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Canada faces two intertwined crises: a housing affordability crunch and a climate challenge, with emissions from the housing sector declining too slowly to meet climate targets. Both issues are steadily undermining the country’s housing stock.

Home energy efficiency must be at the centre of public policy, both to meet climate commitments and to ease the single largest expense for most households over the long term.

Over the past twenty years, the average living space per person in Canada has increased by about 20 per cent, a significant trend that automatically increases the need for heating, cooling and maintenance. Energy efficiency in residential housing stock is improving in all provinces, but growing homes partially offsets these gains. This means some Canadians are living in larger, better-equipped spaces, while a growing number of others struggle to afford adequate housing.

At the same time, the energy transition requires a rapid reduction in emissions from the residential sector, which account for 12 per cent of national emissions. Most of these emissions come from the use of natural gas for heating. Decarbonizing the residential building stock—through electrification, improving the thermal performance of buildings, and integrating renewable energy—is a major driver for reducing the country’s carbon footprint.

This raises a key question: how can housing be made more affordable while accelerating decarbonization? Solutions exist, but they require a significant shift in public policy, as well as better co-ordination among federal, provincial, and municipal governments.

Prioritizing the most vulnerable households

The housing crisis does not affect households uniformly. Low-income individuals often spend more than 30 per cent—up to 36 per cent in British Columbia—of their income on housing. This level of financial strain leaves very little room to invest in energy-efficient renovations, even when these would reduce bills in the long term. To prevent the energy transition from exacerbating inequalities, policies must first target these households.

This involves redirecting more resources toward the construction and renovation of community housing with affordable rents. These investments should also incorporate the highest energy efficiency standards from the design phase to ensure lasting affordability. Housing a person in a well-insulated, electrified, and energy-efficient home is a far more cost-effective social and economic investment than multiplying ad-hoc programs to help pay bills.

Optimizing the use of residential space

The steady increase in living space per person is one of the main drivers of rising costs and a barrier to reducing emissions. Encouraging more efficient use of space must become an explicit goal of housing policies. This can be achieved through tax incentives that reward households living in smaller spaces or promote the creation of shared housing.

Ultimately, a re-evaluation of property taxes could help discourage the widespread under-occupancy of certain housing units, while financing new affordable units for those who need them most.

Raising standards and accelerating renovation

Structural improvements to the housing stock are imperative. The average energy performance of homes remains far below international standards, particularly those of passive houses, which consume up to 80 per cent less energy for heating.

Modernizing the National Building Code to require standards close to net-zero energy use for all new construction would represent a major turning point. Some provinces—such as British Columbia with the BC Energy Step Code—are already demonstrating that such an approach is possible.

But the most difficult challenge lies in retrofitting the existing housing stock. Most Canadian homes are poorly insulated, leak air, and are equipped with inefficient heating systems. A national energy retrofit strategy, accompanied by mandatory targets and robust support programs for low-income households, is essential to reduce bills and emissions.

Technologies and economic incentives: underused tools

The arrival of new technologies—home automation, smart water heaters, home energy storage, and bidirectional charging of electric vehicles—is opening the door to greater energy flexibility in homes. These tools help reduce consumption during peak hours, when electricity is most expensive to produce and is more carbon-intensive.

However, their deployment remains too limited. To encourage their adoption, electricity rates must better reflect the actual costs of the grid, while providing financial protection for vulnerable households. More transparent pricing, combined with targeted subsidies for energy-efficient technologies, would help align consumer behavior with the needs of a decarbonized electricity grid.

Toward an integrated housing-climate strategy

The housing crisis and the climate crisis are not two separate issues. Policies that increase the energy resilience of buildings also make housing more affordable by sustainably reducing utility bills. Conversely, accessible and well-designed housing facilitates the transition to a low-carbon society.

To succeed, Canada must adopt an integrated strategy that combines three pillars:

• Social: targeting low-income households and promoting shared living arrangements.
• Structural: building and renovating to high energy-efficiency standards.
• Technological and economic: supporting innovation and sending the right price signals.

With such an approach, the country can transform the residential sector into a driver of social equity and climate success.

This article is excerpted from a study  conducted for the Institute for Research on Public Policy (IRPP) in partnership with the Action Council on Affordability.