International Forum 2018 Report Released

The last two years have presented a turning point in Canadian housing policy and funding.  During the 2015 federal election, the Trudeau Liberal Party campaign promised, if elected, to develop and implement a national housing strategy. They subsequently consulted on the elements of the strategy over the following two years and in November 2017 the long awaited National Housing Strategy (NHS) was released. 

 

The NHS is a $40 Billion commitment over ten years (2018-28), of which roughly $11B is new funding, the rest is reallocated from existing ongoing programs. That said some $8.4B in federal funds was scheduled to expire over the next decade. The NHS commits to retaining and reinvesting this amount, so it is effectively a new expenditure commitment. 

 

A key feature of housing programs and funding in Canada is that housing is considered a provincial responsibility under the constitution, so there is a high level of engagement and a more decentralized approach compared to the US or UK. Many historic and now new programs under NHS involve matched cost sharing by provinces and territories. At minimum $7B of the $40B is from provincial cost sharing funds (i.e. not federal funding). In April 2018, all provinces and territories (except Québec), agreed to cost match with specific details to be determined later in 2018.

 

The most notable elements of the Strategy include: the commitment to reinvest long term federal subsidies (in excess of $8B) that were scheduled to expire over the decade; the introduction of a new housing allowance, which represents a new approach in Canada (unlike the US with Section 8, or the UK’s Housing Benefit) as Canada’s menu of responses to affordable need has not traditionally utilized such demand-side mechanisms. The Strategy is also premised on a rights-based approach to housing assistance, and includes additional funding for research, access to land, and a “Technical Resource Centre” to assist housing providers transform their operations. 

 

While programmatic details remain to be fully determined and will be influenced by provincial and territorial priorities, the two primary goals of the NHS are to:

While the NHS provides long term predictable funding, this is still quite modest in scale. While $40B is substantial, it includes a lot of existing spending and new commitments only marginally greater than annual expenditures over the past decade. 

 

The Strategy aims to create some 120 000 new or rehabilitated units and assist a further 330 000 households to address affordability issues through a new housing allowance (Canada Housing Benefit). It is also expected to leverage partnerships with other levels of government and the private sector may augment total output and outcomes. 

 

Further information on the National Housing Strategy, and to download a copy: https://www.placetocallhome.ca/

 

Unlike the US and UK, Canada escaped the 2008 global financial crisis with minimal impact.  Home prices took only a short pause before continuing a steady upward trajectory.  The overall homeownership rate continued to increase to a peak level of 69.0 % in 2011, before falling marginally to 67.8 % in 2016. 

 

Home prices nationally and more particularly in the two largest metropolitan regions of Vancouver and Toronto exceeded double digit rates of appreciation, creating concerns about ownership affordability.  The price pressures were exacerbated by global capital flows and investment by foreign buyers, especially in Vancouver. Meanwhile levels of household debt, largely associated with mortgage debt having risen to historically high levels, generated concern about overall financial system stability. The high levels of household debt have been targeted by the Department of Finance and Bank of Canada as critical risk factors that could exacerbate an economic slowdown. 

 

The policy response to both rising household debt and foreign buyers has been a series of macro-prudential changes mostly within the jurisdiction of specific provinces (notably British Columbia and Ontario) that constrain access to credit and, in the case of foreign buyers, have imposed a tax on such purchasers. While these policy changes have had some effect in moderating the rate of home price increase, the unintended impact has been a constraint on access to ownership. There is already evidence in declining ownership rates, especially among traditional first-time buyer cohorts (millennials). New regulations also restrict purchase by small investors who have been an important part of new rental supply (condominiums). With demand remaining in the rental sector, pressures have shifted, with declining vacancies, rising rents and increasing issues of rental affordability. This spills over into affordable housing need. 

 

Homelessness continues to be a serious issue across many communities, and especially in larger centres. Like many US cities, most Canadian cities and provinces have adopted 10-year plans to end homelessness. While there have been modest improvements in some cities, most continue to struggle to achieve any meaningful reductions. At the federal level, a national Homelessness Partnering Strategy aims at preventing and reducing homelessness by providing direct support and funding to 61 designated communities and to organizations that address Indigenous homelessness across Canada.  While ending homelessness is one of the two priorities of the NHS, this funding area remains significantly underfunded in terms of the stated goals. 

 

The Final Report of the Advisory Committee on Homelessness was released in May 2018, and a copy can be downloaded here: 

 

As noted, Canada’s decentralized system means provinces tend to play an active role in housing, some more so than others. British Columbia elected a new government in 2018 which has rather ambitious plans and an increased level of investment.  In Ontario, the province has adopted legislation intended to promote inclusionary planning for affordable housing; however, the rhetoric is stronger than the legislation, so it is unlikely that it will have any tangible impact in terms of adding to affordable supply – an opportunity lost. Furthermore, an election in Ontario later in 2018 may change the policy landscape.

It has been a tumultuous and disruptive two years in the US.  Housing and urban policy were not central issues in the 2016 US national election campaign. Rather, immigration reform, tax policy, health care, and national security became the primary focus. The effects of tax reform on housing production and affordability were not well analyzed or debated. A proposed national program of public infrastructure investments was proffered in concept, but did not include housing per se. Indeed, the unexpected outcome of Trump’s election resulted in a sudden tectonic shift in tax expenditures away from equity investments in low-income housing tax credits as corporations planned for the significant reductions in corporate tax rates. Throughout 2017 as the largest tax bill in thirty years was debated in the US Congress, equity and debt markets roiled with uncertainty. This dramatic shift in investor appetite for tax losses created financing gaps in projects deemed ‘ready to go’ and delayed production and preservation of housing until markets stabilized late in 2017. The tax reform measures ultimately signed into law in 2017 were designed to provide economic stimulus by lowering corporate tax rates to 21 %, temporarily reduce individual tax rates, double the standard deduction for individuals, and provide incentives to repatriate corporate profits harbored in offshore accounts.

 

Several aspects of the 2017 Tax Reform Legislation will have long-lasting policy implications for housing as well as the industry of housing development, construction and real estate, generally:

 

With the 2018 mid-term elections on the horizon, 13 individual appropriation bills were consolidated into a $1.3 Trillion Omnibus Spending Bill. Housing and community development appropriations increased significantly helping to reduce the backlog of capital needs, reduce homelessness and fund community facilities. Budgets proposed for next fiscal year, however, are anticipated to return to pre-election levels.  Local housing agencies (LHAs) are transferring public housing investments into new portfolio structures under the Rental Assistance Demonstration (RAD) program, thereby leveraging private funding for capital repair needs and simplifying asset management going forward. Indeed, many LHAs no longer own public housing and are operating with a greater degree of flexibility under the RAD program. 

 

The racial polarization within cities in the US has reached a fevered pitch not seen in decades. Anger fueled by police shootings (often involving victims of colour), the election and inauguration of a President who did not win a plurality of the popular vote, and concern over the immigration status of some 11 million undocumented immigrants, cities roiled with demonstrations, with some becoming violent. Not since the demonstrations protesting the assassination of Martin Luther King Jr. have cities been the center of such unrest. 

 

The US Department of Housing and Urban Development’s (HUD) resolve to vigorously enforce the Fair Housing Act has weakened under the new administration. Rules proposed by the previous Obama administration to prevent the disparate impact of racial discrimination (the unintended effects of a policy or practice of racial discrimination) were suspended by HUD.  While legal enforcement has diminished under the new administration, HUD Secretary Ben Carson has made self-sufficiency a priority. The 2019 federal budget allocates funding to ‘EnVision Centers,’ proposed to be located in, or near, public housing communities to promote leadership, educational advancement, economic empowerment, and health and wellness. These ten pilot projects will be replicated nationally through partnerships with and between other community institutions to help pay for and sustain the EnVision Centers.

 

The pervasive and growing visibility of homelessness among singles, families, and the disabled has resulted in many cities taking action to declare a state of emergency for housing and homelessness. The criminalization of homelessness by the City of Boise (Idaho) drew legal attention of the US Department of Justice in 2015. The Ninth Circuit Court of Appeals ruled that city ordinances criminalizing camping could not be legally enforced unless and until a supply of emergency shelter was available locally. This legal decision was reinforced by HUD which signaled their intention to withhold federal funds from cities as further inducement to attain compliance. These legal protections, coupled with sustained housing price increases for each year since the 2012 recovery from the global financial crisis, has resulted in an increasingly visible pandemic of homelessness. Los Angeles (California) leads the nation with nearly 49 000 homeless. Many cities reported increases of 10 – 30 % in their annual point in time counts recorded between 2016 and 2017. The crisis is disproportionately impacting people of colour (African Americans and Native Americans) and people with disabilities. Additional shelter beds, permanent supportive housing using a harm reduction model (Housing First), as well as experimentation with self-governing encampments of houseless individuals are being used to some effect to alleviate the human suffering and rapid deterioration of the public realm, improve safety on the streets, and health outcomes for the people experiencing homelessness. 

 

Widespread luxury housing development has resulted in growing efforts by cities to harness the economic forces of the private property development industry to include affordable housing within mixed income urban communities. New York, Los Angeles and San Francisco, Portland and Seattle have all amended their land use bylaws to mandate private developers to include affordable housing (hence the term inclusionary housing or zoning). Recognizing that such policies only work at the upper margins of affordability, local voters have also approved ballot measures providing funding for low-income housing, permanent supportive housing, or local variants of public housing. 

 

• Owner-occupation grew from 10 % to 71 % of the stock, but recently it has fallen back to 63 %; 
• Private renting declined from 90 % to less than 10 % and has grown to 20 %; 
• The large social housing sector, mainly represented by council housing, grew to about a third before its reduction to less than 18 %.  People on low incomes tend now to be concentrated in social rented housing; the average income of council and housing association tenants is just over a quarter of the income of people who are buying houses with a mortgage.