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The National Housing Accord
A coherent and comprehensive blueprint for the federal government, with an aspirational name
When Covid hit, suddenly a lot more people were working remotely and needing more space at home, aggravating the shortage of residential space (and resulting in a surplus of office space). In Ontario, prices went up 40% in a single year. Younger people in Ontario are boiling mad. Remote work and a post-Covid surge in international students have also resulted in housing scarcity in cities like Montreal and Halifax. The scarcity and cost of housing, making so many people poorer, is like Godzilla: it towers over everything else.
Now that we’re past Covid, what should the federal government do? I think it's fair to say that the government has taken a number of actions on housing (I particularly like the $25B Rental Construction Financing Initiative, which provides low-cost long-term loans to fund market rental projects), and is now focusing more of cabinet’s attention on housing (with Sean Fraser as housing minister and Trudeau speaking on housing), but is struggling with the scale and complexity of the problem.
Yesterday a detailed blueprint was released, with a set of recommendations primarily for the federal government. The National Housing Accord: A Multi-Sector Approach to Ending Canada’s Rental Housing Crisis. The authors are Mike Moffatt (at the PLACE Centre, a think-tank), Tim Richter (Coalition to End Homelessness in Canada), and Michael Brooks (REALPAC, an industry association).
I’m very curious whether the federal government will take it up. It has the advantage of being a coherent and comprehensive plan that’s been worked out in some detail, and that’s ambitious in scale (aiming to build millions more homes over a short time, rather than tens or hundreds of thousands). I expect it has a high price tag, given measures such as cancelling GST/HST on new rental housing, and the name suggests a national consensus that doesn’t yet exist, but it looks very promising.
It’s not a long report (about 20 pages). There’s 10 recommendations.
Right now there’s very little coordination between population growth targets and housing targets. Population growth targets are determined by federal targets for permanent immigrants and for temporary foreign workers, and by post-secondary institutions which admit international students. Housing targets are primarily provincial and municipal.
From Recommendation 01:
Create and mandate a supply-side roundtable on housing. The roundtable would include all three orders of governments, along with investors, funders, owners, operators, developers, labour, builders and non-profit stakeholders, including urban, rural and northern Indigenous housing experts. The table would propose, test and review housing policy for achieving federal, provincial and municipal supply targets. It would create a standard set of definitions for terms such as “affordability” to ensure alignment across programs. The body would be able to propose adjustments to labour, immigration, funding models, industrial regulations and government programs, from all orders of government, in real-time to innovate and fine-tune housing programs across Canada.
Getting this right will require governments to work together across party lines - for example, the current federal government is Liberal, the Ontario government is Conservative, the BC government is NDP. The shortage of housing is a huge problem for Canadians, no matter what party you support. We need to tackle it together.
Economic viability is a key bottleneck for new housing. For a market project to be economically viable, the value of the new building, minus construction costs, has to be worth significantly more than the value of the property with its existing building.
From talking to non-market housing developers, economic viability for non-market projects is pretty similar - you need to figure out how the future stream of rents is going to pay for construction costs (including taxes and development charges) and operating costs. There may be some public contributions (government-owned land, capital contributions, or ongoing subsidy), but the basic business-case calculations are the same.
The problem right now is that the economy is running hot, raising costs because workers and materials are both in short supply, and the Bank of Canada has raised interest rates sharply over the last year to bring down inflation. This means that capital is more expensive: when you can get 5% by just putting your money into GICs, the rate of return for a housing project (which carries substantial risks) has to be significantly higher. (It’s also reduced the borrowing power of individual buyers, directly reducing the selling price per square foot for condo projects.) The result is that a lot of projects are no longer viable.
To counteract this effect, the report recommends the federal government use its levers to improve economic viability:
Recommendation 03: The federal government should help reform CMHC fees and the federal tax system, including changes to capital cost provisions and eliminating the GST/HST on purpose-built rental housing to incentivize the construction of purpose-built rental housing.
Recommendation 04: Provide low-cost, long-term fixed-rate financing for constructing purpose-built rental housing, as well as financing to upgrade existing purpose-built rentals.
Details on Recommendation 03:
Remove GST/HST from new capital investments in purpose-built rental housing.
Defer capital gains tax and recaptured depreciation due upon the sale of an existing purpose-built rental housing project, providing that the proceeds are reinvested in the development of new purpose-built rental housing.
Increase the Capital Cost Allowance (CCA) on newly constructed purpose-built rental buildings.
The CMHC should examine the point system in the MLI Select program for new construction to increase the number of purpose-built rentals that are affordable.
Details on Recommendation 04, which looks like a replacement for the RCFI:
Despite Canada’s affordability crisis and housing shortages, housing starts are falling due to rapidly rising interest rates. Existing financing mechanisms have been criticized for having unclear underwriting criteria, lengthy approval times and inconsistent market rate evaluation methods. In a period of rising and volatile interest rates, developers face significant risks when building new affordable purpose-built rentals or upgrading existing units for energy efficiency and their interest payments will rise in the future.
These problems can be solved if the CMHC or the Canada Infrastructure Bank were to provide 25-year, fixed-rate financing for projects, including both new builds and upgrades, that meet certain accessibility, affordability, and climate-friendly criteria. The CMHC should also be provided with additional funding to increase the underwriting resources to expedite approvals or to outsource the approval process based on defined criteria, as currently, developers often have to obtain interim financing while waiting for approval on a CMHC loan.
Regulatory changes: building code, zoning, faster approvals
Recommendation 06 is for changes to the National Building Code to allow and encourage more climate-friendly, affordable projects which require less labour (improved productivity).
These can include modular housing construction, mass timber and single egress for multi-unit residential buildings up to 6 storeys. These reforms can be coupled with incentives to ensure these innovations are adopted at the provincial level.
The federal government could also develop a National Zoning Code, incorporating global best practices in creating density, particularly around transit lines.
There’s long delays in getting CMHC funding approved. Recommendation 07 is to streamline the CMHC approvals process, by creating a catalogue of pre-approved housing designs (like California’s ADU designs that can be approved in an hour).
A number of recommendations are aimed directly at building more non-market housing, or converting rental housing from market to non-market. For example, from Recommendation 03:
e. When selling to a non-profit operator, land trust, or non-profit acquisition fund, provide a capital gains tax break to private owners of multi-purpose rental. This initiative would incentivize selling to non-profits and protect affordable purpose-built rental housing.
f. Create an affordable housing tax credit for developers that invest equity in community purpose-built rental housing projects. The U.S. Low Income Housing Tax Credit could provide a template for such a tax credit.
Recommendation 08 is for property acquisition programs for non-profit housing providers, similar to the MacPhail Report’s recommendation and the $500M fund that the BC government has set up.
There’s also recommendations on subsidies for low-income renters (Recommendations 09 and 10), including replacing the Canada Housing Benefit.
Identify and relieve shortages of skilled trades (Recommendation 02), both through training and through immigration.
Improve productivity in construction (Recommendation 05).
Overhaul of Canada’s housing system needed. Toronto Star op-ed by the report’s authors. “All orders of government need to collaborate to solve this crisis. The housing crisis demands a national industrial strategy. Piecemeal approaches and jurisdictional squabbling are only exacerbating the shortage.”
No single force can fix Canada’s housing crisis – but Ottawa needs to lead the way. Globe and Mail op-ed by Don Iveson, former mayor of Edmonton and co-chair of the Canadian Alliance to End Homelessness.