Governments have several options at their disposal to stabilize rents

By Ricardo Tranjan

November 19th, 2023

BURLINGTON, ON

Governments have several options at their disposal to stabilize rents. They can remove profit from the equation, regulate the market so that increases don’t outpace inflation or give incentives to the private sector and hope that enough construction will bring down costs to tenants.

The last approach is costly and the least sure to succeed. Yet that’s the one the federal government has chosen. Again.

Relying on the private housing sector is a well-established tradition in Canada. Historian John C. Bacher documented how Canadian governments half-heartedly experimented throughout the 20^th century with some of the non-market models successfully implemented in Europe, but always favoured incentives to private developers.

The upshot is that the share of all non-market housing in Canada is four per cent – one of the lowest among countries in the Organization for Economic Co-operation and Development (the OECD).

Vancouver-based real estate investment firm CPI Capital and its team of 14 is currently overseeing the development of 71 detached single-family homes that are being built to rent.

Urban geographer Alan Walks of the University of Toronto and his colleagues have argued that Canada has played a more active role in backing mortgage loans than governments elsewhere.

The Canada Mortgage and Housing Corp. (CMHC), the national housing agency, led the way on mortgage-backed securities, whereas in other countries, private financial institutions assumed these risks. This helps explain why Canada was among the few nations that did not experience bank failures during the 2008 financial crisis.

Current housing policies continue to favour the market despite uncertain outcomes.

The National Housing Strategy (NHS), approved in 2017, emphasized providing private investors with cheap loans. In return, landlords rent a share of newly built units at a discount, usually 20 per cent below average market prices, but only for a limited time – 10 to 20 years.

That hasn’t worked so well. Cheaper loans haven’t significantly boosted rental construction and the discounted units are still too expensive.

A study commissioned by the National Housing Council found that only 19 per cent of units funded through these loans are affordable to moderate-income households. Only three per cent are within the reach of low-income households.

We now have a new federal housing minister, Sean Fraser, but the government’s fundamental approach to policy remains the same.

Fraser’s main policy plank so far is to double down on incentives to the private sector. In September, he announced a GST rebate on the construction of apartment units at a cost of $4.6 billion over six years. That’s an average of $770 million annually. This is significantly larger than current investments in non-market housing.

A 2023 parliamentary budget office report says a one-time investment of $1.5 billion in the government’s Rapid Housing Initiative would create 6,000 units for vulnerable populations at risk of homelessness. This crucial program funds the most expensive units needed in the housing system. Still, Ottawa could create an additional 3,080 units annually, on an ongoing basis, with the $770 million it’s foregoing annually via the GST rebate.

The same report indicates that a $500-million one-time grant, coupled with a $1-billion loan, would result in 6,000 new co-op units. These units are cheaper because co-ops repay the loan over time. The same $770 million a year could help build more than 8,000 co-op units annually (including the estimated cost of administering the loan).

Ricardo Tranjan, PhD, is a political economist and senior researcher with the Canadian Centre for Policy Alternatives. He is the author of two books: a scholarly analysis of Participatory Democracy in Brazil (2015) and the national bestseller The Tenant Class (2023). A frequent media commentator in English and French, he lives in Ottawa.