Affordable housing in Canada

The economy has grown from the mid-1990s onward at the "strongest, most sustained pace since the 1960s"[5]^:22 and Canada has a strong real estate market[6] while many Canadian households face housing insecurity.

Statistics Canada reported that while Canada's "real gross domestic product (GDP) per capita increased by roughly 50% between 1980 and 2005," and the workforce increased educational attainment and work experience during this same period and median earnings among the top 20% of full-time full-year employees grew by 17.9%", among those in the bottom one-fifth of the distribution median earnings decreased by 13.3%."[7] Full-time full-year median earnings of Canadians edged only slightly higher from $41,348 in 1980 to $41,401 in 2005.[7]

Between 1997–2007, 1% or 246,000 Canadians earned average incomes of $405,000 representing 32% of all growth in incomes.[5][Notes 1]

Since 2000 the cost of renting increased by more than 20 per cent.[8]

By 2004, 1.7 million Canadians had housing affordability issues.[9]^:4

Since 2005, the number of rental units declined.[8]

In 2006, about 1.5 million Canadian households or 12.7 per cent of Canadian households were in core housing need.[1][10] Housing policies across Canada that address the issue of affordability of housing acknowledge a housing continuum that encourages home ownership and rental in the private sector but also provides rental and/or income assistance to low income households, high level support services to the most vulnerable citizens (frail elderly, disabled, mentally challenged, single parents, etc.) from short-term transitional housing, longer-term supportive housing, to emergency shelters for the homeless. Housing policies and strategies consider repeat users and those who face multiple barriers to meet and maintain core housing needs and therefore provide a wide range of support services including life skills training and assistance programs to break the cycle of poverty (BC Housing Strategy 2006). In this way housing strategies and housing studies related to affordability of housing overlap with anti-poverty strategies and studies.

In the mid-1990s in Canada, homelessness—at the most extreme end of the housing affordability continuum—reached a level of a recognized national crisis affecting a diverse population of individuals and families.[11] Lack of affordable housing is one of the complex set of factors that lead to homelessness. All levels of government in Canada began to include housing policies and strategies that respond to the crisis although anti-poverty and ending-homelessness activists argued that the efforts are not sufficient, efficient, or sustainable.[12][Notes 2]

By 2007, affordability of housing was a problem for low and middle income Canadians,[9]^:4 while households in the upper quintile—particularly in large affluent urban areas—could afford to purchase houses for investment and/or residency at higher prices while benefitting from historically low interest rates.[9]^:89 Canadian government public policies intervene when affordability of housing is stressed to the point home ownership becomes inaccessible even to individuals with full-time employment. Measuring affordability of housing is complicated by Canada's vast physical and human geography which includes remote northern communities and affluent urban regions. Income levels in the upper quintile have increased exponentially while those in lower quintiles have remained stagnant.[5]

In 2011, about 1.5 million Canadian households or 12.5 per cent of Canadian households were in core housing need,[1] and various levels of governance in Canada were exploring policy solutions to assist challenges faced by the low-income renter and homeowner overburdened with shelter costs.[13]

By 2012, the rising inequality gap had presented a significant challenge for Canadian households who were "priced out" of rental and ownership housing markets.[14] By 2012, there was a slight deterioration in housing affordability, according to the RBC.[15][Notes 3] Many parts of the country also reported that key workers—teachers, nurses, police officers, construction workers and others – who earned reasonably good income from their professions, were finding it increasingly difficult to afford the high cost of housing."[14] According to a Federation of Canadian Municipalities 2012 report, one third of Canadians were renters. The construction and rehabilitation of affordable rental units had not kept pace with the number of affordable rental units lost to demolition, urban intensification projects and the more profitable conversion to condominiums. Fewer than 10 per cent of new housing starts were rental units.[8] The FCA finds the shortage of available rental housing is worsening at the same time that more Canadians are being priced out of home ownership.[8]

In 2016, about 1.7 million Canadian households or 12.7 per cent of Canadian households were in core housing need.[1] The percentage was slightly higher in urban areas, with about 13.6% of all Canadian households living in urban areas—1.6 million urban households—were in core housing need.[16][1] In 2016, the regions with the highest percentage of households in core housing need, were Nunavut with 36.5 percent, Northwest Territories at 15.5 percent, Ontario at 15.3 percent, and Yukon at 15.2 percent.[1] In 2016, the highest rates of core housing need in metropolitan areas included Toronto at 19.1 percent, Vancouver at 17.6 percent, Belleville at 15.4 percent, and Peterborough at 15.1 percent.[1]

The Canadian housing supply market responds to housing price changes with relative speed and flexibility compared to other OECD countries. New housing supply is relatively more flexible in Canada than in continental European countries and in the United Kingdom. Caldera and Johansson[17] argue that new housing supply depends on "national, geographical and urban characteristics but also on policies, such as land use and planning regulations." Affordability of housing is affected by the way in which housing supply markets respond to changes in prices either through increased construction or raising prices. In supply-constrained markets like Vancouver, most adjustment occurs in higher prices rather than expanding housing supply.[18] In the short to medium term supply-constrained/high-demand markets result in higher prices. Greater supply and low demand result in lower prices. Unresponsive housing markets cause price volatility including demand shocks that affect residential investment resulting in economic instability.[17][Notes 4]

According to Mark Carney—the Governor of the Bank of Canada from 2011 to 2006—household formation in Canada, the underlying demand force, is broadly consistent with housing supply. "Canadian housing market developments in recent years have largely reflected the evolution of supply and demand.[19]

Carney warned in 2011, that even though measures of housing affordability in Canada were favorable in most cases—with some housing markets already severely unaffordable even at current rate—interest rates were at a record low. He raised concerns that Canadian household debt was high and therefore vulnerable to increases in mortgage interest rates which could cause housing affordability fall to "its worst level in 16 years."[19]

Homeless man in Vancouver

Governments, financial institutions (banks, mortgage providers), housing sectors (real estate agencies), consumers, and advocacy organizations use different definitions of affordability.[9]

Measuring affordability of housing is complicated by Canada's vast physical and human geography which includes remote northern communities and affluent urban regions. Housing prices and construction costs have risen dramatically in Canada as they have elsewhere in the world. Income levels in the upper quintile have increased exponentially while those in lower quintiles have remained stagnant.[5]

A large proportion of Canadians are housed in market-based suburban developments such as Markham, Ontario

Eighty percent of Canadians are served by market-based housing, which includes individual home ownership and private rental housing.[26] In the market-based housing system, individuals finance their own housing, independent of government assistance.

A 2019 RBC Economics report on home affordability said that, in nine of the 14 market areas they track, a majority of Canadian families are able to purchase an average home.[27] The most affordable markets are Saint John, St. John’s, Regina, Quebec City and Halifax, while the least least-affordable markets are Vancouver, Toronto, and Victoria.

However, the shelter-cost-to-income ratio (STIR) is well above 30% for the median income. Nationally, it is 48.7% for two-story homes. Major cities such as Vancouver rate worst in the world at 88.9%. Calgary is considered affordable at 36.7%. Montreal is 41.8% and Toronto is 53.4%. The RBC Indicator provides data on a quarterly basis on home ownership affordability, it measures the proportion of homes currently for sale that are affordable to a median income household. Measurements of affordability that are oriented exclusively to the ability to buy using mainly shelter-cost-to-income ratio (STIR) provide useful information for one end of the continuum of housing in Canada, home ownership in the private market at market price.

The Bank of Canada's 2011 "affordability index represents the proportion of the average personal disposable income per worker that goes toward mortgage payments, based on current house prices and mortgage rates. A decline in the ratio indicates an improvement in affordability."[19]

Mortgage lending institutions define affordability in terms of potential home buyers consider the relative cost of debt based on interest rates and average household incomes. This measure of affordability is not oriented towards renters.[9]^:4 A 2012 report produced by the Bank of Canada argues that affordability of housing "has been consistently favourable by historical standards since the late 1990s. . . Despite increases in house prices, generally favourable labour market conditions (gains in real income) and low interest rates have supported affordability and contributed to the significant increases in home ownership and mortgage debt."[28]

In the 21st century, the gap between incomes of the upper quintile and lower quintile reached unprecedented extremes according to reports in 2006 and 2010.[5][29]

In its 2016 second quarter report Canada Mortgage and Housing Corporation warned housing prices are overvalued in 9 Canadian markets, with Vancouver at high risk. Strong evidence of "problematic conditions" also continue to exist in Toronto, Calgary, Saskatoon and Regina, while in Ottawa "problematic conditions" are weak.[30]

"Affordability is a relative measure, especially in a country with a booming real estate market. Housing market growth, in part fuelled by availability of debt and mortgage financing, augments existing inequities. While many homeowners benefit from low interest rates, the national pool of private affordable rental stock remains small and affordable rental vacancy rate remains low, less than one per cent in many cities."[9]^:36 Renters in the lowest income quarter are 18 times more likely to experience housing affordability problems than other Canadians.[31]

Accurate measurement of housing affordability is needed to decide if a family qualifies for assistance in housing or for a mortgage to purchase privately. While the 30% rule may be used for the latter, banks and lending agencies might require a much higher Qualifying Income before approving a mortgage. The Royal Bank of Canada Housing Affordability Measure describes a qualifying income as "the minimum annual income used by lenders to measure the ability of a borrower to make mortgage payments. Typically, no more than 32% of a borrower's gross annual income should go to 'mortgage expenses'—principal, interest, property taxes and heating costs."[34]

Homeless man living in a bus shelter in downtown Toronto (2010)

"Housing affordability problems threaten both low and middle income households. While affordability in housing has improved for many Canadians, due mainly to income gains, the fortunes of the lower half of Canadians remain stagnant or have declined. Across Canada, renter households in the lowest income quarter have highly elevated – 18 times average – likelihood of housing affordability problems."[9]^:4[31]

Even though house prices have risen faster than income since the 1990s, there has been a rise in home-ownership rate from 62.1 per cent in 1981 to 68.4 per cent in 2006.[35] The banking industry views greater credit growth and higher debt loads related to house purchases as a positive. But a "strong credit growth" from 2001 to 2011 means very high household indebtedness which now represents c. 150 per cent of debt-to-income ratio.[28] According to the Bank of Canada's affordability measure (AFF) -the ratio of monthly mortgage payments to disposable income (DI)- "has been consistently favourable by historical standards since the late 1990s. Despite increases in house prices, generally favourable labour market conditions (gains in real income) and low interest rates have supported affordability and contributed to the significant increases in home ownership and mortgage debt."[36]

There are concerns about aggressive marketing that began in the mid-1990s making secured personal lines of credit (PLCs) (often secured by housing assets) much more widely available. By 2011 secured PLCs represented 50 per cent of consumer debt. This places many households in a vulnerable exposed situation if housing prices drop, mortgage rates rise, or their income decreases.[28]

Concerns over high Canadian household debt levels led to changes to mortgage regulations announced June, 2012 by Finance Minister Jim Flaherty. The federal government lowered the maximum amortization period for a government-insured mortgage from 30 to 25 years. The upper limit Canadian homeowners could borrow against their home equity was lowered from 85 per cent to 80 per cent.[37]

Londerville of the Macdonald-Laurier Institute argues for 40-year amortizations in "certain markets and for certain age groups, perhaps with limits on the house price" for example in the case of young households in the high-priced Toronto real estate market who "may need a 40-year amortization period on their first home to make it affordable."[33]

As well, government-backed mortgage insurance purchased at a flat, upfront fee for mortgage insurance through Canada Mortgage and Housing Corporation is obligatory for home buyers with down of less than 20 per cent of the home's value."[37] In a 2005 article the Canadian Business journal reported that, "According to the federal Bank Act, every mortgage from a federally regulated institution with a down payment of less than 25% is required to carry mortgage insurance. Last year [2004], 45 per cent of all home buyers, or 500,000 Canadian families, were required to buy a total of $1.6 billion worth of mortgage insurance ... According to its annual report, last year it earned $1.1 billion in premiums from homebuyers and paid out $51 million in claims--a payout rate of less than 5 per cent. While 2004 was an exceptional year for mortgage insurance, over the past 10 years CMHC has paid out at an average rate of 45 per cent, far lower than most other forms of insurance. In fact, there is probably no more lucrative line of insurance in Canada than mortgage insurance."[38]

The CMHC turns a large profit from this mortgage insurance collected mainly from first time buyers and those unable because of lower incomes to pay more than 20 per cent down payment. Between 2001 and 2010 this mortgage insurance amounted to a $14 billion contribution towards reducing the Canadian federal debt. Londerville of the Macdonald-Laurier Institute notes IMF concerns about some CMHC practices and the unnecessary burden placed on home owners at the lower end of income scale.[33] This erodes affordability.

Canada Mortgage and Housing Corporation (CMHC) deemed that 20 percent of Canadian households (1.7 million households) fall within the core housing need. These households could not find adequate and suitable housing without spending 30 percent or more of their pre-tax income. CMHC found that a disturbing 656,000 households (7 percent) spent at least half of their before-tax income on shelter in 1996, up from 422,000 households, or 5 percent, in 1991. While accounting for only 35 percent of all households, almost 70 percent of those in core need were renters.[21]

The United Nations Committee on Economic, Social and Cultural Rights issued a highly critical and detailed report on Canada's social policies in its 1998 review of Canada's compliance with these rights (United Nations, 1998) particularly about disastrous levels of homelessness. It concluded "that while Canada has a long history of housing successes, the housing cuts starting in the late 1980s have effectively prevented Canada from meeting its international housing obligations."[39][40][41]

The mayors of Canada's largest cities, declared the lack of affordable housing a national housing disaster in 1998. The federal government responded by announcing cost-shared conditional federal-provincial initiatives to construct affordable housing, worth $1 billion. However, during this period of tax cutting and debt reduction initiatives, the devolution of federal responsibilities to the provinces, without an accompanying transfer of funds, made it impossible for the provinces to contribute their share for affordable housing projects. Provinces were focused on reducing government size and increasing provincial tax cuts.[42]

in 2006 5.5% of Canadians, 1.7 million people of a total population of 31 million were under-housed or non-housed.[31](Canadian Housing and Renewal Association).

Role of urban planners

American economist Edward L. Glaeser, who focuses on urban economics, argued that over zealous zoning by municipal land planers cause some of the problems of affordability of housing.[18] They argued that dramatic differences in price of housing versus construction costs occurred in places where permits for new buildings[46] had become difficult to obtain (since the 1970s). Compounded with strict zoning laws the supply of new housing in these cities was seriously disrupted. Real estate markets were thus unable to accommodate increases in demand, and housing prices skyrocketed.

Vancouver's high-rise apartments helped defer urban sprawl, but it is argued, led to higher housing prices

Glaeser and Gyourko argued that public policy should reflect the ways in which housing affordability differs from region to region, affecting classes differently. Public policies should reflect those differences. Removing municipal zoning restrictions would resolve some of the affordability issues faced by the middle class. They suggest federal government should provide incentives for local governments to allow for more construction. They argue that affluent families benefit most from mortgage interest deductions, allowing them to purchase an even larger home and they may drive prices even higher. Interest deductions, which are meant to make housing more affordable to the middle class, can lead to an increase in the amount families can pay for a house, driving up prices even higher. They question construction supply subsidies for low-income housing in areas that offer few employment possibilities. These subsidies discourage private-sector developers and benefit those with political connections. Direct income transfers for low income families would resolve their specific housing needs.[18]

Randal O'Toole of the Fraser Institute in his report entitled "Unliveable Strategies: The Greater Vancouver Regional District and the Liveable Region Strategic Plan" (2011) argued that the GVRD's land use planners "left the region with the least affordable housing and some of the worst traffic congestion in Canada".[47] He concluded that Greater Vancouver Regional District planners' "Livable Region Strategic Plan" (1996) were too narrow in their focus on "avoiding urban sprawl and minimizing automobile driving." He also argued that the protection of green spaces, farm lands, from development limited growth and was the cause of the escalation of prices.[47]

By 1996, the federal government revoked the Canada Assistance Plan of 1966, which made it mandatory that people whose income was inadequate to meet basic needs (including the working poor) have access to an established appeals procedures in the provinces and territories regarding social assistance.[55] In the same year, the federal government transferred responsibility for most existing federal housing programmes to the provinces."[11][56] During the 1990s, there was a devolution of new responsibilities, including affordable housing, from provincial governments to municipal governments without adequate revenue tools.[57]

The TD report concluded that municipalities need a more sustainable funding arrangement, and provinces need to play a more active role in affordable housing, becoming leaders within the Affordable Housing Framework agreement.[44]

The 2006 Canadian federal budget "provided $300 million for affordable housing in the territories."[58]

The 2009 Canadian federal budget allocated funds for the period covering (2009–2011): renovation and energy retrofits to social housing ($1 billion); to build housing for low-income seniors ($400 million); to build social housing for persons with disabilities ($75 million); to support social housing in the North ($200 million); low-cost loans to municipalities to improve housing-related infrastructure ($2 billion) as part of Canada's Economic Action Plan.

There was a modest improvement in housing affordability across Canada in the third quarter of 2011 after two consecutive quarters of deterioration. Part of this was due to decreased costs in home ownership resulting from lower mortgage rates.[34]

The Global Housing Services and Canadian Housing and Renewal Association CHRA, a national non-profit association focuses on decent housing affordability for Canadians.

• Bill 28 (British Columbia)
• Snow washing
• Beneficial ownership