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À travers le miroir

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Just to our north lies a country whose population, eight percent less than California’s, is spread out over a land two percent larger than America, a country whose dominant language is the same as ours, and whose housing challenges are a refracted mirror image of ours at home, with fragments that are like ours but assembled in configurations entirely different from ours. This was brought into sharp focus by a fascinating panel I had the pleasure of moderating at the NH&RA summer conference in Quebec City, where Jeff Morrison of the Canadian Housing and Renewal Association described the Canadian system and the challenging housing policy adventure on which Canada has embarked, and I translated Canadian practice into rough American parallels.

Canada’s affordable housing ecosystem: a fractured snapshot

  • Current population mainly suburban and rural (especially in the north) but rapid 21st century urbanization occurring in Vancouver, Toronto and the Golden Horseshoe south from Toronto through Guelph, Hamilton and to Niagara.
  • Four percent indigenous population (First Nations), compared to one percent Native American population rate in the U.S.
  • Legal immigration: Canada 0.8 percent of population annually, compared to 0.3 percent annually in the U.S.
  • 70-75 percent homeownership versus 65-70 percent in the U.S.
  • For-profit rental housing is dominated by small landlords, many of them immigrant families.
  • No for-profit ‘affordable housing.’ All affordable housing is government/nonprofit owned.
  • When converting Canadian housing budget figures to U.S., C$1 = U.S.$13 because $1=C$1.27 and the U.S.’ population is nine times Canada’s.

Economy and demography that impact housing. For a country with a seeming infinity of land (see above box), Canada is undergoing dramatic urbanization and skyrocketing housing costs in metro Vancouver and Toronto, driven by four factors:

  1. Canada’s appeal as a capital magnet for expatriate investors (many of them Asian).
  2. Economic growth and job creation occurring only in the major cities and job losses in suburban and rural areas.
  3. The appeal of cities to aspirational and entrepreneurial immigrants (Toronto is 50 percent foreign born).
  4. Microscopic long-term interest rates (the Bank of Canada recently upped its base rate to 0.75 percent).

Housing in general. The sudden emergence of blue urban islands in a red suburban/rural ocean has created instant haves and have-nots in housing and become a political/policy crisis of the first magnitude. While homeownership in Canada is as prized as in America and more broadly achieved, price rises in the hot blue cities are above double digits annually, and the bottom rung of the ladder of homeownership seems to be rising out of sight faster than aspirants can leap up to grab it. Perceptions of foreigners snapping up condos only to keep them vacant led to surtaxes being imposed on foreigners buying homes (British Columbia a year ago, Ontario last April). Both cities experienced boundary effects: prices spiked before the tax hit, dropped after it hit, and are now rising again. Even though national long-term finance is provided mainly through a fiscally cautious national lender (CMHC, a rough agglomeration of Fannie, Freddie and FHA but without the securitization virus), the extremely low macroeconomic rates act against attempts to restrain rising prices.

Rental housing. If in Vancouver and Toronto ownership prices are skyrocketing, those cities’ rents have fired the booster jets. Despite (or because of) the existence of provincial rent control (with vacancy reset, but still), little new rental housing is being produced; instead, production is condo. Small landlords find value in renovating older infill properties but they too see condo conversion as the liquidity strategy. Ironically, though immigrant families are naturals for older smaller rental (either as tenant or as renovator-owner-landlord), the legal and financing bias against rental hits them hard.

Affordable rental. Likewise, despite (or because of) the bias against market rental, affordable housing is exclusively the domain of mission bodies – local authorities (equivalent to US PHAs) and nonprofits. Canada has a supply of 600,000 social housing apartments, all rental, all covered by long-term (25- to 50-year) operating agreements (think public housing operating subsidy meets project-based Section 8) that have been expiring for the last five years and are not being replaced. This inventory is old, generally under-maintained (there are exceptions), under-renovated (think 1980s appliances and electrical systems), and in the absence of the operating subsidy, two-thirds are projected to be unsustainable1. Though the national government has pledged to renew the annual appropriations spent on expiring operating agreements, no one is under the illusion that this by itself will do anything more than continue the current decline.

The new national housing strategy. Among its many new priorities, Prime Minister Trudeau’s cabinet has started a national consultation under the broad heading A New National Housing Strategy. (Speaking as an American, I find the idea of a national housing strategy a charming innovation, since America last published one in 1968.) Within the priority, the many announced sub-priorities are:

  1. Homelessness, which has accelerated along with urbanization and skyrocketing housing prices, and which for multiple reasons hits First Nations people harder.
  2. A National Housing Fund of C$5 billion to address capital backlog and renovate/renew the housing stock which sounds good until you hear that it’s over 11 years2.
  3. Renewed federal/provincial partnership of C$3.2 billion (also over 11 years) which to my cynical American ears sounds like either (a) Shifting mandates without shifting enough funding, or (b) Thinking that private financing can camouflage or compensate for the lack of sufficient subsidy. My Canadian friends assure me their politicians would never do that.

Missing from the list, at least as I read it, are these pieces that I’d want as priorities:

  1. New production. Canada has already accumulated 100,000 lost affordable housing apartments falling off operating agreements.
  2. A Commmunity Reinvestment Act mandate. Banks have no concretized incentive for being socially responsible, and without that they will not be concessionary on either rate or risk tolerrance.
  3. A proper blend of public subsidy with private finance. At the moment, I see no business base for banks to lend, or developers to build/acquire/ renovate, by designing clever means of leveraging Canada’s $3.2 billion PPP fund.
  4. Tax incentives. Whether (a) national-level real estate tax abatement/exemption, (b) nationwide exception from VAT3 on building materials, (c) tax exemption on rental income from qualified affordable housing (to be defined) or (d) tax credits for investing in same4, the appropriated funding should be spiritually matched by tax expenditures that are both politically countercyclical and transactionally self-activating (hence underwritable).

Canada’s discussion is in its early days of sugarplum visions; only later will come the sobering calculations of how much this will cost, followed by the outbreak of squabbling among housing interest groups for the inadequate funds.

My doubts, however, are for the future. For now, Canada has said it requires a national housing strategy. It’s high time we in America did the same.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at [email protected].