By Steve Pomeroy
The challenge: Canada is losing affordable housing faster than we can create it
The erosion of “naturally occurring affordable housing” (NOAH) units is the most serious threat to Canada’s supply of affordable housing. Between 2011 and 2016 the number of private rental units affordable to households earning less than $30,000 per year (rents below $750) declined by 322,600 units — a trend that appears to be continuing.
Over the same period, the F/P Investments in Affordable Housing program together with unilateral provincial initiatives, mainly in BC and Quebec, added fewer than 20,000 new affordable units – so for every (1) one new affordable unit created, at considerable public cost, fifteen (15) existing private affordable units (rents below $750) were lost![1]
These losses are driven chiefly by the financialization of rental housing – an asset class attracting investment from both large capital funds, as well as smaller investors, both seeking to capitalize on dramatically rising rents). A further contributor is the intensification and redevelopment of sites with older low-moderate rent properties.
These annual losses far outstrip the 150,000 (only 15,000 per year) new affordable units planned under the 10-year National Housing Strategy (NHS).
This much heralded $40 Billion national initiative establishes a number of new funding envelopes. But missing from this array is an initiative to preserve Canada’s rapidly eroding privately owned affordable rental stock.
The solution: preserve Canada’s affordable housing stock through a non-market community-based acquisitions strategy
While some are advocating for regulation to constrain the financialization of moderately priced rental housing, a complementary approach is to intervene to acquire these affordable properties. If you can’t beat them join them – this suggests an approach that would enable community-based non-profit providers to emulate the behavior of the REITs and capital funds to acquire rental buildings with rents at or below the median market rent.
Such non-market acquisition can shift these assets out of the speculative market (where they are considered “under-performing assets”) into a non-market environment where these precious affordable rental units can be managed to preserve affordability in perpetuity.
Over the past three or four years the median rent in many cites has been increasing and double and triple the rate of inflation, abetted by turnover and a regulatory policy of vacancy decontrol. Holding rent increases to an inflation or rent index, can ensure the units remain at below median market levels. Indeed an analysis in Ottawa found that after 10 years of inflationary increases compared to ten years at 5% per year, rents would be 25% lower that if left in the market.
By reducing the loss of critically important moderate rent
homes, this approach can help to prevent homelessness – especially family
homelessness. In the immediate post-Covid recovery period, this can also help
to manage the risk that speculative capital funds will scoop up affordable
rental facing financial difficulty.
[1] Malatest Associations (2019) Sponsorship and Funding of Investment in Affordable Housing Construction, prepared for CMHC enumerated 9,.839 IAH . This excluded any unilateral provincial units, and during this period both BC and Quebec were constructing on average over 2,100 units annually (so together likely contributed a further 10,000 units in addition to the 9,839 reported in Malatest (2019).