The 2018 Federal Budget and Renting
The 2018 federal budget plans to incentivize developers to build affordable rental housing by loaning billions in low-cost construction loans.
The federal budget acknowledges how tough it’s become for the 30 per cent of Canadians it estimates are renters. Rental supply is extremely low in major urban centres and becoming increasingly expensive. Vacancy levels for houses in Mississauga and Toronto, for example, are 1 per cent or under
“While patterns will vary across cities, future demand for affordable rental housing is expected to rise as the population ages, young professionals migrate to larger cities, and immigration continues to grow our communities. Canadians who wish to buy a home now need a longer period of time to save for a down payment, especially in Canada’s biggest cities,” it says.
Why are they doing this?
Ontario’s Fair Housing Plan, announced last April potentially worsened the situation by placing rent controls on all buildings, even those built after 1991. Without the ability to raise rents and make profits, developers aren’t interested in building purpose-built rental housing. Instead, they’d rather build condos to sell at market value.
We know this because it’s what happened last time the government instituted rent controls. The Mike Harris government did this in the 1990s and developers stopped building purpose-built rental housing for decades.
In the last few years, because the demand was so great, purpose-built rental housing saw a bit of a rennassance, but condos still led the way.
During spring 2017 in Ontario, for example, four times more condos were under construction, at 50,000 units, than purpose-rental built housing, according to a report by the Federation of Rental-housing Providers of Ontario (FRPO) released in September 2017.
Since the announcement, however, FRPO says that 1,000 planned rental units cancelled or converted to condominiums.
That’s what happened to the King Portland Centre. This mixed-use development in downtown Toronto by Allied and RioCan switched 133 planned rental units to condo units in September 2017.
Changes to these projects is not good news. To meet rental demand FRPO says that Ontario needs to double construction.
So the question becomes, how does the government convince developers that it’s more worthwhile to build rental housing than condos?
The same month the Fair Housing Plan came out, the Canadian Mortgage and Housing Corporation announced the Rental Construction Financing Initiative.
This financing provides low cost funding to eligible borrowers during the most risky phases of product development and for projects that offer affordable rent, accessible units or are environmentally friendly.
This initiative started with $2.5 billion in loans, and the federal budget proposes to increase the size of those loans to $3.75 billion over the next three years. They hope this will lead to more than 14,000 new rental units across Canada.
14,000 new units isn’t nearly enough, especially when it’s spread out over Canada, but it’s something. The FRPO estimates a supply shortfall of at least 6,000 units per year, with a cumulative deficit of 62,500 rental units amassed in the coming decade.