Thank you very much, Chair Morrissey. Hello, bonjour, kwe, to everyone listening and attending.
The Canadian Housing and Renewal Association is the national membership-based association representing non-profit and affordable housing. My name is Ray Sullivan. I'm the executive director. Our members are non-profit and co-op housing providers, advocacy organizations, rental associations and provincial and municipal governments. We're trying to provoke system-wide action toward the right to housing by all, and our members have the expertise to get that done.
I want to focus my comments on one important solution that will blunt the impacts of financialized rental markets, and that is supporting non-profits and co-operatives in purchasing existing rental properties, preserving affordable rents and protecting those homes. As I build to that, there are two key things that I want us to be very aware of.
The first is that there is one single interconnected housing market. Whether it's new ownership, the resale market, high-end rentals, older affordable market rentals or for-profit rooming houses, they're all part of the same housing market. What happens to one link in that chain rattles all of the other links too. For low- and modest-income people, who are the most economically vulnerable, if that chain rattles enough, they find themselves without a home at all, or paying more than half of their income on rent every month and at risk of losing their home.
The second thing I want us to be aware of is that there's a business model at play here that is causing significant harm. I want to break that down a little bit further.
First, rental properties are value-based on their cash flow. This is different from purchasing your own home. Picture two identical small apartment buildings side by side. They're identical in every single way except that one of them has higher rents, probably because most of its tenants are new, and one of them has lower rents, probably because most of its tenants have been there for a long time. The property that has higher rents, which generates a higher net rental income, is worth more on the market than the one with lower rents, even though they're otherwise identical.
It's not that complicated. If you're buying your rental property, you want to look for something with low rents—rents below full market value—because that gives you the greatest capacity to raise the rental income and thereby raise the value of your real estate asset. You can sell that asset for much more than you paid for it. It's simple enough.
Now, markets adapt quickly. The rental real estate market knows that those properties with lower rents often mean longer-standing tenants. Those units can be flipped over and rental income can be increased. What happens is that the market values the property based on the potential rents, the inflated rents, rather than the actual rents. This is a cycle that inflates property values, and that impacts the whole housing market.
What does this mean for the people living there? It means that if you've been living there for a long time, paying a more modest rent, you're a problem for that new property owner. You're getting in the way of the owner growing their asset value or generating the rental income to justify what they just paid for. When I think of this, I think of my grandmother, who rented the same apartment in Montreal with her sisters for about 40 years. Here we have, increasingly, a business model in rental housing that wants grandma out of there. This is the cycle that sees grandma's affordable rent as an obstacle.
The things that we need more of, housing security and stability and affordable market rents, are put at risk by this business model. We see this clearly in any examination of the affordable housing crisis. There's a massive loss of homes that rent at levels that are affordable to moderate-income and low-income households.
There's a spike in average rents, in fact, with year-over-year increases in available rents in the double digits right across the country, which are far outstripping the growth in incomes. This is leading to a much higher level of housing precarity and homelessness, and it's an obstacle to households entering the ownership market. It puts our immigration targets at risk. It harms our economy and our productivity. This is the cycle that is fuelled by financialization.
How do we interrupt the cycle of financialization? Relative to other OECD countries, Canada has a very small supply of non-profit and co-op housing. Thirty years ago, community housing represented 6% or 7% of the overall housing supply. Today, it represents half of that, about 3% or 4%.
Of course, when we're talking about community housing, the objective and mission of these organizations is not to increase the market value of their assets. It's to provide secure affordable housing. The purpose is to make sure that grandma and her sisters have a stable affordable home for as long as they want it.
A good supply of community housing stabilizes the rental market and ensures a supply of rental housing that is affordable to people with low and middle incomes. Let's talk about moving rental housing properties from column A to column B—from a business model where grandma's affordable rent is a problem to the one where grandma's affordable rent is the very purpose and objective of what we're trying to achieve.
Supporting non-profits and co-operatives to purchase existing rental properties and preserve modest rents is definancialization at work. This isn't a new thing.
