It’s not more government involvement, it’s less.
Each of the three main candidates vying for prime minister in the next election have highlighted this: Canada needs more affordable housing. Each one has different ideas as to how to address this growing need, and each one suggests it is a complicated and complex process.
But here’s the good news that they don’t realize ─ developing more market-rate new apartments frees up older apartment buildings for affordable housing. It’s that simple.
Most politicians today were not in Ontario in 1975. They did not experience first-hand the far-reaching effects of rent control and public involvement in the rental housing industry.
Well-meaning politicians instituted backwards policies to try to ensure housing for all, but instead, they stunted development for more than 40 years, and created an even bigger housing crisis.
A rebirth of apartment development
We are now finally seeing the regrowth of apartment development across Canada and the talk of affordable housing has the ability to hinder or strengthen this growth.
Einstein’s wisdom is worth remembering: “We cannot solve our problems with the same thinking we used when we created them.”
Political expediency with rent controls and legislation from all levels of government have hurt the development of rental apartments.
Why would we think the mindset that created the problem is now going to solve it? Maybe we need more policy, but those policies should be to remove the existing policies, not create more restrictions.
Yes, we need the political will – and there are ways the government can incentivize developers to continue their important work.
Federally, programs could be implemented to allow for tax deferred exchanges (like the 1031 exchange in the U.S.), allowing developers and investors the opportunity to accumulate larger portfolios without the constant capital gains challenge.
In addition, federal tax incentives like the Multi-Unit Residential Building (MURB) program can significantly increase development.
“The MURB program was aimed at investors, allowing them to deduct development costs and rental losses from their taxable income. Developers would start a MURB and seek investors to purchase rental units in the building. The development costs for land servicing and utilities were aggregated and assigned to investors on a unit-by-unit basis. These costs could then be written off against income. In most cases, this would result in the investor receiving a large tax refund in the initial year of ownership.” Source: https://www.westerninvestor.com/opinion/rental-crisis-cries-for-return-of-investor-tax-incentives-3831974
Affordable housing and our cities
Everyone is telling the mayors of Canadian cities it’s the development charges preventing buildings. That’s partially true, but the bigger lever for mayors to use is municipal tax relief or a combination of the two.
Lastly, if the government wishes to intervene in more financial ways, then it could consider “top-up” programs where tenants who are unable to make full rent payments at market rates receive subsidies from government to get to that rate.
What doesn’t work is the government getting more involved in the housing process. Between 1955 and 1975, 500,000 apartments were built in Toronto by the private sector with virtually no government involvement.
When it comes to rental housing, less is more.
What we often hear from politicians is that developers are making a small fortune while everyday citizens have nowhere to live. It is important to remember that these developers take huge risks and their reward is in line with the level of risk they take on.
Offer incentives for apartment development
Rather than trying to decrease their profits, the government should recognize we need these developers, their expertise, and their willingness to take risk, and we should do what we can to encourage them further.
As more market-rate rental apartments become available, older but still fully functional product becomes the perfect affordable housing option without requiring direct government involvement.
In some cases, the rents of these older buildings will be pushed down because they had been artificially inflated in areas where no newer product was available.
If we want to have more affordable housing, then we need more housing – period. We can’t limit supply and expect this problem to be solved.
We will be delving into the development of affordable housing, in much greater detail, at our live-on-stage Affordable Housing and New Apartment Development event on Oct. 29.