Deconstructing “Affordable” Housing

 In Mark's Message

There is a significant movement afoot to try to ensure there is affordable housing for people who cannot afford home ownership. With burgeoning housing and condo prices throughout the GTHA, and salaries and wages not keeping pace, the home ownership gap is only widening. Things have gotten for pretty bad for the average GTHA person or family looking to own a home. Along with finding a life partner, possibly having children, and getting a decent job, a home should be attainable for those who work hard and have a decent income, right? Well, no, not at all, not anymore…the entire landscape of housing, in general, has changed so dramatically that it seriously boggles the mind.

Let’s take a step back and think about what makes housing affordable? In a free market, is it possible to make housing affordable and accessible? Especially when the free market dictates that the going price… is, well the going price. We can’t place the onus squarely on developers to price things lower unless governments substantially subsidize lower-income housing developments – which is happening on some scale. However, the results are mixed at best, and the supply definitely isn’t coming anywhere close to the demand.

Let’s take a look at “social housing” plans. How does the government ensure that this type of housing ends up in the hands of those who really need it, and are not just snapped up by investors or rented out to those who want to buy them, but can’t afford them? The statistics suggest that investment into real estate by people or corporations have been aggressively eating into the housing supply, driving demand, and therefore continuing to drive up prices. “Affordable” housing really looks like a great investment as the free market will naturally dictate that the artificially low price paid at the time of sale will naturally result in the value going up faster than the general market pace.

Condos should be affordable housing, right? Arguably condos are the most “affordable” type of housing that exists, outside of renting or sleeping in a tent. Stats Canada (2018) and the Globe and Mail reports that at least 1 in 3 condos in Toronto are owned by investors, and as much as 40% according to many sources. So, 40% of Toronto condo owners don’t live in them – they leave them vacant as investments, rent them out, or use them as an occasional second home. Even if you can manage to get your hands on a condo, the benchmark price for a Toronto condo (a tiny 1-bedroom) is going for $540,000! Not even remotely in the range of affordable for what you are getting!

This non-occupied ownership is believed to be responsible for a whopping 30% increase in rental rates, creating even more challenges outside of home ownership, just trying to rent a place at a reasonable price has also become a major issue, closing yet another door and adding insult to injury for those who have accepted their fate to never own a home. Between 2006 and 2018 It’s estimated that Airbnb and short-term rentals removed 30,000+ units from the long-term rental market, applying upward pressure to demand and prices. So, it’s really not just about affording a place to buy – it’s also overflowed into creating major challenges for those looking to rent. It’s scary to see each housing avenue closing one by one for those looking for a place to live.

Discussions surrounding affordable housing is usually centred around big cities like Vancouver and Toronto – understandably so, they have been ongoing hotspots for unaffordable housing and dramatic rent hikes. Sure, there are a lot of places just a way outside these city’s limits, but even these nearby towns and cities are at risk of going the same direction with housing. Look at Hamilton, Ontario, a 45-minute drive from Toronto, and a long-time alternative to Toronto for both more affordable housing and rentals, the price of a house in Hamilton for the first quarter of 2019 has risen at a rate more than double the national average. The aggregate price of a home in the city increased by 6.3% during that period, according to a Royal LePage House Pricing Survey. It’s as if the problem, much like a virus, seems to be moving outward from the largest urban hubs.

Yes, there are other options for more affordable housing outside of all of this is going on in and around these major hubs, but they are not within easy reach, you really need to get at least 1+ hour’s drive outside of these city’s limits proper to see anything resembling reasonable prices. Sadly, families making well over $100,000 a year are struggling to afford homes in Toronto. For those making less than that, it’s generally an unachievable dream.

Long commutes are the price many people are paying to afford a roof over their head, be it for purchase or rent. Others have chosen to give up on their higher-paying job in the big city to find something in a smaller urban or suburban center far away. It’s hard to believe, but Toronto actually lost 30,000+ people per year between 2016 and 2018 to more affordable housing markets, while others are able to find a way to work from home at least part of the week. Lastly, those who are younger are being forced to stay at home with their parents as they are not even able to even rent a place at a reasonable price.

After all of this doom n gloom, is there any light at the end of the tunnel? Yes, the fact that housing is making the headlines consistently shows that at least the issue is getting the attention it needs to eventually right itself. There are also a lot of public and private organizations and companies that are leading the charge to make these unheard voices heard. These include; The Ontario Home Builders’ Association (OHBA), The Building Industry and Land Development Association (BILD) to name just a few of the many organizations and private businesses that are working hard to bring this issue to light.

Transit organizations such as Metrolinx are also working hard to try and improve commuting with more stations, and with a focused effort to reduce traffic congestion, which is great, but does it help or hurt? It seems like it should allow better commuting from a further distance, but it seems like it’s actually driving housing prices up nearer to stations and junction points. This is a problem that requires many things working together in unison, not “just” public transportation improvements. At the end of the day, are we just trying to facilitate people having to commute from further and further away in order to put a band-aid on the issue?

So, what can be done to ensure there are affordable living spaces? The free economy tends to follow the rules of supply and demand. Demand high, supply low – upward price pressure. It’s hard to fight it in a capitalistic democracy.

Trying to artificially induce lower prices from free-market prices, such as mortgage rate changes, and adding additional taxes to foreign buyers seems to be having some impact, however, limited in both degree and duration.  Take the new mortgage rules (stress test) – it temporarily induced a small correction in the housing market, but now really seems like, while it may have temporarily stopped bidding wars and marginally lowered prices for a year or so, it mainly just acted as an additional barrier for many people from affording a home because their bank would now not lend them the money, despite having a decent income and good credit.

In my humble (and biased) opinion, affordable housing is all about dramatically increasing housing supply. Consistently increase the housing supply and prices will naturally drop. This, along with many industry voices and true housing policy reform, can make all the difference.

What’s Needed?

At the Government Level:

  • Initiate and increase funding and incentives to develop brownfields and lands that are highly challenging to develop
  • Change outdated zoning rules and restrictions – and incentivize developers with alternative proposals to come up with ways to include affordable residential permits.
  • Loosen development red tape in general and lower development charges, making up for it in volume (and therefore increased supply)
  • Take charge of fallow and vacant city-owned lands and work in partnership with developers for mixed-use communities that have a significant affordable housing component to them.
  • Ease up development charges and shorten regulatory delays for affordable housing proposals

At the private sector and individual level:

  • Support organizations that are tackling housing policy head-on
  • Get involved as an advocate for Ontario housing
  • Be inquisitive, and get educated on what’s really happening out there

With all of us working together, we can make the dream of home ownership a reality.

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