects that have a reliable revenue stream, like water or district energy, can equal half the cost of housing-enabling infrastructure.  A combination of public and private debt could enable municipalities to finance and deliver more projects.

Finally, while most housing demand may be in metropolitan areas, provincial governments should also develop investment strategies to support small, medium, and rural municipalities to enable them to deliver infrastructure at the optimal scale.

This research report was funded by the CIB.

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