Canada is building plenty of homes; but homes are not housing, per se. "Housing" is usually used in these policy conversations as an abbreviation for "affordable housing" — and Canada is very much not building that. At least not in the large numbers needed.

The majority of Canadian property developers — at least, the majority of the ones who can afford to buy up lots for redevelopment in this market — seem to have an overt, almost monomaniacal focus on developing only top-of-market properties. Municipalities have to essentially force them at gunpoint to take any consideration for creating any housing stock to sell to the rest of the market.

• When you look at any new condo development in a Canadian city (without government affordable-housing involvement), there end up being no bachelor, 1bd, or even 2bd units in the development; it's all 3bd+. Picture a condo tower where every floor is the penthouse. Many Canadian property developers only build this type of condo building.

• Likewise, when you look at any new SFH development in a Canadian city (without government affordable-housing involvement), there end up being no small-lot developments; instead, contiguous previously reasonably-sized lots are almost always bought up and merged, to create space to plop down a McMansion. Again, many Canadian property developers only build McMansions.

Letting these kinds of developers loose on a city, results in a sort of "second-wave gentrification", where neighbourhoods previously affordable to the middle class, get rebuilt to be only affordable by the upper class (for whom this is mostly not their primary residence, but rather a rental property/airbnb, investment property, vacation home, property to lend to friends/family visiting them, etc.)

Classical "first wave" gentrification pushes the working class out of the city — creating a situation where the service economy of the city becomes driven by those commuting from outside the city, and low-margin service-economy businesses struggle to retain talent. (Which in turn forces the city to look into the creation/expansion of high-speed regional transit — because suddenly all the service-worker commuters are clogging the highways to get to work from the cheap exurbs.)

"Second wave" gentrification, in the places it happens, pushes the professional class outside the city as well. Now, even people like doctors, corporate managers, etc. struggle to afford to live near their place of work.

Unlike the service workers being pushed out — which is mostly a "silent" problem observable only to the service workers themselves, those trying to hire them, and city infrastructure planners — the professional class being pushed out is a problem observable by the public. The professional class often includes small-business owners, who previously operated some retail/office/clinic/etc in the city, out of street-fronted commercial rental space close to where they live. Having had their living space pushed out of the city, rather than commuting, these business owners will often choose to simply move their business, so that they can continue to live close to work. This "empties out" the city of amenities, as anything run by this class relocates to the cheaper exurbs.

Big corporate offices do remain in the city, as big corporate executives — the ones who decide where to put their office — are exactly the kind of upper-class who can still afford to live in the city. So you now get "suits" commuting into the city. And big chain businesses still manage to exist in the city to cater to these workers' needs (though even some of these do start to shutter their unaffordable urban-core locations.) But all the independent restaurants and other nice after-work things that made these bigcorp workers want to take a job in that city, are gone. So these workers start heading straight home after work. And that causes the revenue of even chain businesses within the city begins to crumble. The city becomes "sleepy." Things start closing at 10PM or earlier, because the revenue past that hour isn't worth staffing a graveyard shift. The city stops being known for its "vibrant nightlife."

(See also: Manhattan, one of the earliest victims of property-development-driven second-wave gentrification ~40 years ago. All the amenities shifted to the other boroughs of NYC, and now there's nothing for locals "in" Manhattan any more — save for a few family businesses that have fully owned their properties for decades, and who could be overnight millionaires by selling, but keep holding off.)

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Mind you, I do understand why the housing developers have this focus. As profit-driven companies, property developers aim to increase margins; and if you're in a market where there is high demand from the every "level" of the market, then you're going to gravitate toward building for the top-of-market bidders, as the accepted cost-plus-percentage pricing model of for real estate translates into higher absolute profits when building more expensive properties. As well, there's less bureaucratic overhead (both in terms of labor dealing with bureaucracy, and in terms of government fees) involved in building + selling fewer, larger lots, vs. more, smaller lots. And there's the fact that the most in-demand lots, if you luck into developing one, can be fought over by buyers, resulting in bids skyrocketing, and you the developer pocketing most of that first-sale surplus.

But these factors are exactly why governments in Canada, at all levels, must step in (and lately, increasingly are stepping in) to regulate property development. Developers aren't gonna just stop obeying market forces on their own. Governments either have to tweak the market forces themselves (e.g. by blocking foreign purchase of investment properties for speculation, as has been done in BC), or require the building of at least some lots/units designed to be affordable as part of larger developments.

Of course, a property developer that wasn't driven by a profit motive, would be able to just build entirely affordable housing. No level of Canadian government has gone so far as to propose setting one of these up as a Crown corporation... just yet. But that might be where things end up. Because, as you say, the only other lever the government has — decreasing the value of existing housing — isn't one any government is ever going to pull.