The Decibel - The problem with Canada’s affordable housing

Episode Date: May 14, 2024

The housing affordability problem in Canada continues, and people are desperate for solutions. The federal government is handing out billions of dollars as part of the Apartment Construction Loan Program intending to create more affordable housing. But, a Globe analysis found a disconnect between what’s considered affordable in this program, and what renters can actually afford.The Globe’s real-estate reporter Rachelle Younglai explains why these units aren’t actually attainable to many Canadian renters and looks at the concerns with the program’s definition of affordability.Questions? Comments? Ideas? Email us at [e-mail]

So our budget this year is about building an economy that is fair for everyone. And one of the things that really doesn't feel very fair these days is the price of housing. It used to be that if you worked hard at a good job, you could afford a roof over your head. You need a real plan to build more housing so that people can afford good places to live, so this city can continue to grow and thrive. Prime Minister Justin Trudeau has spent a lot of time in the past couple of months hammering this message home, that the federal government is trying to make housing

more affordable. The government is pouring billions of dollars into one particular loan program that bills itself as supplying affordable rental units. It's called the Apartment Construction Loan Program, or ACLP. But an analysis by The Globe found that a lot of the units built from those loans aren't actually affordable for a lot of renters. Today, The Globe's real estate reporter Rachel Young-Lai is on the show to explain the gap between what the government considers affordable and what actually is. I'm Cheryl Sutherland, in for Manica, and this is The Decibel from The Globe and Mail. Rachel, thanks so much for being here today. Thanks for having me. So The Globe looked into a program called the Apartment Construction Loan Program.

So to start, can you just tell me what that is? Yeah. So the Apartment Construction Loan Program, a lot of people now call it the ACLP, it's a program designed to create more rental-only apartment buildings, so purpose-built rentals. Okay. So this program is run by the CMHC, which is the Canada Mortgage and Housing Corporation. So why would a developer go through this program instead of going through a bank? Well, they would do it because the housing agency, Canada Mortgage and Housing Corp, is offering low-cost loans. So especially in today's high interest rate environment, that is a big incentive. A developer has to meet certain requirements in order to be eligible for this program. One of the requirements

is that 20% of your apartment building is affordable. The requirement is that they stay affordable for a minimum of 10 years. If they're in Toronto, for example, Toronto has a longer requirement for affordable units. So it just depends on where it's being built. And then also they have to meet certain accessibility requirements and sustainability requirements. Okay. And we'll get into the affordability thing because that's the big part of this conversation. But before we get to that, the federal government is doing a lot of things to try to make housing more affordable. So how significant is this program in terms of money?

It's very significant. It's the largest program. The National Housing Strategy is tens of billions of dollars. And the ACLP is $55 billion. So it's huge. It's the largest program. The National Housing Strategy is tens of billions of dollars. And the ACLP is $55 billion. So it's huge. It's the largest program. It's a lot of money. And so how did this program start? Why did the government create it in the first place? So the government conceived of this program around 2016. And they wanted to get developers to build more of these purpose-built rental buildings. Because for a long time in the 90s and the early part of the century, there was very little purpose-built rental being built.

A lot of developers in the 1990s shifted from building these purpose-built rentals to building condo buildings. And so they were just trying to spur more development of these purpose-built ventures. So why would developers want to build more condos versus apartments? I guess, why weren't they building more apartment buildings? Well, because one is that you, as a developer, when you build a condo building, so a condo building, you would sell the individual condo units

to a homeowner or an investor, and they can make the money right away. So it's just, it's easier to build it. Whereas an apartment building, you build it and then you have to rent it out, and then it takes a longer time to recoup your costs, your development costs. And I guess you're kind of acting like a business almost, right? Because you're trying to do all this renting versus like selling something right away. Exactly, yes.

So what's the benefit of having apartments built explicitly for rentals? So it gives the renter more security in terms of where they're going to live. So if you are a renter renting a condo unit or someone's home, if that owner wants to come back and live there, or if the owner wants to sell their condo unit or sell their home, then you as a renter are out of luck. So basically, if you are in a purpose built rental building, the theory is you're not going to get kicked out if your owner wants to move back into the building or if your owner wants to sell the unit. So really, it's just your housing is more secure. Yeah, I think you're kind of talking about as well, this thing that happens, renovictions, right? What happens a lot of times with people

that are in a condo that might be owned by a person who might want to move back in? Yeah, for sure. Renovations is an owner sometimes will say, oh, I want to move back in, and then they renovate, or make some changes to their rental unit, and then they charge a much higher rent. So how many rental units has the ACLP helped build? Has it been effective? It's helped build around 30,000 units since inception. So since 2017 through to the end of last year, it's built around 30,000 units. And how much is that on the grand scheme of things, percentage-wise?

How much is that compared to the other purpose-built rentals out there? It's a small amount. I mean, it's less than 10%. So the government has this goal of building 3.5 million homes by 2030. And I guess these rental units are part of that goal. Yeah, for sure. It plays a role in helping to build more homes. So when they say they want to reach 3.5 million, it's not just rental units. They're also talking about homes to buy too. But yes. And so where has the money gone for this program? Where have we seen projects being built in Canada? So a lot of the projects have been built in British Columbia. We have around 60 projects in BC. We have around 60 projects in Ontario, and then Quebec,

and then we're in the single digits in the rest of the country. Okay. Let's get into the affordability question because this is the big part of this conversation. So one of the conditions for the loan is that rents are affordable. What exactly does that mean? So the federal government defines affordable housing as the cost of rent not costing more than 30% of your income. So someone making minimum wage earns around $36,000 a year if they were working full-time hours. And if you look at 30% of that, the affordable rent for that would be around $900 per month. Okay. So what about this loan program? How are they calculating what affordable rent would be? So the CMHC, this income measurement that they use to

calculate the 30% is they use the median total household income for the cities in which the project is built in. And that total income of all families includes homeowners, and it includes homeowners with two incomes. It also includes renters, single renters, and renters with two incomes. Homeowners, on average, have about double the income of a renter. So one of the issues with this income measurement that CMHC uses is that it includes homeowners and doesn't look specifically at renters. And so because the income measurement is so high, that means that the 30% of that high income measurement is much higher. Yeah. Can we use an example here? Like,

for example, I mean, there's like Ottawa as a median household income. Like what would we see there? Yeah, that's a great example because Ottawa has one of the highest median total incomes because it's a government town. And so people are quite well paid. And so the median total income of all families in Ottawa is $125,000. And so if you were to calculate 30% of that, that works out to just over $3,000 a month for rent. That seems pretty high. Yeah, it's really high. It's really high. And if you want to compare that to a renter household, so the median total household income for a renter household in Ottawa is $66,000. So much lower than the $125,000. And then the affordable rent for that renter household would be closer to $1,600 a month, not $3,000 a month. But in this case, for affordability, the number they're looking at is the $3,000, not the $1,600.

Yes, exactly. We'll be right back. So let's talk through some examples then. So the first one you looked at was this apartment building in Ottawa. What happened there? Yeah, so this apartment building in Ottawa, it's called Soho Italia, it got a $86 million loan. And we found that all of the units in this building, so 250 of the units in the Soho building, were deemed affordable by CMHC. Because, as we mentioned before, the income measurement that they use to determine affordability is so high. And so, for example, a 500 square foot one bedroom was starting at over $1,700 a month. The two bedrooms are starting at $2,320 a month. Wow. Okay. Can we do some fast math? Like how much of a renter's income

would that be, the $2,300? So the renter household income in Ottawa is just over $66,000. And that's a dual renter income? That's a dual income, yes. Two incomes in a renter household, yeah. And so that works out to... Rachel has her calculator out right now. My phone. About 42% of their income.

Okay. So in terms of the CMHC's affordability, which is supposed to be 30%, that's not hitting it. Exactly. Yes. So you also looked at some projects funded by these loans that are going up in Winnipeg. Can you tell me what you found there? Yeah, it was interesting in Winnipeg, where it's much more affordable than places like Toronto or Vancouver. But we found that, again, using the same metrics of total household income, that because it was

so high, the affordable rents for those projects in Winnipeg were actually even higher than the going market rent in that city. For example, one of the projects, the average affordable rent was just over $2,000. And when you look at the market rents in Winnipeg, they are $1,400 a month. So yeah, quite a difference. That's quite a difference. Yeah. These projects, and I think it's important to point out that this is considered affordable to the CMHC. Yes, under their definition, yes. How did you figure this out?

So we requested the average affordable rent for every single project that has been funded through the ACLP. And we got the affordable rents for 177 of the projects. And so then we just compared that number to what a renter could afford to rent in that specific city. So that was our analysis. So you looked at 177 rental projects, and I'm wondering if we can go through some of the numbers. How common is it that renters wouldn't be able to afford these rental units? It's quite common, actually. So out of the 177, we found that about half of them would not be affordable for a renter household with two incomes. And then when we looked at a renter household with only one income, we found that only 11 of them would be affordable.

Wow, that goes down quite a bit. Yeah, quite a bit. Yeah. We looked at over 500 occupations and what their monthly income was. And we found that, you know, about half of them would not be able to afford the affordable rents in these projects. A lot of the occupations they are earning close to, you know, minimum wage or even $25 an hour. And so occupations like personal support workers, or daycare workers, or service workers, a lot of those occupations, the hourly wage isn't more than $25 an hour. And that means that you could not afford to live in one of these affordable rentals. Okay, yeah. Housing affordability is a big talking point for the federal government.

So how has the government talked about this program? Like what have they said? Yeah, it's interesting. So at the beginning when they first started making announcements on the various projects back in 2017, 2018, 2019, they spoke a lot about how this was going to create affordable housing. But more in recent years, they've stopped saying that it's going to create affordable housing. And they talk about how it's going to create purposeful rental.

It'll create more rental housing, which is true. It's creating more rental housing. It's really interesting. So the big question, I guess, is if this isn't really affordable, why is the CMHC calculating affordability like this? I think the CMHC knows that there would be very few developers that would participate in this program if they used renter household income. And we spoke to many developers for the story, and they all pretty much said the same thing, that if they had to use a renter household income to calculate

affordability, they just wouldn't apply because they can't make the project work. They can't make a profit if they have to reduce the rents by that amount. Tell me more about that. Why? Why would they not be able to make that work? Because it's very expensive to build, and it's very expensive to maintain a building. And I should mention that in order for you to even start a building, you have to prove to a bank or to a lender that your building is going to at least break even. You cannot show them a building that's going to lose money. No one is going to lend to you if your building is going to lose money. I mean, it's just a sad state of affairs that the cost of construction is so high and the cost of housing is so high. And so developers, they will not do it if they have to drop the rents that much.

And I would say it's not even just private developers that made that comment. It was also nonprofits. They also said it would be very difficult for them to build if they had to meet a renter household income level. So the math doesn't work for developers. It doesn't seem to be working for a number of renters. So if it's not affordable and it's not working, is there a way to sort of improve this fund that it would maybe work for everyone? Like, what would make this better, I guess?

One of the program's biggest critics is a housing analyst named Steve Pomeroy, and he believes that, you know, let's just like get rid of this affordability requirement. Let's stop calling it affordable because it's not affordable. And if it's just going to be to create rental housing, then let's have it just create rental housing and then create something else that really addresses affordable rentals. So have real money, a real fund that will actually create affordable rentals and not this faux affordable rental program. I guess what I'm wondering is like, where does this leave us in the grand scheme of our housing

goals and our affordability goals? Like what does this program leave us? I mean, we can't say that it is helping create more housing. Can we say that there are below market rents in some cities? Yes, we can say that. It helps produce some rental housing, for sure. That's part of the goal is to create more housing. And it is doing that. I mean, one could argue that it's not going as quickly as it could go. And there are too many requirements. So a lot of developers don't want to participate but I mean it is creating housing so if we come from this from the perspective of all supply is good supply then it's working. Rachel this has been really interesting thanks so much for coming on the show. Thank you for having me. That's it for today. I'm Cheryl Sutherland.

Our producers are Madeline White and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer. And Angela Pachenza is our executive editor. Thanks so much for listening.