Fix Housing 2: Add A Million New Community Homes by 2030
It’s time to reverse years of public underinvestment in community housing. The federal government has the fiscal firepower to make it happen.
This is the second of a series of common sense solutions that we see for achieving affordable housing for all.
5% is Not Enough
We need to increase the supply of housing. Canada needs to build 3.5 million homes by 2030 in addition to the 2.3 million that we would build under normal growth rates. That’s 5.8 million new homes in total by 2030, to restore affordability to the Canadian housing market (CMHC).
Private developers are going to build most of this, and all levels of government need to help make that happen. Those developers will make a profit, and that’s right. But let’s talk about community (aka social, non-profit, non-market) housing first.
There are over 16 million homes in Canada, of which 900,000 are non-market housing (StatCan). In other words, about 5% of Canada’s housing stock is community housing.
In contrast, a number of EU and OECD countries have double digit shares of non-market housing. Sweden - 40%. Netherlands - 34%. United Kingdom - 16%. France - 14%. Not all countries, but many believe, given that shelter is a basic need, a significant share of housing should be available outside of private ownership.
What is the impact of a large share of community housing? For those most in need, community housing is a lifeline. It can prevent families from falling into homelessness. When there is a sufficient level of community housing, it benefits tenants in private units, acting as a competitive check on all middle-class rents.
The Canadian federal government used to build housing. But by 1993, we withdrew and left that to the private sector. We also didn’t provide enough financial support to help third-party non-profit builders. For-profit building is essential to meet our housing needs, but it is not sufficient to meet our needs for genuinely affordable, let alone deeply affordable, homes.
5% of our total housing stock as community housing is not sufficient. This is not a new idea. Scotiabank is one of the latest to add their voice to the urgent need for investment in community housing.
Canada should aim to achieve double-digit levels of community housing. Building an additional 1 million community housing units by 2030 will get us close to 10% of the total housing stock.
We’re calling on the federal government to put that out as a national goal – build a million new community housing units by 2030. Get our community housing stock up to 10% of all housing.
Financing A Million New Community Housing Units
Building 5.8 million units by 2030 will certainly require labour beyond what we currently have. Assuming we can figure out a solution to the labour market challenges, how would we finance a million new community housing units?
It’s not as daunting as you might think.
Let’s assume a new non-profit community housing unit costs $400K to build.
(Note to reader: obviously, the cost of building a bachelor unit in a high rise apartment is not the same as building a 4-bedroom townhouse, and building costs in one location are not the same as another. It’s also likely that many new community housing units would come through acquisition rather than as new builds. But let’s simplify for a minute for the purpose of explaining a financing solution.)
A million units at $400K/unit equals $400 billion. Over 6 years, that would amount to $67 billion a year.
That sounds like a lot. So how we can make the financing work?
Getting Costs Down
The first thing to do is try to bring down costs. There are three ways governments can help to reduce the costs of new community housing builds:
Different levels of government can provide land at no charge.
Municipal governments can waive certain soft costs, such as development charges, and parkland and building fees. Higher levels of government can waive sales taxes.
Governments, primarily federal, can provide tools that lower the costs of borrowing.
Used in combination, these three actions by governments could have a significant impact on costs. Cutting costs in half is not an unreasonable assumption.
That could bring us to $200K/unit. In other words, each year, we’re talking about $34 billion to build a million new community homes by 2030.
Loans Not Grants Means a Low Fiscal Cost
Second, we need to understand the $34 billion is investment capital that will be repaid. The $34 billion is borrowed and loans are serviced by tenants paying rent.
We’ll skip the lesson on accrual versus cash accounting, but since loans will be repaid, the fiscal cost to the federal government of providing loan financing is equal to the amount put aside for loan loss provisioning. Assuming a 5% loss provision, the fiscal cost to the federal government is now less than $2 billion a year.
Affordability and Deep Affordability
Let’s pause for a minute and talk about affordability. Like everyone else, non-profit builders need to cover their costs - they are not philanthropies that can endlessly supply homes for free. Non-profit builders might typically provide units at 20% below market rents. To provide deep affordability – i.e., rents of a few hundred dollars or not more than 30% of a tenant’s income – governments need to step in and provide a subsidy. Deeper affordability requires additional grant financing.
We’re focused on how we get the stock of community housing up to 10% of Canada’s total housing. Of those million new homes, most will be “at-cost” rentals. That’s the only way to make the finances work if want to build a million new units. Governments can provide subsidies to turn some of these into deeply affordable units, but that’s dependent upon how much additional grant money we can put in.
And that’s actually fine for now. We can’t solve housing affordability overnight. But the stock that we are building today will serve as the deeply affordable units in a few decades.
Not everyone agrees with this approach, but it is the fastest way to grow the stock of community housing in Canada. We should be bringing more new community housing on stream every year, and as those properties start to age, we can cost-effectively reposition them for deeper affordability.
Three Levels of Government Working Together to Make It Happen
No one level of government can solve the housing crisis on its own. What specifically could all levels of government working together look like?
We are hoping to see a specific proposal coming out of the federal government in its 2023 fall housing infrastructure plan incentivizing the three levels of government to work together. The federal government can lay out a framework for creating a million new community housing units by 2030.
That plan could specify that federal funding would flow when other levels of government provide matching contributions as follows:
Municipal governments would provide land free of charge.
Provincial governments would compensate municipal governments, such that development charges and/or other discretionary soft costs are waived.
The federal government would provide tools that lower the cost of financing for non-profit builders. This could include creating a multi-billion dollar credit pool for non-profits, secured with the Government of Canada’s AAA credit rating and provided on tenors of up to 50 years, and with a government first loss guarantee. This loan program might cost $2 billion a year. The federal government could also provide subsidies for deeper affordability in some units. That could be another $2 billion, for a total of $4 billion annually. $4 billion a year to get our community housing stock up to 10% of total housing – seems like a bargain.
To Sum Up
There is a financial solution for building a million new social housing units by 2030. It’s affordable, and would show that Canada was serious about addressing the housing crisis.
It requires all levels of government to work together and bring something to the table. Municipalities could provide land free-of-charge. Provinces could waive certain soft costs, such as development charges, and compensate municipalities accordingly. The federal government could make low-cost financing available for non-profit builders, and provide grants to create new deeply affordable units.
For this to be a Canada-wide plan, we need the federal government to step up. Will we see that sort of leadership in their fall housing announcement?
Do you know anyone looking for common sense solutions for building a better city?
I applaud the approach but would push back on the financing being through loans vs grants. The types of units most in need service those with the least amount of funds to pay rents.
Even in a mixed market model the rents would not allow positive cash flows to payback financing.
Another way use a small part of that approach. but apply a 21st century sustainablity investment approach. We have technology that can see who is applying a Gold Rush speculation approach. So you can address the reason for our out of control inflation. Then apply simple old economic and business 101 sustainablity investment approach. It is called KISS.