Fix Housing 5: It’s Time for the Feds to Start Building Homes Again

The federal government can build publicly-owned community housing on public lands – with little impact on debt or deficit levels

This is the fifth in a series of common sense solutions for achieving housing affordability for all.

Feds used to built homes

The federal government used to build homes. Subsidized homes for those who needed affordable options.

It started in 1946 with the predecessor to the Canada Mortgage and Housing Corporation building homes for veterans returning from World War II. It continued until the early 1990s, when the federal government retreated from social housing and downloaded that responsibility to the provinces and territories.

But most provinces never really took up the mantle of building affordable housing. As a result, we’ve seen the shortage of non-market housing increase for three decades. In Canada, only 5% of homes are non-market, notably below the average of other advanced economies.

Market forces alone have not delivered the affordable housing we need. In response, the federal government re-engaged in affordable housing with its 2017 announcement of a 10-year $82 billion National Housing Strategy. That strategy operates by transferring resources to not-for-profits, provincial/territorial governments, indigenous communities and commercial builders to deliver affordable units. Direct delivery by just about everyone except the federal government. 

Back to the future

The federal government should get back into the business of directly building homes. 

Specifically, they should be building affordable, sustainable and accessible rental units on surplus federal lands.

The government can contract out construction, maintenance and operations of these units. But the feds should own and oversee them.

The federal government can build housing through standing up a new public builder, or tasking CMHC or Canada Lands Company to do this.

Why should the feds get back into building homes directly? Because it is something they can do at a very low fiscal cost.

Talk to your accountant

Public sector accounting rules allow for the federal government to build and own housing, on lands that the government already owns, at a low fiscal cost. Alan Broadbent and Tyler Meredith explain the accrual accounting rules that the federal government uses, but essentially construction costs would be a close to zero fiscal cost to the government.

Individuals and households tend to think in terms of “cash accounting”. Cash in, cash out. But most large organizations, including the federal government and many provincial governments, use “accrual accounting”. Accrual matches revenues with expenses at the time of the transaction, rather than when payments take place. The cost of building assets gets amortized over time and matched against lifetime revenues.

Under accrual accounting, there would be little fiscal cost to building new homes since the government is swapping one asset (cash) for another (housing). And the short term construction costs would be offset by longer-term rental revenues. The only items that would show up as a fiscal cost are net operational losses (i.e., expenses in excess of rental income received), depreciation and any loss provisioning.

These accounting standards mean that the federal government could build and own affordable units with minimal impact on deficit or debt levels. The government still needs to raise capital to pay for construction, but that is a cash issue rather than an accrual one.

Provincial governments that use accrual accounting standards could equally take advantage of this approach. Municipal governments in North America do not use full accrual accounting. Accordingly, municipalities could not use this approach for building homes at little fiscal impact.

In due course, governments might be able to subsequently transfer these units to non-profit organizations if the accounting treatment allowed; for example, if the federal government was able to lease out the homes for a nominal fee.

Housing to support immigration

There are other good reasons for the federal government to get back directly into housing.

Immigration policy should be supported by a federal strategy to house those newcomers. Support for immigration is coming under threat, largely due to concerns about housing. We urgently need a federal strategy for housing international students, refugees and certain other classes of immigrants. Federal home building could be a cornerstone of that strategy.

A new public builder

The feds have the fiscal flexibility to build new homes at a low fiscal cost.

To do this, the federal government would stand up a new federal public builder (or task an existing organization), and capitalize it with sufficient funding to build out housing on surplus federal lands. 

This might sound too good to be true. Why haven’t we done this already?

There’s likely two explanations.

1. Relatively few housing policy experts understand the nuances of public sector accounting. Perhaps there just haven’t been enough talking heads promoting this idea for it to go mainstream.

2. In recent years, there has been a general bias against governments delivering services directly. But given some recent Canadian transit experiences with public-private partnerships, that thinking may be changing.

The time is right to raise the possibility of creating a new federal builder. And to think about how that builder could operate without the bureaucratic overlay that may have characterized previous experiences.

This housing crisis has made it clear that we need all hands on board. This includes a more robust role for the federal government.

An important and under-appreciated option for the feds is to do what they used to do: build houses directly through a federal public builder.