The federal government got back into the housing business a few years ago. It was long past due. In the mid-1990s the Chrétien Liberals completely abandoned the field.
Despite renewed federal involvement, however, a severe lack of affordable housing persists at crisis levels throughout Canada.
The Canadian Housing and Renewal Association (CHRA) applauds the Trudeau Liberals’ re-engagement in housing, but believes the federal government can still do much more, especially for those most in need.
The CHRA is the national voice for the affordable housing sector in Canada. Its members include local housing non-profits, community housing organizations, and municipal governments.
Right now, the CHRA is focused with laser intensity on Canadians who rent their homes.
Two priorities: Indigenous and community housing
The organization is pressing the federal government on two fronts: housing for off-reserve, urban Indigenous people, and federal assistance to help the not-for-profit and community housing sector purchase existing rental properties.
The CHRA’s acting executive director Ray Sullivan points out that the 80 per cent of Indigenous people who do not live on reserves or in similar Inuit or Métis communities are all too often in dire housing need.
Many are forced to pay more than half their income in rent.
Sullivan urges the government to proceed with more vigour and speed in its commitment to a for-Indigenous / by-Indigenous strategy for this group. He puts a price tag on this long-promised initiative of $25 billion, over ten years.
It sounds like a fair piece of change, but it would, in fact, be an investment.
Providing appropriate and affordable housing would pay off in the form of future generations of Indigenous people who are healthier, better educated, less plagued by social problems, and more able to participate in the Canadian economy.
For the community and not-for-profit sector more generally, Sullivan expresses concern that federal programs are focused exclusively on new builds.
There are federal funds to assist in construction of new, affordable, community-housing buildings. But there are no funds to help the community and not-for-profit sector purchase existing rental properties as they go on the market.
Sullivan argues that an annual federal investment of $1.5 billion could enable the groups his organization represents to acquire several thousand existing rental buildings per year. In that way, they could keep much-needed rental units out of the speculative marketplace.
The CHRA estimates such a federal investment could make an additional 6,000 affordable rental apartments, townhomes and flats available each year.
More Canadians are renting than ever before
The rental sector is the poor cousin of the Canadian housing market.
We Canadians tend to fetishize home ownership, and believe it should be everyone’s aspiration. Governments at all levels cater to that obsession.
But renters are a growing group on the Canadian housing scene. Statistics Canada tells us the proportion of renters in Canada is on the increase, while growth in home ownership is slowing.
As of 2021, two-thirds of Canadian households were in the homeowner category, down from a peak of nearly seven-in-10 a decade earlier. A third of households were renters.
More importantly, in StatsCan’s words, “the growth in renter households (+21.5%) is more than double the growth in owner households (+8.4%)”.
Currently, Canadians under the age of 75 are less likely to own their own homes than they were a decade ago. And while only a minority of folks in the 25 to 29 age range have ever owned homes, 44 per cent in that group owned homes ten years ago compared to 36 per cent today – an eight-point drop.
At this rate it will not be long before half or more of all Canadian households are renters.
There would be nothing problematic with having a society of renters, if rents were sustainable and suitable rental homes widely available. But that is not the case.
According to Statistics Canada, 1.5 million Canadians live with what they call “core housing need”, which StatsCan defines as “living in an unsuitable, inadequate or unaffordable dwelling and not able to afford alternative housing in their community.”
Those in the housing need category are overwhelmingly renters. While only a bit more than five per cent of homeowners are in core housing need, a fifth, or 20 per cent, of renters bear that burden.
The CHRA’s Ray Sullivan worries that conditions for renters are getting more perilous.
To start with, rents are going up.
In August, the federal housing agency, the Canada Mortgage and Housing Corporation (CMHC), reported that in some provinces families would have to have six figure incomes to afford the average rent.
In Vancouver, the city with the highest rents, a household would need an annual income of more than $150,000 to afford the average rent of close to $4,000 per month for a two-bedroom apartment.
Toronto was not far behind, and even in Montreal, traditionally a renters’-friendly city, households would need an income of over $80,000 to pay the average two-bedroom-home rent.
Sullivan identifies other threats to renters, among them rampant “renovictions”.
These evictions happen when landlords do an end-run around rent control by undertaking notional renovations to rental properties. Some of those upgrades are minimal, what some have dubbed “Ikea renovations.” Their real purpose is not to improve the property; it is to raise rents.
When rental properties become speculative investments
In addition to the plague of renovictions, Sullivan and others point to another major threat: what they called the financialization of the rental marketplace.
What they mean by financialization is the transformation of affordable housing into high-yield investment assets. One way of doing that is to turn rental properties into short term Airbnbs.
Sullivan notes the proliferation of ghost hotel Airbnb buildings in major cities such as Toronto. Those buildings rake in big profits for their owners from short-term clients, at a time when an increasing number of Canadian are struggling to find long-term homes for themselves and their families.
Another type of financialization comes in the form of an investment vehicle known as the Real Estate Investment Trust, or REIT.
REITs buy properties and then sell shares to investors, allowing those investors to get into real estate without the need to buy entire properties.
REITs are similar to publicly-traded corporations in that they sell shares. They do not, however, pay corporate income tax.
Their tax-free status is only part of what makes REITs attractive to investors.
According to the business publication Investment Executive “REITs that invest in residential rental estate look for properties that are undervalued, properties where they can spend some money to upgrade them, and then increase the rent.”
REITs do not want long-term tenants, tenants who might make genuine homes in their rental properties. Investment Executive explains that REITs favour one-year leases, which allow them to increase rents each time they get a new tenant.
From the investors’ point of view – again, according to Investment Executive – shares in REITs are “dynamic” and “inflation proof.” REITs can count on a captive and built-in market for their product. There will always be people looking for a place to rent, investment experts explain.
Expect investors to lobby for their interests
The Trudeau Liberals have been aware for a while of the precarious nature of the rental market in Canada.
As part of their confidence and supply agreement with the NDP the Liberals promised they would tackle the financialization of the housing market by the end of 2023.
And during the last election campaign, in 2021, the Liberals also promised to do something about renovictions.
Their election platform pledged to require “landlords to disclose, on their tax filing, the rent they receive pre- and post-renovation.” If the federal government deemed the rent increase excessive it would impose “a proportional surtax” on the offending landlord.
The purpose of such a surtax would be to deter landlords from using the ruse of renovations to raise rents.
During the same campaign the Liberals also addressed the threat of corporate takeovers of rental properties.
“We will undertake a review of the tax treatment of large corporate owners of residential properties such as Real Estate Investment Trusts (REITs) who are increasingly trying to amass large portfolios of Canadian rental housing, putting upward pressure on rents,” the Liberal platform said.
The platform then promised to “put in place policies to curb excessive profits in this area, while protecting small independent landlords.”
None of this has happened yet.
And if you read the financial press and the advice financial advisors give to their clients you get the impression the investment community does not expect the current government to move too far or too fast.
The financial industry has enormous influence in this country. Its spokespeople are already warning the federal government there could be hazards in taking action against REITs and similar instruments.
The CEO of the Vancouver-based investment shop Nicola Wealth told the publication Advisor’s Edge that “targeting REITs and other large owners of residential real estate … might disincentivize investment and run counter to Ottawa’s broader goal of boosting housing affordability.”
Those who want bold and decisive action from the government will push hard from their side against that kind of pressure. They might start by quoting this eloquent maxim, from the Liberals’ 2021 platform: “Homes should be to live in, not a financial asset for investment funds to speculate on.”
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