FILE PHOTO: A row of houses under construction is seen in a housing development in Alliston, Ontario, north of Toronto, January 16, 2025. REUTERS/Cole Burston/File Photo

MONTREAL (Reuters) - Canadian Prime Minister Mark Carney announced on Sunday a new federal agency supported by an initial C$13 billion ($9.39 billion) in capitalization to build affordable housing, following campaign promises to bolster residential construction.

"We're in a housing crisis," Carney told reporters in Nepean, Ontario. "And it's going to take all hands on deck to get us out of it."

The agency, called Build Canada Homes, will construct affordable housing for low-income households and work with private developers to build homes aimed at the middle class, Carney said.

Carney's ruling Liberal party has pledged to improve affordability and reduce homelessness while increasing home construction. High housing costs hurt the approval rating of his Liberal predecessor, former Prime Minister Justin Trudeau.

Carney said the agency will reduce the risks experienced in building in Canada by helping reduce upfront costs and leveraging public lands for housing.

The former central banker has been announcing projects recently as part of a campaign to diversify the economy and reduce Canada's reliance on the United States as tariffs bite.

"We're transforming Canada's economy from one that had become too reliant on a single trading partner to an economy that's more diverse," Carney said.

Carney added that the impact of the U.S.-led tariff war has led to a substantial increase in the deficit in Canada's upcoming budget.

"Substantial means it'll be bigger than it was last year," Carney said. "First and foremost, it's the tariff war," Carney said, adding that it is also Canada's reaction to those duties.

The Liberal platform, which promised additional spending of around C$130 billion over the next four years, predicted in April that Canada's 2025/26 deficit would be C$62.3 billion, far higher than the C$42.2 billion forecast in December.

(Reporting by Allison Lampert in Montreal; Editing by Paul Simao, Will Dunham and Chris Reese)