Over the past three decades, Canada's housing market has been transformed. Policy changes have tipped the scales in favour of real estate investors. The results for many people have been disastrous. Rents are high and rising. First-time home buyers cannot afford to compete with real estate investors. Tent encampments are spreading.
“The housing crisis can only be solved with more homes.” Thus read the headline of a recent opinion article from Ontario Premier Doug Ford.
New housing alone will not fix the housing crisis. It is not just about the need for new housing. It is about the need for affordable homes for people in Ontario.
Look deeper and you will see how provincial housing policies are designed to make the housing crisis worse.
A good example of this is the proposed redevelopment of a townhouse complex near my home in downtown Kitchener, Ontario. A real estate developer plans to demolish the existing seven townhouses and another building on the property with several more rental units. The plan is to replace those homes with a 12-storey building with 99 one- and two-bedroom units.
The plan would replace 13 units and create 99 units. Seems like a win.
The housing market in Canada has gone from a place focused on providing homes for people to a place for generating profits for investors.
Here is the problem: The existing units are home to tenants, including families with young children. These units have been there for decades and are covered by rent control, at least while they are occupied. The Ford Government has removed rent control when units become vacant and on any new units built after 2018. The 99 new units will be more expensive and will not be covered by rent control. The community will lose seven affordable family-sized townhouses. The people currently living in those units will be displaced into an expensive housing market with few vacancies.
It is no coincidence that the City of Kitchener is grappling with an ongoing growth in tent encampments, despite having created a new outdoor shelter with 50 tiny homes.
Rent strikes
You may have seen news stories recently about tenants undertaking rent strikes to protest large rent increases. Many of the apartment buildings are owned by institutional investors – insurance companies and pension plans. The situation of these tenants sheds light on why “new housing” alone cannot solve the affordable housing crisis.
Insurance companies and pension funds buy apartment buildings, and the rental income funds the benefits to their clients – people like me. The problem is that as owners of the apartment buildings, the overarching goal of the insurance companies and pension funds is to generate growing revenue through higher rents. That is what is pushing up housing costs for so many people.
Ultimately the growth in rental costs is driving the growth in homelessness. As working people, including professionals, find it harder to afford housing, people with low incomes are being pushed to the streets.
Financialization of housing
There is a big word for it – financialization. And it is big business.
In a report for the Office of the Federal Housing Advocate (OFHA), Martine August, a professor of planning at the University of Waterloo, explains how financialization of housing developed in Canada when federal legislation in 1993 lowered the tax for investors with real estate income.
In 1996, real estate investment trusts (REITs) owned zero purpose built rental suites. August explains, “The first rental housing REITs were launched in 1997 in Ontario, transforming properties owned by REITs into financial assets.” By 2020, they owned nearly 200,000 suites.
The scope of the financialization touches almost every form of housing.
Reshaping the housing market
We tend to think of markets and government as two separate spheres. In reality, governments play a big role in creating and shaping markets. Throughout the 1990s, in Canada, governments, both federal and provincial, reshaped the rental housing market. Tax policy, funding decisions, financial regulations and rules weakening rent control all played a part in transforming the housing market in Canada from a place focused on providing homes for people to a place for generating profits for investors.
From the 1960s through the 1980s, federal and provincial governments in Canada built a significant amount of non-market housing. This included publicly-owned social housing, non-profit housing and co-operative housing. In 1993, the federal government stopped all spending on new, non-market housing.
At the same time, as we saw above, the federal government changed tax rules allowing pension funds, including the Canada Pension Plan, to invest in real estate at preferable tax rates.
In Ontario, the Harris Government removed rent controls on new apartment buildings in the 1990s. That policy was changed when a Liberal government came into power in Ontario. But when the Progressive Conservatives came back into power in 2018, they removed rent control on vacant apartment units and any apartments built in 2018 or after. This created a powerful incentive for landlords seeking to maximize rental revenue to see existing tenants leave so that they could raise their rents.
REITS have also actively sought above-guideline-increases (AGI) in rent for buildings covered by rent control. With rent control, the province announces the amount by which landlords can increase rents in a given year. In 2023, the rent increase guideline is 2.5 per cent. But landlords can go before the Landlord and Tenant Board seeking to increase rents above the guideline. Over the past decade, the number of applications for above guideline increases (AGI) has more than doubled. And REITs account for more than 80 per cent of those applications.
This combination of public policies and investment practices has led to skyrocketing rents and house prices. It has made housing unaffordable for young professionals, retirees and many people in between. And more people with the lowest incomes are living in tents.
If you have a pension plan or pay into CPP, you probably have a stake in real estate investment.
My role in homelessness
The shocking reality, for me at least, is realizing that I am implicated in this. I have looked into my health insurance plan and my retirement savings plan and found that both include real estate investments – one of which includes an apartment building where tenants are on a rent strike.
If you have a pension plan or invest in a retirement plan, you probably have a stake in real estate investment. Even the Canada Pension Plan (CPP), through the Canada Pension Plan Investment Board, has its own investment wing, and our public pensions are also invested in the growing rental housing market. Federal legislation in 1997 removed limitations restricting (CPPIB) investments in public infrastructure allowing CPPIB funds to be invested in financial markets.
All housing has been affected
Housing in almost all its forms has been turned into investment assets. Single family homes are being bought by investors to turn into rental properties. Long-term care homes have been bought by large investment companies with tragic effect for residents. Death rates in for-profit long-term care homes were far higher than in non-profit and municipal homes during the COVID-19 pandemic. More single-family homes and condos are being bought as short-term rentals – think Airbnb. Student housing. Trailer parks. The scope of the financialization touches almost every form of housing.
Could a National Housing Accord be the answer?
Premier Ford is not alone in believing more housing is the solution to the affordable housing crisis. A new proposal by the Canadian Alliance to End Homelessness (CAEH), The PLACE Centre at the Smart Prosperity Institute and REALPAC, the “national association representing top tier executives and decision makers of the Canadian commercial real estate industry,” calls for a National Housing Accord aimed at building 5.8 million homes, including 2 million rental units, by 2023. The call for the National Accord includes a call to double the supply of social housing and for the introduction of a Homelessness Prevention and Housing Benefit (HPHB).
Former United Nations Rapporteur for Adequate Housing, Leilani Farha, shed light on the financialization of housing. Farha and Julieta Perucca, from The Shift, recently penned an article cautioning that a National Housing Accord that lacks safeguards for tenants will only enrich real estate investors more.
New housing is surely needed both to meet the needs of Canada’s growing population and to fill the backlog in housing need, not least for Indigenous communities. Equal, or perhaps more important, is the need to reframe the challenge as one of making sure everyone has a safe and affordable home. Next month, we’ll explore what that looks like.