Business leaders see the housing crisis as the biggest risk to the economy, according to a new survey conducted by KPMG Canada.

It found that 94 percent of participants agreed that rising housing costs and supply shortages are the biggest risks, and that housing should be the main focus of the upcoming federal budget. The survey included 534 companies.

Housing issues are forcing companies to increase wages to attract talent and better budget to cover high labor costs, as agreed by 87 percent of participants.

Caroline Charst, an economic expert and partner at KPMG based in Montreal, said: "What we see in the survey is that companies need to pay more to enable their workers to cope with high living costs."

Charst said the need to pay more not only directly affects companies' finances but also makes it harder to curb inflation, which keeps interest rates high.

She said rising housing costs and interest rates are putting pressure on households already struggling with high debt.

She added, "It leaves household balance sheets more vulnerable, particularly during an economic slowdown, so it creates areas of vulnerability in the economy.”

She confirmed that rising housing costs are themselves a major contributor to inflation, making it harder to lower the rate to allow for future interest rate cuts.

Companies have been sounding the alarm for some time.

A report released last year by the Ontario Chamber of Commerce also stressed how the housing crisis affects companies' ability to attract talent.

The KPMG survey found that nearly 90 percent of companies want to see more cooperation between the public and private sectors to help solve the crisis.

Charst said: "How can we work to bring together all stakeholders, namely governments, non-profit organizations, communities, and the private sector, to find solutions to develop new models for providing housing."

"That came through very strongly in the survey we conducted of companies."

The federal government is working on providing more financial support to other levels of government and has introduced measures such as the goods and services tax rebate for building rental housing, but it has only limited direct control over the file.

Part of the federal funding linked financing to actions taken by provinces and municipalities that can help increase supply.

The vast majority of participants in the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax-deductible, but they also want to maintain the capital gains tax exemption on primary residences.

The corporate survey was conducted in February using Sago’s Methodify online research platform. Participants were business owners or decision-makers at the executive level.

About one-third of the leaders work in companies with revenues over $500 million, about half have revenues between $100 million and $500 million, and the rest less than that.