Aug 24, 2023

The federal government’s potential leap towards housing affordability


This is an excerpt from the Canadian Centre for Policy Alternatives’ annual Alternative Federal Budget chapter on housing. It outlines what an ambitious federal government could achieve on housing affordability in its 2024 budget.

For a growing number of Canadians, the housing market is broken. In 2021, an estimated 1.5 million Canadian households lived in core housing need, defined as living in an unsuitable, inadequate, or unaffordable dwelling. The cost of home ownership remains close to all-time highs relative to income. Tight rental markets have given landlords tremendous bargaining power to raise rents sky high. And homelessness is pervasive across the country, from street and park encampments to people getting by in vehicles or by couch surfing.

Adequate, affordable housing is a basic human need and a socioeconomic determinant of health, the absence of which results in poorer physical and mental health outcomes. Canada’s 2019 National Housing Strategy Act recognized that “housing is essential to the inherent dignity and well-being of the person” and that “the right to housing is a fundamental human right affirmed in international law.”

In practice, the National Housing Strategy (NHS) has yet to fully allocate the resources—or leverage critical policy levers—necessary to realize its own rhetoric. The NHS has spurred some new rental housing through low-interest loans (Rental Construction Financing Initiative), has been slowly rolling out a modest amount of new social housing (National Housing Co-Investment Fund), and more recently has supported the purchase of hotels and other facilities to address homelessness (Rapid Housing Initiative). However, its funding profile is dominated by loans to for-profit rental development rather than investments in non-market housing.

A non-profit model inherently reduces costs by cutting out developer profits and targeting rents in new units on a break-even basis, rather than whatever the market will bear. The federal government is ideally poised to address the core challenge: the upfront capital costs of getting new housing built. Once built, the stream of rental income from new housing can repay the initial investment. A ramp-up of the scale we describe below would benefit from a coordinated approach that also meets Canada’s climate adaptation and mitigation goals, such as multi-unit buildings at passive house energy efficiency standards with developments close to transit, shops, public services and other amenities.

Homelessness is pervasive across the country.

Even by its own measurement standards less than one-third of NHS units delivered can be considered affordable. This is in direct opposition to Canada’s human rights obligation to devote a “maximum of available resources” and “all appropriate means” to ensure people’s right to housing is realized, prioritizing those in greatest need.

Upstream investments across a wide range of housing are necessary to stem the flow of people into homelessness and precarious housing situations. A bold plan to build new supply—rooted in the belief that housing should be a human right—could end homelessness within a decade. This includes a spectrum of housing linked to mental health supports and to treatment and recovery beds.

The federal government’s 2023 budget made a welcome new investment in urban, rural and northern Indigenous housing. However, its $4 billion commitment falls well short of the estimated $56 billion over 10 years that Canada’s own National Housing Council recommended. To address these disparities in housing conditions in urban, rural and northern settings, Canada requires sustainable investments in permanent housing options at a scale commensurate with need and in alignment with Indigenous rights to self-determination under the United Nations Declaration on the Rights of Indigenous Peoples.

The NHS aims to put one-third of its investments, with a minimum of 25 per cent, towards serving the unique needs of women and their children. To ensure progress along the way, the capacity and resources of the Office of the Federal Housing Advocate will be strengthened to identify and remedy systemic violations of the right to housing. This advocate will also undertake an independent review and audit of the National Housing Strategy to date.

What could the feds be doing?

The federal government could renovate the National Housing Strategy to ensure that programs genuinely and positively impact those who bear the brunt of Canada’s housing and homelessness crisis. This redirection should maintain NHS planned loans and grants but remove the $25,000 per unit cap on National Housing Co-Investment Fund grants (implemented in 2022) to ensure more projects with greater affordability can get off the ground.

The feds could also continue the Rental Construction Financing Initiative to provide low-interest loans for all rental housing projects, because of the additional costs of building housing arising from higher interest rates. This will include loans to for-profit developments that meet (more stringent) affordability criteria. Meanwhile, it should also ease eligibility criteria for non-profit developers.

With proper funding, the federal government itself could build one million new non-market and co-op housing units over the next decade. A sum of $20 billion a year in capital funding to the National Housing Co-investment Fund could build a minimum of 100,000 new units per year (provincial partnerships and public and community-owned land contributions are assumed to contribute another $10 billion). Capital funds could be used directly to build publicly owned affordable housing, as well as being advanced to non-profit developers as a long-term mortgage (where payments will be recycled back into funding in future years).

Such housing investments would be broad-based, but with specific targets for Indigenous Peoples, seniors, people with disabilities, immigrant families, lone parents and people fleeing domestic violence. All units will employ a universal design and a minimum of 10 per cent of new units will be set aside for urban Indigenous households. This also includes substantial new development of supportive and complex care housing that provides wrap-around support for people experiencing homelessness, addictions and/or mental health challenges.

The Federal Lands Initiative of the NHS has, to date, done little to put federal land into use for affordable housing. An ambitious federal government could introducate a $10 billion Public Land Acquisition Fund, a dedicated multi-year fund to bring additional land into public ownership towards the construction of non-market, affordable rental housing.

With proper funding, the federal government could build one million new non-market and co-op housing units over the next decade.

The community housing sector can also acquire existing affordable rental buildings to bring them into the nonprofit world. Building on the British Columbia government’s new $500 million Rental Protection Fund for non-profit housing providers to purchase existing rental buildings, the federal government could create a $20 billion Housing Acquisition Fund to support this goal of maintaining the supply of affordable housing for low- and modest-income households over time. This fund would finance non-profit providers with low-interest mortgages that can be repaid over a 50-year period. Doing so would support the acquisition of up to 60,000 rental units.

The federal government could also create a deferrable property surtax on properties worth more than $1 million to ensure that those who received windfalls from rising home prices contribute to building the next generation of affordable housing.

Ideally, such a surtax would start at a rate of 0.2 per cent on the portion of assessed values between $1 million and $1.5 million, 0.5 per cent on values between $1.5 million and $2 million and one per cent on assessed values above $2 million. For example, a house valued at $1.2 million would pay $400 per year while a house valued at $2.5 million would pay $8,500 per year. The surtax would only apply to the top 10 per cent most valuable homes and would be fully deferrable until time of sale for households on fixed incomes. Purpose-built rental properties would be exempt from the surtax.

The federal government could also immediately end various real estate tax incentives, which only serve to inflate the housing market. This includes new planned incentives such as a Rent-to-Own program and a new Tax Free First Home Savings Account. Stopping the preferential tax treatment given to real estate investment trusts (REITS) would also go a long way to prevent the further financialization of housing.