By Mark Marissen
Principal, Burrard Strategy
Owning a house is a distant dream for most young Canadians, but now renting a decent apartment is becoming a daunting challenge in itself.
In major Canadian cities, financial woes among the younger generation have reached alarming levels. The statistics paint a startling picture overall: over half of Canadians find themselves just $200 away from insolvency at the end of every month.
Average rent being sought for vacant listings for a one-bedroom apartment in Vancouver has now reached over $3000/month.
A large number of apartments in Vancouver are to be found inside someone else’s house with only a basement window to look outside.
Most young families can only hope to own a house in Vancouver if they inherit it.
Single family houses in our city will most likely never be affordable for the average middle class family again. If we care about young peoples’ futures – and many others’ current state of affairs – there is an urgent need for affordable, secure rental housing.
The good news is that Purpose Built Rentals (PBRs) – ie. apartments specifically built to rent out to tenants – are starting to get built again, after a generation’s hiatus. If you rent in a purpose-built rental building, you don’t have to worry about your landlord making you vacate your home when you least expect it.
Very recently, more new rental apartments were built in Canada than any year in the previous three decades, according to the Canada Mortgage and Housing Corporation (CMHC).
But, the bad news is that this new-found supply doesn’t come close to keeping up with demand, which means that many renters’ lives remain insecure and precarious.
And recent interest rate increases are making things increasingly difficult for everyone, including homebuilders, which means that this boost will most likely be short-lived,without more aggressive policy intervention.
“We have concerns that the higher interest rates will lead to a fairly uniform decline in new construction of rentals,” said Aled ab Iorwerth, deputy chief economist at the CMHC.
Higher interest rates also mean that unattainable mortgage costs keep prospective homebuyers in the rental market for a longer time.
History
While the majority of Vancouver residents are renters, many people who are lucky enough to rent a purpose-built-rental are living in one that was built decades ago.
The oldest ones were built prior to the late 1920’s, when zoning was created to ban apartments in most of the city as a way of separating residents by class and race.
There was a postwar building boom in the 1950’s and a social housing construction boom – in areas of cities where this kind of housing was allowed – in the late 60’s/early 70’s, much of it financed by the federal government. We still see many three-storey walkups from that era.
A rollback of federal tax incentives in the 1970s, just as condominiums were entering the market, made purpose-built rentals a less lucrative venture for developers, causing a decline in rental construction.
1968 was the first year that Vancouver got its first condominium building. Developers preferred to build them because they could sell the units right away, or in advance, and realise their profits quickly. They didn’t have to patiently wait for years to collect their profits in rents.
Condo owners, many of them first-time buyers, found a shorter path to home-ownership. They could also become micro-landlords by purchasing more than one suite, with much less hassle than renting out a full house or an entire apartment building.
Of course, it didn’t take long for private sector investment in purpose-built rentals to evaporate.
NDP premier Dave Barrett introduced rent controls in 1974, which reduced the financial incentives for BC’s private sector to build purpose-built rentals even further.
The only way to build more rental housing in this context was through government intervention. In the 1970’s the federal government created 382,000 homes through the Canada Rental Supply initiative.
The biggest hits to the young and housing-vulnerable were still to come, as the public sector started to exit the housing market in the decade to follow.
Major cuts to government funding for social housing began in 1984 under Brian Mulroney’s government, following a number of years of decline in private sector investment in overall rental construction.
Jean Chretien’s government cancelled all spending on new social housing projects in its first budget in 1993. Most provinces followed suit shortly thereafter.
To make matters even more challenging, starting in 1998, British Columbia strata councils (the elected boards that manage condominium buildings) were allowed to ban condo owners from renting out their suites. This didn’t get corrected until recently.
The only way to fill the rental void was by legalizing secondary suites in people’s single-family houses, to the dismay of many NIMBY neighbours. Over time, this became the only way many owners of single-family houses could afford their mortgages. Vancouver legalized secondary suites for the first time in 2004.
Current State of Affairs
The number of purpose-built rental homes per 1,000 residents in Metro Vancouver fell by 20% over the past 20 years, going from 51.4 to 41.4 most recently. Among major Canadian metropolitan areas, this current per-capita ratio is second-lowest, ahead of only Calgary’s 28.7 (Montreal leads the way at 141.1—up 11% compared to 2001, which makes it the only major metropolitan region to see an increase).
More purpose-built rental units have been built in recent years. While the overall number of units constructed is in the right direction, with the number of units completed up 72,500 in 2018-22 compared to 2013-17. The growth in the young adult population grew nearly 600,000 in the same period. Clearly, housing completions are not keeping up with population growth.
Recommendations for action
Housing experts and affordability advocates presented a plan to Prime Minister Justin Trudeau’s cabinet during its summer retreat last month, outlining how the federal government can take decisive action to address Canada’s worsening affordability crisis.
The federal government’s 2023 budget made new investments 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.
The group put forward 10 recommendations at the cabinet retreat, and spent a lot of time talking about the need for building a massive amount of purpose-built rental housing.
These experts said that Canada needs to build 5.3 million homes between 2024 and 2030 – two million of which need to be purpose-built rental units – to restore affordability.
This requires tripling home building over the next seven years.
The report was extensive. We are focusing on what it said about purpose-built rentals. Recommendations included:
- The federal government should revamp the National Building Code to drive innovation, and help reform Canadian Mortgage and Housing Corporation [CMHC] fees and the federal tax system, including eliminating the GST and HST on purpose-built rental housing, to incentivize the construction industry.
Federal Liberals promised to waive GST and HST for purpose-built rental housing projects in the 2015 election campaign. This would be a good time to keep that promise. It will help make purpose built rental projects viable.
- The CMHC approval process should be streamlined, and include a catalogue of pre-approved designs to allow for the construction of purpose-built rental housing to be fast-tracked.
Pre-approved designs worked very well for the Vancouver Special, the single-family house that allowed so many families to afford a home in the previous generation.
- The federal government should provide low-cost, long-term fixed-rate financing for the construction of purpose-built rental housing.
The CMHC has its own rental construction funding initiative, which provides low-cost funding to borrowers during the riskiest phases of rental apartment development. But Mike Moffatt, an economist and senior director of policy and Innovation at the Smart Prosperity Institute, said a funding program that offers more long-term stability would be preferable.
- Additional financial support could be given to communities undertaking zoning reforms to allow for more as-of-right construction.
This is an interesting recommendation, given that British Columbia and Toronto have both recently announced steps to allow for building up to six homes on a single-family lot. This helps homeowners be able to pay their mortgages, but this does not provide the kind of housing security for renters that purpose-built rentals do.
Homeowners wishing to sell should be able to combine a number of properties to be able to build up to a six-storey apartment building by following a set of pre-set policies rather than appealing to a vote of City Council. This also reduces development pressure on the existing rental stock which was built on the small portion of the city where apartments have been historically allowed. This is a good element for any anti-demoviction strategy.
There are other things that weren’t found in the recommendations, and they include the abolition of parking minimums, especially near rapid transit.
A recent study by Metro Vancouver Regional District suggests there is a substantial oversupply in parking (parking supply exceeding use) within strata apartment buildings (42%) and market rental apartment buildings (35%) in the region, with residential buildings closest to major public transit services seeing some of the lowest parking use.
Most cities require a minimum number of parking stalls, which increases the cost of buildings substantially. Parking stalls should be determined by the market instead. This would make apartments cheaper.
Getting more purpose built rentals built near transit also means that more renters can be freed from the obligation to own a car, which could save them up to $1000.00 a month.
Conclusion
Canada’s housing landscape is like nothing we’ve ever seen before. Addressing this affordability crisis will require a war-time effort if it’s going to be successful.
One of the most important parts of our housing future involves purpose-built rental accommodations.
We need to create abundance in purpose built rental housing, and use every tool at our disposal to do so, through inspired leadership that isn’t afraid to invest public funds and to urgently create a regulatory environment for success.
