Evidence of meeting #73 for Human Resources, Skills and Social Development and the Status of Persons with Disabilities in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was affordable.
A recording is available from Parliament.
Liberal
Michael Coteau Liberal Don Valley East, ON
I'm assuming that the $1,300 is a loss to the company. Are there subsidies that come directly from the city to make up for that loss or do you actually make a profit within that range?
Senior Vice-President, Project Finance, Minto Group
The city has provided a subsidy of $45,000 per unit for each of the 100 units covered by the program. They have waived development charges on those units and property taxes for the 25-year affordability period.
Senior Vice-President, Project Finance, Minto Group
Putting those things together, the cost of construction is still close to $500,000 per unit for us. However, with the benefits of the RCFI financing and the property tax abatement, we can make this project pencil.
As I said in response to member Aitchison, we would do this project over and over again if there were funds available to do it.
Liberal
Michael Coteau Liberal Don Valley East, ON
Thank you very much, Mr. Dixon. I appreciate your answers.
Mr. Pomeroy , you talked about a 1970s initiative by the federal government to push forward regulations that impacted the province.
I don't know whether I heard that right. Can you talk a little bit about that for us, please?
Liberal
The Chair Liberal Bobby Morrissey
You'll have to hold that, Mr. Pomeroy.
You could submit it in writing or use your opportunity at another question. We have gone over time.
Ms. Chabot, you have the floor for six minutes.
Bloc
Louise Chabot Bloc Thérèse-De Blainville, QC
Thank you, Mr. Chair
Thank you to the witnesses.
This is an important study. In fact, I believe this is the last meeting. We are addressing the research reports on the financialization of housing that were published by the Federal Housing Advocate, and we’re taking a serious look at the issue of financialization of the market, including corporate ownership of single-family homes, and the effects of real estate investment trusts on the rental housing market.
So we’re here to assess the impact of financialization on national housing strategy programs, as well as on the development of affordable housing—I’m talking about housing that doesn’t cost $1,500 a month for a studio—that will remain affordable over the long term.
My question is for Mr. Pomeroy.
The Federal Housing Advocate was quite clear in her 2021–2022 annual report. According to one of her recommendations to the government, “[t]he National Housing Strategy must target its programs to prevent the financialization of rental housing and ensure that its programs do not contribute to the financialization of housing.”
Do you agree with this important statement by the Federal Housing Advocate?
Industry Professor, McMaster University, and Executive Advisor, Canadian Housing Evidence Collaborative, As an Individual
Thank you for the question. I will respond in English, if that's okay.
Yes, I think there is a need. As the industry representatives have indicated, they are very good at building supply. They can't create housing at affordable levels, simply because it doesn't make a business case and it doesn't make sense. Therefore, it very much is the role of governments to bring in mechanisms, whether that be cheap financing, capital subsidies or ongoing housing allowances, to improve affordability for low-income households that otherwise won't be met by the market.
I think the national housing strategy is certainly the instrument that could and should do that. Currently, even though it is now identified as an $85 billion initiative, most of that funding is in loans, not actual contributions and grants. If we really want to meet the needs of very low-income people, the national housing strategy will need to be significantly enhanced with higher levels of capital contribution and ongoing subsidies.
That's not just a federal role. Certainly the housing allowances are part of the bilateral part of the national housing strategy and could be delivered in collaboration with the provinces which cost-share those ongoing housing allowances. That's critical if we're going to meet low-income housing needs.
Bloc
Louise Chabot Bloc Thérèse-De Blainville, QC
According to the results of an extensive study you conducted in 2019, the loss of affordable housing is due to two factors: the demolition of old units—
NDP
Jenny Kwan NDP Vancouver East, BC
On a point of order, Mr. Chair. I'm sorry, but there is no translation.
Bloc
Louise Chabot Bloc Thérèse-De Blainville, QC
Thank you, Mr. Chair.
I would also like to thank the interpreters for their exemplary work.
Mr. Pomeroy, in a 2019 study, your group of researchers indicated that the loss of affordable housing was explained by two factors. The first is the demolition of old units that are replaced by new ones. The second is the buyout of these units by financialized real estate companies who decide to raise rents to maximize the return on their investment.
With respect to units purchased by these speculators, what is that dynamic’s effect on the rest of the rental market?
Industry Professor, McMaster University, and Executive Advisor, Canadian Housing Evidence Collaborative, As an Individual
Through you, Chair, in that report, I looked at the number of units renting at affordable levels. I used the benchmark of $750, which is equivalent to affordability for an income of less than $30,000 a year, and found the loss that I mentioned in the opening remarks of $550,000. The cause of that is, indeed, twofold. Member Coteau already mentioned that you're knocking down all the existing structures. It takes them out of the stock. We do lose some of that low-rent stock as a result of intensification policies, which most municipalities are pursuing.
The other factor was, indeed, the increased rents that occur as a result. The term “financialization” tends to be used as a short-form code for these increases in rents. I think the important point here is that purchasing assets with the intent of increasing yield by raising rents is not the exclusive preserve of real estate investment trusts. There is a wide range of investors. We hear many media stories of individual investors purchasing a single-family house or a duplex, where they're doing the same thing. Small investors buying small apartment buildings are doing the same thing. It's the fact that they can, that the rent regulations allow them to do this to increase their potential yields. That actually encourages and enables that kind of behaviour.
I think that behaviour is endemic across many classes of investors. Some do it in legal ways, because the laws allow them to increase the rents; and some tend to bend the rules a little bit, particularly the small investors. However, [Technical difficulty—Editor] 57% of no-fault evictions last year. A national statistics source identified the fact that it was the small investors who were the ones actually causing more evictions than the large institutional and corporate landlords were.
I think we have to make sure that we spread our study wide enough to capture all of the actors in this system.
Bloc
Louise Chabot Bloc Thérèse-De Blainville, QC
My next question will be brief.
The National Housing Strategy includes several programs and is funded with public money. I’m not talking about existing regulations in cities, in Quebec and in the provinces, because those mostly fall under their jurisdiction. Through the National Housing Strategy, we want to ensure that there is affordable housing stock.
Shouldn’t all programs be geared towards supporting non-market housing and private, financialized housing?
Industry Professor, McMaster University, and Executive Advisor, Canadian Housing Evidence Collaborative, As an Individual
I assume that question is still to me.
Bloc
Louise Chabot Bloc Thérèse-De Blainville, QC
Mr. Pomeroy, if you don’t have enough time to answer, I would ask that you provide us with a written reply.
Liberal
Industry Professor, McMaster University, and Executive Advisor, Canadian Housing Evidence Collaborative, As an Individual
On the one hand, it sends direct, limited fiscal resources to those most in need.
The problem here is that we have a systemic problem in the housing system. If young households can't afford to buy a home, then they clog up the rental market and add demand, and we're seeing an increase in rents. The national housing strategy needs to be comprehensive in its scope, and it needs to consider how it can make a healthier housing system. If we don't have access to ownership, we will have a knock-on effect in the rental market. If rents go up, low-income people are impacted at the bottom.
I think that in parallel with subsidies and contributions to very low-income people, we also need to make sure that the system encourages and enables the industry and the housing system, as a whole, to be as healthy as possible, which I don't think is currently the case.
Liberal
NDP
Jenny Kwan NDP Vancouver East, BC
Thank you very much, Mr. Chair.
Thank you to all of the witnesses.
My question is for Mr. Pomeroy.
You mentioned that in 1975 the federal government actually instituted a national rent control initiative in collaboration with the provinces. Could you expand on what happened there?
Industry Professor, McMaster University, and Executive Advisor, Canadian Housing Evidence Collaborative, As an Individual
If you recall, in the 1970s we had extremely high inflation. You think it's bad now. It was three times worse back then, with inflation of 13% or 14% and mortgage rates of 20% or 21% in the late 1970s.
As part of an anti-inflationary program, the federal government put in place wage and price controls, where it was trying to address the situation in the same way that currently the Bank of Canada is doing through interest rate increases. A wide range of initiatives took place, one of which was to ask the provinces, because we don't have federal jurisdiction in this area, if they would support the federal government in its efforts to control inflation by enacting rent controls.
It was entirely voluntary on the part of the provinces. Every province in this country put in place rent controls as a result of that request. They started unwinding them in the early 1980s, actually to the point where provinces like Alberta no longer have rent control, but they were in place for four or five years and did help to suppress inflation at that point in time.
NDP
Jenny Kwan NDP Vancouver East, BC
Thank you very much.
Do you have any data with respect to I guess the rents in terms of the changes, in terms of the pattern of rent increases during that period?
Industry Professor, McMaster University, and Executive Advisor, Canadian Housing Evidence Collaborative, As an Individual
At that time, in terms of rent increases, again, in the 1970s we had a significant number of federal programs that supported rental construction. We had the assisted rental program and the multiple unit residence building mechanism, as well as significant funding for social housing, so we had quite a high level of production of rental housing—the peak years of rental production. We were creating sufficient supply that we maintained relatively healthy vacancy rates, and that stopped significant increases in rents at that period in time.
It was only really after the mid-1990s—and there is a chart in my paper that tracks rental construction—and starting in 1990 that we saw a significant reduction in rental supply, because all of those federal programs ended and the federal government ceased its funding of social housing effectively on December 31, 1993. We moved from a period of high supply and healthy vacancy rates to a period of low supply, tight vacancy rates and upward pressure on rents.
The only offsetting feature, as I talk about in the paper or the brief, is that during that period we had fairly good access to home ownership. Interest rates were coming down. Incomes were rising, employment was rising and, between 1996 and 2006, 800,000 renters became owners. That had the same effect as building 80,000 rental units a year. Even though we weren't building much, we didn't see the effect of that lack of building. It was really a delayed effect, which is now catching up with us. It's really that historical period that matters if you think about things today.