Forget White Picket Fences

Canada operates in two quite different affordability realities, yet focusing strategies only on market adjustments in our global cities ignores the need for a difficult cultural adjustment about what affordable home ownership means.

The concept of “affordable housing” is considered by most Canadian governments a basic human right. But the term also obfuscates to whom related policies apply and muddies significant regional differences. Affordable housing is at best an umbrella concept for who can afford housing requiring no more than 30 per cent of family income. At its worst, it replaces the concept of social housing for those most at risk, a policy priority largely abandoned more than two decades ago. As governments retreated from social housing, however, it intensified a broader, largely successful “affordability” strategy for most other Canadians.

While the Federal Government’s 2017 National Housing Strategy marks a return to social housing, broader affordability has come up against Vancouver and Toronto’s emergence as expensive global cities while government responses to a ripening economy may decrease affordability in more stable markets. In response, focusing strategies only on market adjustments in our global cities ignores the need for a difficult cultural adjustment about what affordable home ownership means. In less volatile markets, future stability will in part be determined by adapting urban form in conjunction with their economic role in the new economy. 

The Great Retreat

Architect and developer John van Nostrand points out that Canada has always utilized government housing strategies, from populating “prairie suburbs” to post-war housing built and occupied by returning veterans, to Toronto’s 14 tightly planned middle class suburbs in the 1960s with segregated Le Corbusier-style slab towers for workers. But it is J. David Hulchanski who provides a clear history of the rise and retreat of government from social housing. In his 2003 paper, What Factors Shape Canadian Housing Policy, he posits first a well-entrenched “government housing system” marked by a primary sector (home ownership) and a secondary sector (supported housing). In other words, he writes, “Although there is only one housing market, Canada’s housing system has two pools of housing consumers with dramatically different incomes and assets.”

In 1972, under Pierre Trudeau’s Cooperative Federalism, the Ministry of State for Urban Affairs (MSUA) was created to facilitate social housing. Provincial hostility to cooperative federalism’s shared funding approach, however, led to MSUA’s abolishment in 1979. But it was the triumph of neo-conservatism in the 1990s, notably the Harris government in Ontario and the Chretien/Martin Federal government that marked the great retreat from social housing.

housing affordability, Alexandra Park
Now being redeveloped as a mixed-income neighbourhood, Toronto’s Alexandra Park was built at a time of direct government investment in housing. Photo by SimonP via Wikimedia Commons.

According to Tim Sales and Josh Brandon, the Canada Mortgage and Housing Corporation’s (CMHC) public housing crashed from a high of 10,000-16,000 units annually in the 1980s to just 603 in 2012. Similarly, a 2010 report titled Unpacking the Housing Numbers: How much new social housing is B.C. building? concluded that “taken together, the government’s own data indicate an overall net increase of only 280 actual social housing units over the past five years, a sobering and concerning finding. In contrast, between the mid-1970s and early 1990s, with the help of the federal government, B.C. created between 1,000 and 1,500 new units of social housing per year.”

housing affordability, cmhc
Source: CMHC

Affordable housing strategies, on the other hand, prospered. Hulchanski documents how multiple, middle-class housing initiatives through CMHC, such as the First Home Loan Insurance Program (1992) blossomed, while Patricia Meredith and James Darroch detail in the Globe & Mail just how powerful the Federal government‘s early-2000s affordability strategy benefited the Canadian middle class while supporting economic stability. However, according to Jeff Everson of the Canadian Urban Institute (CUI) and author of Scaling Up Affordable Housing in the GTA, “We in Canada have taken to not speaking of social housing anymore, instead calling it ‘affordable.’ It blurs the distinction between social housing, which is largely supported by government funds, and affordable housing, which can be supported not at all or can be supported by a variety of subsidies.”

The Missing and Not So Missing Middle Class

Despite the 2008 recession, a decade of very low mortgage rates improved housing affordability for most middle income earners, notwithstanding Toronto and Vancouver. In an important speech last February, It takes a Village to Build a City: Housing as a Shared Responsibility, CMHC’s president and CEO, Evan Siddall, documented their emergence as top-25 global cities with sophisticated tech hub economies focused in their cores, generating severe affordable housing crises.

As a result, two solitudes of affordability emerged. Toronto and Vancouver, where the annual average family income-to-average-residence price ratios range from eight to 11, are in a different league than most other Canadian cities with ratios as low as two to three for at least nine cities (four is traditional affordability). A 2015 Huffington Post article, Here’s The Income You Need To Buy An Average House Across Canada, found not only appropriate income-to-price ratios for many cites, but required incomes were considerably lower than in 2006 when interest rates were higher.

Source: CREA

If we separate out our two global cities, overall affordability — but not social housing — appears alive and well. But wait; in today’s economy, things change rapidly. House prices are actually now declining, particularly in Vancouver and Toronto. Good news for affordability until we consider the reasons. Higher interest rates and introduction of more stringent mortgage risk tests means “the harsh reality is that the new rules will reduce homebuyers’ purchasing power substantially,” writes Sonia Bell and Wayne Karl on the Huffington Post blog.

Source: CUI

This reflects the recent Canadian Real Estate Association’s (CREA) assessment as summarized by the Globe’s Janet McFarland: “The federal government’s new mortgage stress-test rule has destabilized weaker housing markets by making it harder for buyers to afford new homes.” Too bad, says Rob Carrick, the Globe’s personal finance columnist. “If some aspiring home buyers have to be turned away to protect the solidity of the real estate market, then so be it.” The new stress rules and probably even higher interest rates may challenge long-term housing affordability. How significant and for how long remains unclear.

The Outliers: Vancouver and Toronto

Siddall believes the reason for housing unaffordability in these cities is straightforward: “high prices always effect the intersection of strong demand and limited supply.” The CMHC’s own study under Deputy Chief Economist Aled ab Iorwerth found the three standard demand factors of higher incomes, positive population growth and low mortgage rates explained 75 per cent of price increases in Vancouver, while only 40 per cent in Toronto. Other contributing factors include increased income inequality, foreign investment, speculation, increases in high “big city” income jobs and an inevitably intoxicating mix of optimism and FOMO (fear of missing out).

While much media attention is given to the Toronto and Vancouver markets, they do not reflect the wider realities of affordability in Canada. Photo by Matt Quinn via Unsplash.

But Iorwerth says that in Toronto and Vancouver, “what we are seeing is that the supply response in terms of new construction has not been as great as we would have thought. So for a proportionate price increase in say Calgary, Edmonton and Montréal there has been a stronger supply response in those cities. The message we are giving in the report is that there has to be an effort to supply more homes in the market.”

This analysis feeds both sides of the debate raging over whom and what are to blame for unaffordable housing in Vancouver and Toronto. Governments have focused on “foreign buyers” and B.C. has also targeted condo flipping, tax evasion, vacant homes and insider pre-sale dealings. On the industry side, the CMHC’s supply-side focus is pure music. Land scarcity, goes its argument, is to blame in general, and this scarcity is created by governments. Squeezing greenbelts or deregulating growth boundaries are, however, less the issue. Faster approvals and a continuous, five-year supply of shovel-ready land is what’s required.

housing affordability, cmhc
Source: CMHC

But how does this explain reports in the GTA of thousands of approved and often pre-sold units being cancelled by developers? The answer, says the industry, is the increasing level of risk given proposed increases — sometimes a doubling — of property development levies, a trend documented in two separate Globe articles by McFarland and Shane Dingman. With no hint of irony, the latter reports how the Building Industry and Land Development (BILD) association accuses governments of using development charges to gouge new buyers to hold down property taxes for existing owners, ignoring the burgeoning costs of their financially dysfunctional urban grow model of the last four decades. Montréal, says Iorwerth, has in part escaped rapid cost increases because of faster approval processes, lower development fees and more commitment to rental options.     

The Affordability Horse has Left the Barn

To mix animal metaphors, the elephant in the room for Vancouver and Toronto is the improbability of finding a way back to traditional affordable housing. Both B.C. and Ontario have introduced affordable housing strategies and the Federal government has returned with its 10-year, $40-billion National Housing Strategy. While all make claims of responding to the “missing middle,” their primary implications are to stabilize already exceptionally high prices and to provide much-needed social housing. 

The mix of foreign buyers taxes, which also psychologically dampens FOMO, rate increases and stress tests among other measures, have stabilized and even produced modest reductions in average prices. But a 10 per cent reduction hardly means a return to affordability. In April, Barrie McKenna quoted economist David Rosenberg as estimating it would take a 40 per cent price decline to return Toronto to something close to normal. For Vancouver, that correction is probably closer to 50 per cent, a result that might well bring down the Canadian economy.

However nowhere is there a clarion call to “Make Affordable Housing Great Again,” at least not in the sense of realizing the Canadian middle class dream of a detached house. In that blunt but elegant speech last February, Siddall makes it very clear that being a global city means a very different housing reality. Increasing housing supply means “pulling our cities toward denser living and a lower supply of single-detached housing,” as well as “the de-stigmatization of renting. Rent or own, it is still a home.” Gone are the days of driving from Toronto’s core and planting roots once a house becomes affordable. Likewise, CMHC’s vice president for Affordable Housing, Debbie Stewart, says that although the National Housing Strategy focuses on groups at risk, support of rental accommodation through the Rental Construction Finance Initiative “will provide low cost loans for development of more rental housing that will be affordable to people with middle class incomes.”  Even Everson’s CUI affordability strategy proposes only a modest goal of annually moving 2,000 cream-of-middle-class renters into ownership.     

In a pithy May 14 editorial, the Globe’s editorial board spelled out the same reality. While “69 per cent of aspiring Toronto homeowners wanted a house with three bedrooms or more,” they wrote, “the truth is that owning a big house in the city the size of Toronto or Vancouver is a weird anomaly in our world.” Connor Falls, Pacific Region Director for BTY, says it is an adjustment that young professionals have made in places like London where even renting is an accepted long term option. While politicians are still unlikely to inform their voters this is the new reality, plans such as Vancouver’s Cambie Corridor Plan are built on this imperative toward “right-sizing” housing. 

Given the costs of suburbanization and sprawl, and the limited availability of urban land, more density will likely be necessary.

Yet such a cultural shift is not necessarily a guarantee of new affordability. Improved planning approval times, lower developmental charges, better transit, and rapid access to surplus land notwithstanding, providing denser, more vertical housing may not necessarily produce affordable units. The concentration of innovation hubs in tight downtown locations, as signalled by Amazon’s recent announcement to create 3,000 jobs on Vancouver’s core peninsula, only stimulate further land cost increases and push up significantly the cost of construction. Similarly in Toronto, residential developer Brad Lamb told the Globe that over the past five years approved land has skyrocketed from $50 a square foot to $250. 

Economic strategies must therefore ensure new “innovation hubs” emerge in surrounding communities such as B.C.’s New Westminster, Richmond City and Surrey who are all currently working at intensive creative urbanism. Cities like Hamilton are beginning to show signs of becoming an alternative hub (with Nokia with Amazon showing recent interest there), but other outlying municipalities must develop vibrant urban cores able to attract their own creative industry hubs and workers.

Touching the Surface

The above analysis suggests that Canada operates in two quite different affordability realities, although both suffer from an historic neglect of social housing. For Vancouver and Toronto, a difficult cultural shift is underway, if not already accepted. For other cities, the federal government must tread carefully to avoid too much restraint. Yet there is also a need within both types of cities for a more holistic approach that ensures NGOs, the public, governments and industry operate collaboratively to produce an effective urban model, perhaps using the triple helix approach used by many European cities to build successful innovation centres. It might begin by producing an evidence-based detailed profile of baseline data on a city’s affordability gaps, such as Mississauga has produced. Its comprehensive Affordable Housing Program: Housing Gap Assessment Report identifies in detail the 30,000 households in the city facing a housing supply or affordability gap. At most risk is those households with incomes below $55,493 but includes, to a lesser extent, some households earning up to $99,875. With this solid data base, the report provides a comprehensive outline of the targeted strategy necessary to deal with the problem of affordability. 

Collaborative models might result in bolder public/private initiatives more common in Europe.  For example, the public purchase of Bombardier’s 371-acre Downsview site, recently acquired by the Public Service Pension Investment Board (at Lamb’s cherished $50.56 per square foot), could have been executed as a first step to creating a new, more affordable uptown hub, as Vancouver is doing with its Oakridge Mall redevelopment. Not just an urban plan initiative, such a project would require identifying and mobilizing the core for a dynamic innovative economy hub connected by efficient rapid transit. Falls and Neil Murray, BTY’s Senior Cost Consultant, note that such dispersed hubs are emerging with planned developments like Burnaby’s Metrotown and Vancouver’s Brentwood, River District and Oakridge “which are certainly more affordable than the downtown.” It should be noted, however, that Metrotown was approved over strong objections from affordable housing advocates because of plans to demolish existing low rise rental units.     

While many of the issues presented are about evolving an affordable housing model that looks forward and not to the past, there are other areas that require reassessment. “Canada is probably five to10 years behind other global cities in terms of how we build our product and our housing,” says Murray, citing BTY’s successful sourcing of affordable modular housing in China that is then shipped to the U.K. and assembled. “We have also seen a significant shift toward timber construction because it has become more affordable.” But, Falls cautions, there are not the people to deliver the new emphasis on mass timber design so prices fluctuates. “There are only three timber providers in Canada and [and it will take time] until that changes and the codes are changed and people become comfortable that these buildings are safe for high rises.”    

British Columbia’s 18-storey Brock Commons Tallwood House was considered the world’s tallest mass-timber building upon completion. Photo by Michael Elkan.

John van Nostrand also believes new approaches are required. His JvNd development firm is working on two projects in Hamilton premised, he says, on a new kind of participatory housing model that incorporates both economic and technological components. “On our first two buildings,” he says, “it looks like we can deliver ownership without government subsidies for people earning from $25,000 to $100,000 per annum.” A process of “co-financing” augments down payments and thus also reduces monthly mortgage costs. Cohousing units are also an option. In terms of technical innovation, the firm does not use shear wall construction which, Nostrand argues, only defines from the start the structure of ownership. “What we are doing is actually building an ‘office structure’ or columns and slabs returning Le Corbusier’s original model. People then buy the area they need and create while we build the party walls for them.” Expanding a unit is possible in the future without a jackhammer. One can purchase a fully completed unit or one that only meets basic occupancy requirements permitting later finishing as resources permit. 

In the Netherlands and other European countries, such hybrid models are much more common. Nostrand appears to be suggesting that Canada’s lag is more than just in technology. Everson also points out some financing options that are appearing in Toronto. “For example, developmental charges can be deferred in an ownership context to be bundled with a no-payment second mortgage until the home is sold,” he explains. This reduces home ownership costs while a patient local government can recoup development charges in 10 years, with an increment, through appreciation. The underutilized resource in Canada, he believes, is the non-profit sectors working in partnership with the building industry, such as you see with the NGO Options affiliated with Tridel. “This is really the untapped potential in the future where government makes it easier for non-profit corporations working in partnership with the industry to produce affordable products.” 

Capacity for Change

Social and affordable housing imperatives are taking place in a rapidly evolving socio-economic dynamic that has changed significantly the nature of some cities, while at the same time, the prevailing culture of what constitutes appropriate home ownership is no longer tenable. While other Canadian cities have been more successful in sustaining traditional affordable home ownership, over time they too will have to make adjustments. Creating a capacity to innovate better and faster through industry sector and public collaboration will be imperative.    

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