Human Resources Committee on June 6th, 2023

[Dr. Gaëlle Fedida]

Thanks very much.

I can be fairly quick with that, I think, Mr. Chair.

My next question is for Mr. Sullivan.

I know the two gentlemen speaking from the perspective of the private sector rental housing providers acknowledged the importance of the not-for-profit sector as well.

Given the scope and the scale of the crisis in housing in this country, do you believe that the private sector has an important role to play in solving this problem as well as the not-for-profit and public sector?

[Ray Sullivan]

Yes. Through the Chair, absolutely, there's a role for the private sector. What's important, as we talk about rapidly escalating housing starts and increasing the housing supply, is that we're very aware and mindful of the share of this that needs to be non-market and community housing.

We're not going to solve the housing crisis by adding five $5-million homes or five million $3,000 a month rents for one-bedroom apartments.

[Dr. Gaëlle Fedida]

Thanks.

[Ray Sullivan]

That's going to be out of reach for a significant number of Canadians.

[Dr. Gaëlle Fedida]

I'm sorry. I'm running out of time, but I really want to quickly ask you this. What do you think that the right mix should be? You mentioned that it used to be about 6%. Now it's about 3%.

What's your opinion? What is the right mix?

[Ray Sullivan]

I would agree with the report from Scotiabank that came out a couple of months ago saying that we need to double the relative share of non-profit housing. We need to get up into the range of 8% to 9%.

[Dr. Gaëlle Fedida]

Thanks. Can you—

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Aitchison.

Now we'll go to Mr. Collins for six minutes, please.

[Chad Collins, Liberal, Hamilton East—Stoney Creek, ON]

Thanks, Mr. Chair.

Thanks to the witnesses for their attendance here today virtually and in person.

I will start with Mr. Brooks.

Mr. Brooks, over the years as a city councillor, I had the opportunity to work with a REIT that purchased a number of properties in my municipality and specifically in my ward. After their purchase, I had the opportunity to work with the tenant associations who were interacting with the REIT.

I have to say that I could probably write a book on it, but I won't share all my experiences today, other than to say that I think most people opened their arms to the fact that there was going to be a massive investment in the renovation and repair of the five buildings in one townhouse complex that were purchased, but at the end of that 18-month renovation process, there came about the guideline increase, and then subsequent to that, there was an approval for a rent increase. What was at first celebrated as a great opportunity to improve the quality of life for residents was soon received as something different from that as it related to higher rents and the inability to pay for those AGIs that were approved over consecutive years.

As a legislator, I'm interested in certainly finding ways and means to support the private sector, which is very important as it relates to creating new supply and helping us with renovations and repairs. I'm interested in finding a way to encourage those renovations and repairs, as you highlighted your industry does, but I'm also interested in ensuring that, when that happens, those rents stay affordable.

Can you comment on that in terms of how to address that issue? It can be a very complicated one and a very important one for tenants who are living in a very affordable unit, only to find themselves in a unit a year later that is very much different, from a price point, from the one they were in prior to the arrival of the REIT.

[Michael Brooks]

Through the Chair, I think it's a very good question, a very good point, and it's probably something that a lot of owners struggle with.

There are only certain types of improvements to a building that are recoverable under an AGI, at least in Ontario. There is often a long amortization period for that expenditure. It's for mission-critical items only so, for many owners, it's trying to get the building up to a standard and perhaps reduce the repair and maintenance costs going forward in the near term, but you might leave some people behind.

This was my point about having a better system at all three levels of government for rental support programs for those in need. I think it's better to approach it that way than to prevent the AGIs, prevent the repairs and maintenance from happening at all. Many times this is a building-by-building assessment. It's hard to generalize.

[Chad Collins, Liberal, Hamilton East—Stoney Creek, ON]

How do we leverage, then, your access to capital?

You've highlighted here today your ability to invest in properties. What I want to incentivize is the creation of new supply. I think your industry has recently pivoted from just-purchased existing stock to building new. I live in a place here in Ottawa that is a former hotel. That's a prime example—a great example—of a REIT purchasing something and creating new rental stock.

How do we incentivize the creation of new and, hopefully, affordable supply, while maybe looking at ways to disincentivize your purchase of existing stock, which has some of the complications I referenced earlier, as they relate to rising rents?

[Michael Brooks]

I would say, on the former, in terms of new supply.... I mentioned in my comments that many new projects—whether you're a for-profit or not-for-profit entity—don't pencil out, because interest rates and overall costs are higher.

We need a break somewhere in there—land costs for free, for example; municipalities rolling in land for free; lower interest rates; grant monies. I talked about this low-income housing tax credit being Canadianized, which applies to not-for-profits and for-profits. It's a very useful tool. It's been in place in the U.S. since 1986. On the supply side, we need a cost or two to be dropped, or perhaps some of that 30% in taxes to be reduced.

On the existing-building side—if I can finish—I don't think you should disincent that. I think we need to, perhaps through my code of conduct, find a way to upgrade that building and extend its useful life, while being aware of who is left behind and dealing with them humanely and fairly.

[Chad Collins, Liberal, Hamilton East—Stoney Creek, ON]

Thanks for those answers.

Mr. Sullivan, can I ask you the same thing about the carrot-and-stick approach, as it relates to legislation or government investments that incentivize new supply and discourage the purchase of existing stock, which results in higher rents and relocated residents, because of renovictions or something similar to that?

[Ray Sullivan]

Thank you for the question.

I think this is something we need to keep an eye on when we're talking about this. This is where people live. This is the stability and foundation of their lives. We're talking about their homes.

The number of people being displaced through the rental market is extraordinary. A report came out from the University of British Columbia a couple of months ago showing that, across the country, about 65% of all evictions were so-called no-fault evictions—people who paid their rent, were good neighbours and didn't disturb the other neighbours in the building. They were getting evicted from their property. There are definitely cases where people are being removed from their homes so the landlord or owner can invest in the property and renovate. There are also cases where people are doing renovations so they can remove the tenants and increase the rent.

Make no mistake. Rents are set based on what the market will bear. It's not a set percentage above landlord costs. If the landlord can get a higher rent, they will. That's business and completely fair. What I'm saying is that we need to balance this with a healthy supply of community and non-profit housing for people who are vulnerable in that type of marketplace.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Collins.

I'm going to mention that we have resources to go to six o'clock. If it's okay, we'll go to Madam Chabot for her six minutes, then suspend for the vote and then resume with Madam Zarrillo.

Is that okay?

[Some hon. members]

Agreed.

[The Chair, Liberal, Bobby Morrissey]

Madam Chabot, go ahead for six minutes.

[Louise Chabot, Bloc, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

I want to thank the witnesses for being here today.

Our study is very important. We are talking about the financialization of housing, and in particular, affordable housing. We know what the needs are, but we have trouble offering affordable housing for a variety of reasons.

The National Housing Strategy does however include various programs, as well as a public investment of roughly $80 billion. In our view, it is essential not only to create affordable housing, but to ensure that it is affordable in the long term.

Mr. Sullivan, thank you for your testimony.

You said that we have to focus on community housing. In your opinion, is the federal government doing enough for the construction of non-market affordable housing?

[Ray Sullivan]

Thank you for the question.

My apologies, but I will answer in English since I speak English better.

The federal government made a huge step with the national housing strategy five years ago. It was a welcome return to that space where the federal government was very active before, and it has had an impact. The challenge is that a lot has changed in the landscape in the past three years in particular with interest rates, with cost and with the general housing market. It's important to pivot and update those programs in the national housing strategy to fill in the gaps that weren't there five years ago.

As I've pointed out, acquisition of existing properties as a quick way to move things into a non-profit and affordable column from the private market and protect those tenancies would be one example.

[Louise Chabot, Bloc, Thérèse-De Blainville, QC]

In your opinion, should the National Housing Strategy allocate most of its funding to non-market affordable housing?

[Ray Sullivan]

Some of the greatest amounts of that $85 billion in the national housing strategy actually goes to the rental construction financing initiative, which is geared toward private sector new supply with modest levels of affordability. That's changing a little bit now.

We're actually seeing less funding available in recent years for non-profit and community housing supply, particularly as the costs—as Mr. Brooks and others have pointed out—have gone up for the non-profit sector just as much as they've gone up for the for-profit sectors. As the cost to borrow money in particular has gone up, the amount of grant money available to the national housing strategy has actually gone down in recent years. I think it's time to revisit that and to strengthen those programs.

[Louise Chabot, Bloc, Thérèse-De Blainville, QC]

You suggested that the budget include a program for the acquisition of affordable rental housing buildings.

How would such a program be beneficial?

How would it help develop the supply of affordable housing quickly, in parallel with private-sector housing?

[Ray Sullivan]

There are a great number of properties right now with tenants who are paying below-market rents in the private market. What we are seeing is that, when that owner sells and the property changes hands, those rents rise rapidly, often displacing the tenants who are there. This is a strategy to protect those tenancies and those homes—particularly people who have been in those homes for a long time—and to make sure that those rents don't rise anywhere near the same pace that they would in a private market.

We're asking for the government to invest in a fund and we know that there are other investments we can leverage from other sources to make the best use of that as well. This increases the supply of non-profit housing, protects those existing tenancies and also increases the capacity of the community housing sectors through growth.

[Louise Chabot, Bloc, Thérèse-De Blainville, QC]

That is certainly something we will have to consider if we focus on housing affordability. Housing costs should be viewed in the long term, which is not the case right now. Without setting that aside, we know the private sector is making a contribution.

What kind of turnaround would be needed?

We have heard that we should prevent financialization through the National Housing Strategy and that we should focus on off-market affordable housing instead.

In terms of affordable housing, what is the key to achieving that and reversing the trend?

[Ray Sullivan]

I think we need to be targeted toward affordability. There's no question that we need to rapidly increase the supply of all forms of housing. I think government does need to look at tax incentives and other marketplace incentives to increase the supply of rental housing.

I think there needs to be an exchange around affordability. You can look to older programs in the 1970s and 1980s, for example, that allowed for accelerated depreciation of capital assets in return for modest rents. They were very successful and a huge proportion of our rental supply comes from that era under those kinds of programs. I think we need to revisit that at the same time, and we need to have a full market response to this—the private and non-profit sector and every point on the income scale—to address the supply shortage and the affordability crisis.