Affordable Housing In Canada: The Role Of Interprovincial Trade Barriers Removal

Canada, a vast and diverse nation, prides itself on its strong federal system. Yet, beneath the surface of national unity lie persistent economic challenges, none more pressing in recent times than the housing crisis. A significant, yet often underestimated, contributor to this crisis is the existence of interprovincial trade barriers. These internal hurdles, effectively fragmenting Canada’s domestic market, impede the free flow of goods, services, and labour, ultimately driving up costs and stifling the very construction needed to meet Canada’s burgeoning housing demand. This blog delves into the intricate web of interprovincial trade barriers, their profound impact on the Canadian housing market, and the immense potential for growth that lies in their removal.

The Economic Burden of Interprovincial Trade Barriers in Canada

The notion of interprovincial trade barriers might seem abstract, but their effects are concrete and costly. These barriers are not merely minor inconveniences; they represent a significant drag on Canada’s economic growth and productivity. The Canadian Federation of Independent Business (CFIB) estimates that existing internal trade hurdles cost the economy a staggering $200 billion a year. This figure, reflecting lost opportunities and inefficiencies, highlights the urgent need for a cohesive national market.

Interprovincial trade barriers manifest in various forms, from differing provincial regulations and product standards to restrictions on labour mobility and “buy local” procurement policies. For instance, an electrician qualified in British Columbia might face additional certification requirements to work in Ontario, despite possessing the same skills and expertise. This stifles the movement of skilled tradespeople to where they are most needed, exacerbating labour shortages in high-growth areas like Ontario’s bustling construction sector. Similarly, varying building codes and material standards across provinces mean that a prefabricated home built to code in one province might not be readily sellable in another, adding unnecessary complexity and cost to construction.

The impact of these interprovincial trade barriers extends beyond direct financial costs. They limit competition, reduce innovation, and ultimately lead to higher prices for consumers and businesses alike. In the context of housing, this means everything from the lumber used in framing to the skilled labour erecting the walls becomes more expensive, directly contributing to the rising cost of new homes and, consequently, housing unaffordability.

Estimated Annual Cost of Interprovincial Trade Barriers to the Canadian Economy

Source: CFIB.

What are Interprovincial Trade Barriers? Unpacking the Hurdles

To truly appreciate the challenge, it’s essential to understand what are interprovincial trade barriers. They are, in essence, policies, regulations, and practices implemented by provincial and territorial governments that restrict or impede the free flow of goods, services, capital, and labour within Canada. While often introduced with the intention of protecting local industries or ensuring public safety, their cumulative effect is a fragmented domestic market that works against national economic efficiency.

Key examples of interprovincial trade barriers include:

• Varying Product Standards and Regulations: Different provinces may have distinct building codes, environmental regulations, or safety standards for construction materials. This forces manufacturers to produce multiple versions of the same product or limits their ability to sell across provincial lines, increasing production costs.
• Labour Mobility Restrictions: Professional licensing and certification requirements often differ significantly between provinces. This means skilled tradespeople, from plumbers to carpenters, may need to undergo costly and time-consuming re-certification processes to work in another province, deterring interprovincial migration of labour. This directly impacts the ability to quickly deploy skilled workers to areas with high housing demand, like Ontario.
• Procurement Policies: “Buy local” policies, while seemingly beneficial for provincial economies, can restrict governments and businesses from sourcing goods and services from other provinces, even if they offer better value or quality.
• Transportation and Logistics Challenges: Differing trucking regulations, weight limits, and even fuel taxes can make it more expensive to transport goods across provincial borders than to international destinations. A Statistics Canada survey highlighted that nearly half of Canadian construction firms blamed distance and transportation costs as primary reasons for not purchasing goods or services from suppliers in another province or territory.
• Provincial Tax Laws: Complex and varied provincial tax regimes can create significant administrative burdens for businesses operating across multiple jurisdictions.

These interprovincial trade barriers are not always overt tariffs; often, they are embedded in regulatory frameworks that have evolved independently over decades. The cumulative effect, however, is a less competitive and less productive national economy, which ultimately impacts vital sectors like housing.

The Housing Crisis and Interprovincial Trade Barriers: A Direct Link

The Canada Mortgage and Housing Corporation (CMHC), a leading authority on housing in Canada, has recently shed significant light on the direct link between interprovincial trade barriers and the nation’s severe housing supply gap. Their analysis reveals a compelling projection: eliminating interprovincial trade barriers could lead to an additional 30,000 housing starts annually. This would push the total number of annual housing starts close to 280,000 over time, a “meaningful step towards fixing Canada’s housing supply gap.”

To put this into perspective, CMHC recently estimated that to restore affordability levels last seen in 2019, Canada needs to build between 430,000 and 480,000 new housing units per year by 2035 – roughly double the current pace of home construction. The projected 245,000 starts annually under current conditions fall significantly short of this target. The additional 30,000 housing starts, made possible by tackling interprovincial trade barriers, would represent close to 15% of the annual increase needed to achieve pre-pandemic affordability.

CMHC Chief Economist Mathieu Laberge emphasizes that reducing interprovincial trade barriers would facilitate the west-to-east transportation of construction materials and maximize the use of domestic resources. Canada is, in fact, a net exporter of core construction materials like wood, aluminum, iron, and steel. This means the country produces more than it consumes, and a significant portion of this domestic production could be redirected to residential construction within Canada if internal trade flows were unimpeded.

Beyond direct construction inputs, the removal of interprovincial trade barriers would also strengthen the economy in broader ways, driving up demand for home ownership. A stronger overall economy, lower unemployment rates, and higher household incomes – all potential benefits of reducing these barriers – would make homeownership more accessible for more Canadians. CMHC projects that increased income could initially bring 300,000 additional households into the homeownership market, eventually stabilizing to 150,000 by 2035. Furthermore, while average rents are expected to increase by 3.1%, this is roughly half the projected increase in incomes, suggesting an improvement in rental housing market affordability as well.

Projected Annual Housing Starts in Canada with and without Interprovincial Trade Barrier Removal

Source: Canada Mortgage and Housing Corporation (CMHC)

Ontario Interprovincial Trade Barriers: A Case Study in Opportunity

Ontario, as Canada’s most populous province and a major economic engine, plays a pivotal role in the national housing landscape. Addressing Ontario interprovincial trade barriers specifically holds immense potential for increasing housing starts and improving affordability within the province and across the country. Ontario’s extensive interprovincial trade, with two-way trade in goods and services with other provinces and territories reaching over $326 billion in 2023, highlights its central position. While Ontario has been actively engaged in efforts to reduce interprovincial trade barriers, including signing Memorandums of Understanding with provinces like Manitoba, the province still faces challenges. For instance, differing professional licensing requirements, despite recent bilateral agreements, can still hinder the seamless movement of skilled construction labour into Ontario where it is desperately needed. Similarly, variations in building codes and procurement policies can add costs and delays to construction projects in Ontario.

The “Protect Ontario Through Free Trade Within Canada Act,” recently introduced by the Ontario government, aims to unconditionally remove all current provincial exceptions to interprovincial free trade. If passed, this landmark legislation would also streamline the process for qualified professionals seeking employment in Ontario from other provinces, and even allow direct-to-consumer sales of alcohol across provincial boundaries. Such moves are crucial steps towards maximizing the efficiency of the construction sector within Ontario and fostering a more integrated national market. By systematically addressing Ontario interprovincial trade barriers, the province can unlock its full economic potential, attract more skilled labour, and significantly accelerate the pace of home construction. This would not only benefit Ontario residents but also contribute substantially to the overall goal of Canada interprovincial trade barriers removal.

Canada Interprovincial Trade Barriers Removal: The Path Forward

The momentum for Canada interprovincial trade barriers removal is growing, with both federal and provincial governments recognizing the immense economic benefits. Prime Minister Mark Carney’s government has made this a priority, passing Bill C-5, an omnibus bill designed to reduce federal restrictions on interprovincial trade and expedite permitting for large infrastructure projects.

However, as experts acknowledge, federal action is only one piece of the puzzle. The majority of trade barriers fall under provincial jurisdiction. This necessitates continued collaboration and political will from all provinces and territories to truly dismantle these internal impediments. Provinces like Nova Scotia, Prince Edward Island, British Columbia, and Quebec have also introduced their own legislation or made commitments to streamline regulations and recognize professional credentials from other jurisdictions. The goal is to move towards a system of “mutual recognition,” where what is acceptable in one province is accepted in all.

The benefits of full Canada interprovincial trade barriers removal are far-reaching. Beyond the immediate impact on housing starts, a truly free internal market would:

• Boost Productivity and Competitiveness: Businesses would be able to scale more easily, access a wider range of suppliers and customers, and face less red tape.
• Lower Consumer Prices: Increased competition and reduced costs for businesses would translate into more affordable goods and services for Canadians.
• Enhance Labour Mobility: Skilled workers could move freely to where their expertise is most in demand, addressing labour shortages in critical sectors like construction.
• Attract Investment: A more integrated and efficient Canadian market would be more attractive to domestic and international investors.

While challenges remain, the current environment presents a unique opportunity for Canada to finally realize its full economic potential by tearing down the remaining walls between its provinces.

The Road Ahead: Overcoming Remaining Challenges

Despite the clear economic advantages and growing political will, the complete Canada interprovincial trade barriers removal is not without its complexities. Deep-seated provincial interests, concerns about local job protection, and the sheer inertia of existing bureaucratic structures can present significant hurdles. One of the main challenges lies in harmonizing divergent regulatory frameworks without compromising legitimate public health, safety, or environmental standards. This requires careful negotiation and a commitment to finding common ground. The Statistics Canada survey cited earlier also highlighted that, beyond explicit trade barriers, factors like distance and transportation costs, as well as a perceived lack of demand, also influence interprovincial trade. While trade barrier removal will certainly help, addressing these logistical and market perception issues will also be vital for truly optimizing internal trade.

However, the potential rewards – particularly for the housing sector – far outweigh these challenges. By prioritizing the free flow of goods, services, and labour within its own borders, Canada can unlock a new era of economic prosperity and, critically, build the homes its citizens so desperately need.

A United Economy for a Stronger Canada

The issue of interprovincial trade barriers stands as a critical bottleneck in Canada’s economic progress, with profound implications for the national housing crisis. As detailed throughout this blog, the fragmentation of Canada’s internal market through diverse regulations, labour mobility restrictions, and procurement policies imposes a significant and unnecessary cost on businesses and consumers. The CMHC’s groundbreaking analysis clearly demonstrates that eliminating these barriers could unlock an additional 30,000 housing starts annually, a substantial stride toward bridging the critical housing supply gap and restoring affordability across the country, particularly in high-demand regions like Ontario.

The path to Canada interprovincial trade barriers removal is not without its complexities, requiring sustained political will and collaborative effort from all levels of government. However, the benefits of a truly integrated Canadian economy — including enhanced productivity, lower costs, increased labour mobility, and stronger investment — are too significant to ignore. By embracing mutual recognition and a “what’s good enough for one province is good enough for another” philosophy, Canada can shed the economic shackles of its internal borders and foster an environment where businesses thrive, and housing becomes more accessible for all. This is an investment in Canada’s future, an essential step toward building a more prosperous, competitive, and unified nation.

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