The thin promise of housing affordability: how the Liberals prioritize developers over renters
By: Amanda Rosenstock
Canada’s Housing Crisis
Renters in Canada’s major cities are feeling the squeeze. The Canada Mortgage and Housing Corporation (CMHC) considers it unaffordable when 30% of a household’s total before-tax income is spent on housing (CMHC, 2018). In Toronto, as of 2016, 48% of households are renters, almost half of which spend more than 30% of their income on housing (Statistics Canada, 2016). In Spadina-Fort York, a two-bedroom apartment averages $2279 per month, which accounts for nearly 36% of median household income ($76,270) in the riding (Statistics Canada, 2016). This is simply unacceptable.
Municipal, provincial, and federal governments each have a role to play in addressing the housing crisis. In Part 1 of this blog series, I highlight problems with one of the Government of Canada’s key initiatives: the Rental Construction Financing Initiative (RCFI). But first, it’s important to answer why we should be concerned about housing affordability and what is driving it.
Impacts of Housing Unaffordability
Households facing housing affordability challenges may be forced to reduce spending on non-housing goods such as food, education and health, leading to negative wellbeing outcomes. Studies have found that the burden of unaffordable housing may also lead people to move further away from employment centres, increasing their commuting times. Additionally, studies report that housing affordability issues are cited as a barrier to having children (Galster & Ok Lee, 2021).
Drivers of the Housing Crisis
Housing experts agree that a lack of supply of affordable, purpose-built (ie. long-term) rental housing is one of the main drivers of unaffordability (Pomeroy & MacLennan, 2019). In Toronto, purpose-built rentals accounted for only 6% of all development between 2011 and 2016 (Canadian Centre for Economic Analysis & Canadian Urban Institute, 2019). Experts argue that if we increase supply to meet demand, vacancy will go up, and rents will come down. Moreover, rising house prices are pushing would-be homeowners out of the housing market, adding further pressure to the rental market.
The Rental Construction Financing Initiative (RCFI)
In April 2017, the Liberal Government under Prime Minister Justin Trudeau introduced the RCFI as a measure to increase the supply of purpose-built rentals for middle-income Canadians (CMHC, 2020). Under the RCFI, developers can apply for fixed low-interest rate loans up to 100% of cost and an amortization period of 50 years. The idea behind the loan program is that it will incentivize developers to build rentals since access to financing on such favourable terms will minimize upfront (capital) costs and increase the potential for greater return on investment.
In order to access financing, developers must meet the following “affordability” criterion:
“At least 20% of units must have rents below 30% of the median total income of all families for the area, and the total residential rental income must be at least 10% below its gross achievable residential income.”
When you crunch the numbers, so-called “affordable” rent at 30% of median family income in the Toronto area would be $2076 per month. This is over $400 more than rent calculated using the traditional standard of housing affordability — that is, 30% of median household income. In Spadina-Fort York, affordable rent based on the traditional standard would be slightly higher at $1906 per month, yet still less than what developers are required to produce under the RCFI.
Why is the Government using a standard that prioritizes developers over renters?
Steve Pomeroy, one of Canada’s foremost experts on housing, says that at most, the RCFI has accounted for 4% of initial construction of all new rentals in Canada since the program began (Pomeroy, 2021). On CMHC’s website, only 1 RCFI project in Toronto is mentioned: the creation of 233 rental units at 5365 Dundas Street West (CMHC, 2020). In light of the fact that in Toronto, construction was started on close to 6000 new rentals in 2020 alone, one can quickly see that the RCFI has fallen far short of its aspirations.
In the absence of any movement to bring the RCFI in line with the traditional standard, any mention of “affordability” with respect to the RCFI should be immediately abandoned so as not to mislead Canadians. Further, the Government must be taken to task on why the RCFI hasn’t been the boon for development they continue to claim it will.
In our next blog on housing affordability, I will address the limitations of the First Time Home Buyer’s Incentive (FTHBI) in helping Canadians to access homeownership. Following this, I will present solutions to the housing crisis that are based on the best available evidence.
Amanda Rosenstock is a lawyer in Toronto passionate about public policy. She is also a member of the Spadina-Fort York EDA.
