Bubbles, Programs and Policies

Today, the Globe and Mail’s Report on Business (ROB), to their credit, has a major spread on the Ontario Government’s effort to cool the housing bubble in the Toronto region. (Globe and Mail, ROB, April 22, 2017) Their conclusion is that this is a political fix that will do very little to reduce the price of housing.

It is Barrie McKenna, the ROB feature writer, who says that the government’s response was political, but that is not the point. The rising prices of homes are making it virtually impossible for new buyers to purchase housing, and that is a serious political issue. Governments should respond to this crisis. The real question is, will the new government policy work?

A new building within Regent Park, an old public housing project.

For that we have to turn to another ROB reporter, Janet McFarland, who spent her time over the last couple of days talking to realtors who have first hand knowledge about buyers and sellers. Their opinions are consistent. The policy will have a marginal impact at best and maybe no impact at all.

The 15% foreign buyer’s tax is the major policy change designed to take some of the air out of the housing bubble. Realtors selling to foreign buyers told McFarland that the new tax will make very little difference. These buyers are wealthy people trying to get their money into a safe haven such as Canada. The Canadian dollar is low, this country is stable politically, and is seen as an ideal place for a secure investment. One real estate agent told her that the exemptions to the tax will mean that only about 20% of foreign buyers will have to pay the tax and it will not be a disincentive at all for them.

The conclusion of those with first hand knowledge of the industry is that it will not work. There may be some psychological benefit, but that will be marginal and short term. The only thing that might work is some form of tax on speculators who buy property and flip it for a profit. A tax like that would apply to everyone and would be very hard to administer. Governments are reluctant to use such a blunt instrument to deal with such a complicated problem.

We are left, then, with what economists call “market forces” to dampen the housing bubble. McFarland quotes agents who say the high prices are attracting more listings. That increase of supply could help to dampen prices, but as long as demand remains high the tendency will be for house prices to drift upwards.

I am not surprised by any of this. To put the crisis baldly, middle and low income families and individuals have been priced out of the market, and there is very little the government can do about it. I am coming to the conclusion that this is not a housing bubble; the market has established a new price plateau, and it is likely that prices will continue to rise.

If the Ontario Government policy is not going to work, then what should we do? I believe we need a new government led program that will provide decent housing for middle and low income families because they are the ones suffering from the high cost of housing.

This does not mean that the government should build public housing, and create ghettos for the poor, like they did in the past. There is another model of co-op and non-profit housing. In this program, government provides start-up funding to agencies like the Co-operative Housing Federation of Toronto, churches, unions, community associations, ethnic groups and so on. They then raise a mortgage using a government guarantee, build the housing and manage it over the life of the building.

These types of projects are low risk for the government. It is a form of investment where the pubic recoups its money as the mortgage is paid off. These projects provide good housing and strong communities for hundreds of thousands of people. At the same time a comprehensive housing program such as this will tend to dampen the housing market and stabilize prices. That will benefit first time buyers who want to own their own house or condo.

If we don’t provide a comprehensive housing program that helps middle and low income people get decent housing that meets their needs, we will pay a terrible price. Living standards will deteriorate for a large number of people in our cities and that will bring any number of serious social problems and costs.

Providing good affordable housing is political. It is a legitimate role for government to provide good housing because it is an essential for a decent life. Let’s stop band-aids and get on with a program that will benefit all Canadians.

Delivering Affordable Housing

Bill Freeman, May 28, 2015

My venture into the issue of affordable housing on this blog led, first, to a summary of the most important points in the Federation of Canadian Municipalities recent report on the need for affordable housing, and then provided a background sketch on the politics of housing over the years. The question remains, what can we do about the gathering crisis?

Quite a lot actually. This is what I wrote in my book, The New Urban Agenda.

“I believe we can have a housing program that meets the needs of low- and middle-income people. It will take good planning, and some seed funding from government, but it can be largely self-funded. The benefits of such a program will be enormous. Not only can we provide good housing for a lot of people, but it will help to transform the GTHA into a sustainable city by increasing densities, making transit and other services more cost effective and efficient, and help hundreds of thousands of individuals and families. Who knows, it might even bring some moderation to the bloated prices of the housing market.”

But before we talk about what we can do, let’s talk principles, or objectives, of a good affordable housing policy.

  • We need to build mixed housing for individuals and families of different ages, incomes, and ethnicities.
  • The housing should have condos, those who pay market rent, and rent-geared-to-income.
  • They should be live-work communities with good employment opportunities, if possible.
  • New developments should have access to excellent transit, cycling, and walking opportunities.
  • There should be enough density to support transit, local schools, shops, medical, parks, sports and other facilities.
  • New developments should be built within the existing urban envelope.

Those are a pretty broad set of principles, but they help to define the types of buildings and communities that need to be created under a good affordable housing program. In cities these developments cannot be single family houses. They must be multiple housing dwellings.

Regent Park before rebuilding the project

Regent Park before rebuilding the project

The buildings should not be expensive to build, but they must have high environmental standards so they are sustainable with good heating and cooling systems, insulation, triple paned windows, solar panels, and so on. None of this is an extravagance. The cost of sustainable features will be recaptured several times over in savings during the life of the building.

A big question is where can affordable housing projects like this be built in large cities? In fact there are several places that are ideal. For years the Toronto Planning Department has been encouraging developers to build mid-rise developments from six to twelve stories along the avenues in the inner suburbs.

Eglinton Avenue east of Victoria Park would be an ideal location. The strip once was called “The Golden Mile” with commercial enterprises like big box stores and used car lots. Today the area has fallen on hard times. There are vast, empty parking lots, and vacant stores. The new Eglinton Crosstown LRT will go right past this property. This would be an excellent location for new affordable housing projects.

Across the GTHA there are scores of locations like this that need development. Hamilton’s downtown has vacant land, excellent transit, and soon GO will provide regular express train service to the new James Street North station. Metrolinx is building a LRT along Hurontario Street in Mississauga connecting to GO trains at both Port Credit in the south and Brampton in the north. In Toronto, Finch and Sheppard will both have new LRT transit.

All of these locations, and many others, would benefit enormously from a good development. Increased densities would strengthen the existing communities. It would make services like transit and education much more cost effective and strengthen the shops and other commercial businesses.

So, if there is a huge need for affordable housing, and enormous social and economic benefits, what is the problem? The lack of government involvement in affordable housing. Without some public money these types of projects are not going to happen.

Toronto has pioneered public/private partnerships (PPP) with great success. Regent Park, Alexandra Park, and other large public housing projects are being rebuilt using this model. As a result there will be new units with condos, rentals and rent-geared-to-income (RGI). The public, in this model, was Toronto Community Housing, and the private partner was Daniels Corporation, a development company. The province also contributed by providing the RGI for low income families.

I am very attracted to the co-op housing model, and hopefully there will be room for them in any new affordable housing program. Co-ops require the self-management of the buildings by the residents and that helps to turn the building into an effective self-help community. There are no distinctions between residents who pay market rent and those who receive subsidies. The RGI tenants are an advantage to the co-op because the program provides stable government funding.

In today’s environment there are some differences than in the past. Many people want equity and would like to buy a condo within new affordable housing buildings. In the public housing conversion projects in Toronto that is an option, and there is no reason why it cannot be possible in a new housing program.

A new building within Regent Park, an old public housing project.

A new building within Regent Park, an old public housing project.

Co-op and non-profit housing projects in the past were funded by CMHC, the federal government housing agency. That was a problem because it added to the government debt. Today new projects could be funded with mortgages from conventional companies like banks or insurance companies. They are looking for secure investments. Perhaps a loan guarantee from government may be required in some instances, but in many cases mortgage money can be raised as a commercial transaction.

Affordable housing will take some public funds for seed money to get the project underway, and RGI on a long term basis, but the public commitment is limited. Housing specialists in this country have a lot of experience in affordable housing. They know how to construct good, sustainable buildings, and how to finance them. With government help we can once again create an affordable housing program that will help a large number of low and middle income people. The benefits will be enormous.

What we need is the political will to make it happen. Everything else is in place.