Affordable Housing in Canada: The Way Ahead

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Access to affordable housing is fundamental to the well-being of people and optimal functioning of economies as prescribed in the human rights declaration of the UN. In advanced and developing economies, cities are faced with the dual challenges of housing the poor and providing affordable housing for middle and low-income populations. From co-living spaces to different managed rental models, mixed-use dwellings to ownership unbundling, cities are looking at creative ways to overcome the challenges of affordable housing. The ongoing COVID-19 pandemic has underscored the importance of affordable housing and has provided opportunities to accelerate housing-related changes in the Canadian market. This article takes a closer look at the need for affordable housing and its future in Canada.

Defining affordable housing

While “affordable housing” is defined differently across economies, it generally involves a financial component and a minimum standard for socially acceptable housing. The CMHC (Canada Mortgage and Housing Corporation) defines affordable housing when the housing costs account for no more than 30 per cent of pre-tax income of the household. Affordable housing and social housing have often been interchangeably used, although the meanings of the two terms are different. Social housing refers to housing that is subsidized by the government. Affordable housing refers to any housing – owned, rented, or government-subsidized -that costs the household no more than 30 per cent of their annual income.

In essence, affordable housing translates to house price that does not compromise a household’s ability to meet the basic needs of clothing, food, clothing and education. In the Canadian market context, the above definition means affordable housing is applicable to all Canadians irrespective of their annual income. For instance, in case of a rental, a household with an annual income of $80,000 needs to ensure the monthly rent is below $1,850 in order to be ‘affordable,’ based on the assumption that utility costs are $150. When it comes to homeownership, a household with an annual income of $60,000 has to ensure the monthly mortgage is less than $1,115 to be affordable. With a 25-year amortization, 5 per cent interest, and 5 per cent down payment, the household can purchase a house worth $195,000.

The need for affordable housing

The mismatch between house price and income levels, the core housing need situation and the increasing shift to urban areas are the key factors that are driving the need for affordable housing.

The shift to urban zones-Population growth, increasing urbanization and migration to urban cities are contributing to the housing challenge. The United Nations estimates that by 2050, 68 percent of the global population will live in urban areas. While more people will shift to cities, a poll across 200 cities in the world revealed that house prices in 90 percent of them are considered to be unaffordable. Given the urban migration trends worldwide, by 2025, it is expected that 1.6 billion people across the world will live in unsafe, crowded localities or would be overstretched financially.

A mismatch between income and house cost –A key reason behind unaffordability is the mismatch between house prices and household income levels. According to IMF’s (International Monetary Fund) Global Housing Watch, real house prices across many countries increased by 5 to 10 per cent in 2020. Income levels, however, have not kept pace with the housing price increase. IMF estimates house prices grew faster in 50 per cent of countries as compared to income levels. A McKinsey study estimates that 330 million households dwell in substandard housing across the world or are facing the financial burden of high housing costs.

Core housing need-The Canadian Housing Survey from Statistics Canada and CHMC found that 1.6 million Canadians or one out of ten people were in core housing need in 2018. Core housing need is when the house is unaffordable, inadequate, or unsuitable and the household is unable to afford alternative housing within the community. Unsuitable housing is when there are not enough bedrooms to accommodate household residents, and inadequate housing is when major repairs are needed. A Leger survey finds that for 38 per cent of participants, the high price of houses in the Canadian market is the top barrier that prevents them from purchasing a house. The survey also reveals that:

  • 3 out of 10 have an average consumer debt worth $24,000
  • 42 per cent of Canadians believe that affordability of housing affordability can improve with government intervention
  • 68 per cent do not think they will be able to afford a home in the desired neighbourhood due to
    • High real estate price in the Canadian market
    • Salary is insufficient to make a down payment
    • Fear of interest rates going up
    • Household debt level

Government initiatives

In Canada, the federal government began the eight-year program of IAH (Investment in Affordable Housing) in 2011 where annually $238 million was provided to support Canadians’ housing needs.

The NHS (National Housing Strategy) was launched in 2017, which is a ten-year plan where the government plans to invest $55 billion to cut homelessness. The NHS seeks to solve the housing needs of 530,000 families while curbing homelessness by 50 percent over the next decade.

The NHS is a toolkit with initiatives that complement each other to offer lasting solutions for affordable housing in Canada. The strategies include:

  • Creating a new supply of housing by 
    1. providing forgivable and low-cost loans towards building affordable housing and construction of rental apartment projects
    2. repurposing surplus federal lands to create accessible, sustainable and affordable developments
    3. funding innovative techniques and ideas in the affordable housing sector
  • Modernizing existing housing by offering low-cost loans for renewing and repairing affordable housing shelters
  • Assisting community housing providers by
    1. providing subsidies, tools and assistance to expand their capacity and
    2. funding organizations that help tenants access information on options in housing and financial literacy.
    3. Funding unique ideas in affordable housing

Affordable housing: The future

Addressing the challenge of housing affordability requires systematic changes and a streamlined partnership between governments and the private sector. The COVID-19 crisis has forced policymakers and the private sector to reexamine residential models. Key trends the health crisis has given rise to include

  • the need for workplace and homes to be closer than ever
  • possible relocation to rural areas with the need for creating eco-neighborhoods
  • rising demand for co-living and mixed-use spaces
  • innovative public and private partnerships in the housing sector

Across the world, innovative ways of solving affordable housing challenges are emerging. For instance, in Australia, the New South Wales government in partnership with community housing and non-governmental sectors is renovating 23,000 housing units and 500 affordable dwellings. The proceeds will be re-invested in community facilities, public space and social housing.

Researchers at IIT (Indian Institute of Technology) in India have come up with GFRG ( Glass Fiber Reinforced Gypsum) prefabricated panels that are manufactured using gypsum waste generated by fertilizer plants. The low-cost panels have been designated as green materials by the UN as they minimize energy needs. 

While innovations in technology, materials, policies and financial products will shape the future of affordable housing, some initiatives city governments can take include:

  • streamlining regulatory landscapes while ensuring transparent land acquisition,
  • emphasizing property rights and develop a regulatory framework for rentals to protect landlords encourage mixed-use and mixed-income housing developments,
  • empowering the development of innovative financing models for new homes and for up gradation of existing homes
  • Accelerating the land delivery for development;
  • Shortening of the approval process in terms of re-zoning and building permits
  • Improving the transparency related to the approval process
  • Ensuring time-bound development plans to avoid construction delays;
  • Re-evaluating rent policies to provide more dwelling options
  • Assessing incentives to encourage developers in taking up more affordable housing projects

Private sector

The private sector needs to look at innovative mechanisms such as:

  • ensuring the creditworthiness of people who want to improve their housing situation.
  • By working with communities, employers can provide affordable housing for their employees, provide loans, mortgage deals and subsidies for affordable housing
  • Sustainable design concepts need to be the focus of private developers to create affordable and energy-efficient housing
  • Non-profit sector entities can help by implementing alternative tenure models with housing developers, provide technical support and information to homeowners and developers