In discussing the CMHC call for ideas for the recently proposed $4 billion Housing Accelerator Fund (HAF), former CMHC/MSUA policy director David Crenna reminded me that this was much like something implemented back in the 1970’s, under the title Federal Housing Action Plan (FHAP). This sent me down a historical search of what we tried back then, and what can we learn from that earlier era.

On the surface there is a remarkable similarity between the context then and now. Insufficient supply, ownership affordability, insufficient rental construction and a demand (and supply) bias for higher priced homes. These same issues resonate today.  

From 1978 CMHC Evaluation of the Federal Housing Action Plan

But there are subtle differences – in the mid 1970’s inflation was rampant and interest rates high. Ownership was out of reach, not because of high prices (driven by historically low mortgage rates), but because of high interest rates and mortgage carrying cost. And rental supply was suppressed by the perfect storm of tax reform, rent regulation, inflating construction costs and newly created competition from condominium developers for multiple-unit zoned land, resulting in few rental starts and vacancies below 2%.

The FHAP was designed in 1975 to address these issues and more specifically set out the objective: to stimulate the residential construction industry to ensure an adequate supply of housing to meet the needs of middle and lower income families. To deliver on this objective programming was designed with three key components:

  1. Lower the carrying costs to enable modest income households to buy a home, through the Assisted Home Ownership Program (AHOP);
  2. Incent developers to build rental at modest market rents through an Assisted Rental Program (ARP) ; and
  3. Provide incentive grants to municipalities that implemented local policies and programs to stimulate building at moderate rents and prices.

The key feature of all three elements was an explicit intent and focus on moderate rent and prices. This criteria is barely mentioned in the current debates on housing supply and excess prices.

Instead, there is a repeated discourse that the solution to high prices and rents is to simply increase the number of homes constructed, by easing planning regulations to add density in low density single family zones, allow development on the periphery, where land is cheaper and low density detached homes are the norm, and intensify around transit stations. It is implied that such increased supply will result in stalling or reduction of new home prices.

I would argue, based on the evidence from recent construction activity and associated prices and rents that it is not enough to simply stimulate supply of any form. Like the FHAP, it is necessary to ensure that the additional supply produces homes that are modest in rent and prices, and as such contribute to affordable supply, to address the persist housing affordability crisis.

This means refocusing the current rental stimulus – the Rental Construction Finance Initiative (RCFI) to produce modest rather than high end new rentals. It means incenting and encouraging municipalities to set unit size and price conditions when they permit increased densities in single family zones. And it means prescribing affordable rent targets as part of densification policies for transit oriented development. And where moderate prices homes are added in desirable neighbourhoods, use resale conditions or shared equity mechanisms that prevent first buyers or investors from capitalizing on the windfall gain of prices subsequently driven by market desire for these areas.

Sir Winston Churchill famously said ” “Those who fail to learn from history are doomed to repeat it.” In this case, repeating it would not be so bad. But ignoring the key elements of the 1975 FHAP – an emphasis on modest prices and rents – will doom the current Housing Accelerator Fund.

My submission and suggestions to CMHC are posted on the CHEC website