Affordable housing is a hot buzz word with all levels of government and on social media right now. Especially as we deal with increasing interest rates and high inflation but making affordable housing is a little more complicated than just saying, “we need affordable housing.”
Creating affordable housing sounds like a novel idea, one that many people in Canada believe is a necessary action, but what does that mean and how does our governments (Provincial and Federal) plan to create affordable housing? No one is talking about how to do it – just that they will magically create affordable housing.
The reality is that increased interest rates, increase federal taxes and high inflation has driven up the cost to do everything – including materials and labor needed to actually BUILD these homes. Many investors and builder are finding that once you add up all the costs associated with building a home (building permits, utilities, insurance, materials, labor, interest on loans, property tax etc), they aren’t able to build and sell (or rent) and make back their money invested based on the current market, which is high to begin with. So tell me how can you do the same thing and sell for less in order to create affordable housing?
I haven’t heard any real plans from any level of government other than a couple of financial aid programs for first time buyers (under 40 years old…cause that’s realistic right now) and talking about speeding up permits to get homes built faster.
The latter will help, some. If an investor is carrying the property for a long time, that cost (property tax, interest etc) gets added into the total cost spent. The less time they carry the property, the lower the carrying cost, the less money they need to recoup from the sale – just the same, if the governments reduce the cost for permits and inspections, that will also bring down the cost to build – but none of these ideas are guaranteed to result in affordable housing. They are just hopes, and let’s be real, we are talking about a business and a business needs to make a profit.
The other piece of reality governments aren’t acknowledging is the risk investors take-on, when it comes to rental property in particular, and their willingness to take that risk. If the building is a rental property, investors run the risk (among other things) of having someone not pay their rent. The laws in Canada (especially in Ontario) make it hard to evict a tenant even if that person hasn’t paid rent in months or has been causing extensive property damage. We have to remember that (PC or not) affordable housing is for those in the lower income tax bracket with less disposable income. They just are a higher risk client and with currently no protection for those lending the helping hand to make it affordable for them, investors have to consider the risk and they have to prepare for the chance they could go months without a tenant paying rent. Reality – those cost get added into the monthly rent rates “just in case”.
So how do you create affordable housing when building cost are building cost and they continue to increase in cost and the risk to investors in a rental market is high? Having real, open, conversation about actionable items would be a good start.
I don’t know all the ins and outs of this area but, from what I see, I do have some ideas…a jumping off point maybe?
How I see this working is by keeping “affordable housing” in-house and probably at a federal level. Hear me out…
Whether it is a private or public company, a company’s goal is to make a profit. The bigger the profit, the more successful the company is seen to be. That’s business and that shouldn’t be a surprise to anyone nor something that makes anyone angry. So if you take the creation and building of affordable housing out of the business world and into the government, you take away the need to make the job (building homes) profitable. That in turn, reduces the end cost to make the product (affordable homes) and the savings can be passed onto the end user.
Bringing affordable housing project into the government shouldn’t be that difficult. Simplified, you have 3 departments or stage to the project.
If the planning is done in one department it can be expedited and cost saving could be found. This means the Department of Affordable Housing (for example) would have their own staff that do the build drawings and design (an architect), issue permits and inspections and source materials. They will still have to follow all the same guidelines and by-laws but if one person is assigned to just affordable housing permits, that would speed up the time it takes to get the permits, making it faster to start building. Plus, the cost a builder be charged for permits and inspections would be waved because these salaries are already budgeted for within the budget of the Department of Affordable Housing.
Now lets look at the issue of material cost. If you had one person source materials for multiple projects, buying in bulk (multiple buildings across the country), that should result in a better rate from various material suppliers – something a general contractor quoting a project isn’t able to offer.
These two things would reduce the general cost for building, a cost that a contractor bidding on the job would have to pay for and include in their quote. Result, reducing the end cost of a project and reducing the amount needed to be recouped at the end of the project – what the family living there will need to pay.
Where we have a multiple unit property, I would suggest that commercial units are designed on the bottom level. The rent from the commercial units could be used to help offset (reduce) some of the cost to the residents, making it easier on the families that live there. That could also offer employment opportunities to the residents and be an income generator for the city.
The building stage is another area where cost savings could be found or at least priced and considered. Most contractors have additional fees for project management, site supervision and admin fees on top of the fees for labor and materials. These fees could be as much as 20% (or more) of the total cost of the build. On a multiple million-dollar project, that’s a lot. If these roles can be done again under the umbrella of the Department of Affordable Housing, those supervisor and admin fees could be saved. Again, in turn, these costs would not then get filtered down to the end user, the person who we are trying to help.
This may or may not make financial sense primarily because of the different trades that are needed to build a home and that we are looking at a country wide program. A general contractor or builder will have contacts in each area for the different trades and know who’s reliable and who isn’t. Overtime, this department would develop the same list and working relationships, but this would take some time. Plus, we know how governments like to help friends. There would have to be some checkpoints.
Ownership and Maintenance
To me, a development that is classified as Affordable Housing would be owned and maintained by the government, especially if we are talking about a rental property. The challenge with selling the property would be controlling the resale cost. You don’t want someone getting in on a discount then turning around and selling for double (or market value). That kinda defeats the whole idea of creating affordable housing. If the property was going to be sold to someone, there would have to be some legal rules, regulations, or contingency in place for the sale. However, renting these on the other hand do have some strong benefits for everyone involved. Including those of us that don’t qualify for affordable housing but whose taxes are going towards pay for it.
Keeping these as rental units, the residents are then contributing towards the cost to build the home and maintain the property. That then means this department or program doesn’t remain a debt to Canadians. Too often, government programs for low-income families have not fiscal return. These families get the money and spend how they see fit and often don’t appreciate what that means. But this way, there is some ownership and contribution by the family and it’s not a handout.
Studies show that when someone feels they have contributed to something, their pride and self-confidence is higher.
Another bonus to keeping these properties under the ownership of the government is that once the build cost and maintenance is covered, this becomes an asset to the Federal Government and an income generator that can be used to pay off debt (which we have a lot of now) or used for other federal spending like paying for baby bonus, welfare, GST credits etc. Again, these are government programs that the average person who would qualify for affordable housing would also be receiving. Therefore, the rent from these building would go towards funding these programs and they are once again helping to contribute to Canada. Of course, this allocation needs to come after the general operating cost like a Property Management firm, general repairs and maintenance, municipal services etc. The point is to give Canadian’s a safe place to live, there are cost to maintaining that.
I would also suggest that the commercial units house at least one government agent. Local MP/MPP office, Service Canada or the provincial service in the area. These offices exist, they might as well be in a building already owned by the government. And why not put these offices in a place where the people who need them can easily access them. Plus, this means the upkeep on the building will continue to happen. You know with an MP/MPP office in the building, they aren’t going to let issues with the building get ignored and when a tenant can walk downstairs to their MP/MPP’s office to complain about a maintenance issue, it’ll be hard to ignore. And it will give the government some firsthand insight into issues landlords in this country face (not paying rent, disrespecting the building etc). Which could lead to better balanced laws…leading to more willing investors…leading to more properties available to rent…
In a time when the cost of living is high, there are new and higher taxes coming in and interest rates are increasing, Canadian’s are hurting and getting loud about it (rightfully so). This gets the attention of the media and the opposition governments. Which is great but all that leads to is a bunch of buzz words that have no real meaning and result in zero action. Everyone has heard there’s a housing affordability crisis in Canada but no one talks about real ways to fix it.
Putting in caps on landlords, trying to control landlords, offering rebates to renters, aren’t going to stop anything. If the cost of mortgages and loans goes up; if the cost of materials for repairs and maintenance goes up, naturally the cost to operate the property then goes up. That cost first hits the owner and then it hits the renter. Trying to stop investors from increasing rent, meaning they must pay out of pocket for these other increases caused by the government, just deplete the value and interest in having a rental property. If you can’t afford something, you sell it. This will end up depleting the amount or rental units that are available which leads to higher demand (and higher prices). It doesn’t solve anything, if not make things worse.
A rental is an investment (meant to make money) or it is part of a business model (key word a business). These owners or corporations are not here to subsidize the renter. They are providing a service. It is a business or an investment for their future retirement.
The best and only way to stop landlords from increasing rent is to take away the business side of the argument. If there isn’t a business argument – if it’s not about breaking even, making a profit, or saving for their future – there’s no need to increase rent. Putting Affordable Housing under the government means there is no corporation looking to grow their investment or turn a profit; there is no owner worrying about affording their retirement. Simple.