Canada’s housing boom: The affordability domino effect of building in high-risk areas
New construction can help address housing affordability, but building in high-risk areas adds home insurance challenges. Compare online quotes to find the best coverage at the lowest rate today.
As Canada continues to face a housing affordability crisis, encouraging new construction is one tool we can use to counter the problem.
According to the Canada Mortgage and Housing Commission (CMHC), Canada can support over 400,000 housing starts per year, but only started construction on 245,120 new housing units in 2024.
The number of housing starts alone can help ease affordability, but equally important is where those new homes are built. According to the Canadian Climate Institute, we’re on track to build hundreds of thousands of new homes directly in Mother Nature’s path – and the cost of doing so could be in the billions.
The impact of severe weather is setting records
It should come as no surprise that severe weather is getting worse. Every summer seems to set a new threshold for wildfires, flooding and other damaging storms.
According to the Insurance Bureau of Canada (IBC), insurers paid over $8.5-billion in 2024 to cover losses due to severe weather events – a new record by far. Among the costliest events were a $990-million flood in the Greater Toronto Area, a $3-billion hailstorm in Calgary, and a $2.7-billion hurricane in Quebec.
The recent spate of expensive weather events isn’t an isolated incident. According to the IBC, seven of the 10 costliest years on record have been within the last decade, even when adjusting for rising costs.
Severe weather leads to severe insurance costs
As the frequency of catastrophic weather events continues to increase, Canadians are paying the price on their insurance bills.
Insurance companies determine home insurance premiums based on how likely it is that you'll make a claim. Homeowners in high-risk areas for theft, for example, may pay more for contents insurance. Likewise, owners in older buildings may pay more for fire coverage.
The problem with severe weather events is that they tend to damage multiple homes – or even entire neighbourhoods – all at once. While fires and burglaries typically affect one home at a time, weather events are wide-ranging and have the potential to destroy entire communities.
Because of this, homeowners in areas at risk for wildfires, hailstorms, and flooding pay substantially more for insurance coverage. And many homeowners are struggling to get coverage at all. The IBC says there are 1.5-million households that have no access to flood insurance due to their high risk.
It’s worth noting that a federal flood insurance program that would improve access to insurance for higher-risk households has been promised but so far has failed to become a reality and remains in limbo pending the results of an upcoming election.
Also read: 2024 Fall Economic Statement: Little progress on insurance promises
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Housing starts could worsen affordability
While Canada begins construction on some 250,000 homes per year, carelessness in their placement could have a detrimental impact on housing affordability, according to the Canadian Climate Institute.
In a recent report titled Close To Home: How to build more housing in a changing climate, the Institute argues that Canada is building too many homes in high-risk areas. According to the report, this country is on pace to build 150,000 homes in areas of very high flood hazard and over 220,000 homes in areas of very high wildfire hazard by 2030. At the current pace of construction, that represents almost one-third of new housing starts.
By the institute’s estimates, the cost of building new homes in these high-risk areas could cost Canadians some $3-billion per year, but the costs will be unevenly distributed. According to the report, 92% of new wildfire losses could occur in just 20 municipalities, primarily located in the interior of British Columbia. Flooding, it says, will do the most damage in urban centres.
Building in low-risk areas could be key to easing affordability woes
The people who bear those costs will ultimately be the ones who live in those high-risk homes, be it through direct losses or higher insurance premiums.
All Canadians will shoulder some of the cost, however. The Institute argues that insurance premiums will go up for everyone – not just those in the highest-risk areas. And it points out that taxpayer-funded relief programs will cost all Canadians regardless of where they live.
Some homes built in very high-risk areas may not be eligible for home insurance at all – and that can affect a buyers’ ability to be approved for a mortgage, as coverage is typically a mandatory prerequisite to getting home financing.
Fortunately, the report argues that even small changes could make a big difference. Moving just 3% of new home construction away from high flood hazard areas could reduce the risk to new housing by 80%, it says.
In its report, the Institute calls on all levels of government to steer housing investment away from high-risk areas by strengthening land use policies and reforming disaster assistance programs. It also calls for greater support for Indigenous communities in building more climate-resilient homes.
The bottom line
As Canada continues to invest in new housing, it’s important to consider whether those new homes are vulnerable to severe weather events. By paying more attention to where we build homes, we can improve affordability and reduce costs for all Canadians – not just those who live in high-risk areas.
As the Canadian Climate Institute says, “the most affordable home is the one you don’t have to rebuild after a disaster.”
Also read:
Climate change and it’s impact on your insurance
Canadian wildfires: The impact on the insurance industry