Affordable Rental Housing and a Fluid Labour Market

Year: 
2016

To thrive and grow, businesses and industries look to locate in areas that provide access to resources, transportation hubs, and employees. Employees look to locate close to employment and in areas they can afford. Whether it is in the Lower Mainland or in other areas of the province, affordable housing choices are required in order to be economically competitive and to attract and keep skilled workers. An adequate supply of housing with reasonable transportation costs is critical for economic growth.[1][2]

However, as with most regions in Canada, urban centers are experiencing a rapid increase in housing costs. In a study done by Vancity[3], the cost of housing was determined to inhibit young workers from coming or staying in the greater Vancouver region. Similar studies have pointed out that the rise of real estate values is greatly outpacing incomes and the gap is growing. Very few workers receive salary increases of 10-20% per year. In fact, Vancity’s findings are that salary growth is slowing with the past five years averaging 1.3%. This, claims Vancity, is why Millennials are exiting the Lower Mainland labour market for greener pastures where employment and housing opportunities co-exist. It may also deter in-migration and immigration of skilled workers to locations where skills are required.

Vancity’s analysis of salaries that provide insufficient incomes for purchasing, may be enough for rental units – if available: mid-level managers, and senior administrators, computer programmers, and technicians, registered nurses and social workers, researchers, counselors, food industry workers, and contractors. The list of skilled workers unable to purchase in Metro Vancouver is long. This improves outside urban areas and into the farther regions of the province, but employment opportunities diminish.

The rental market, though, is challenging with a B.C. average vacancy rate of 1.2%[4], a decrease from 2014, and the Lower Mainland rate approaching 0; the pressure on existing rental stock is inhibiting in-migration of Canadian skilled labour, particularly where they are needed the most by B.C. employers. From October 2014 to October 2015, only 1,900 purpose built rentals units were constructed throughout B.C. (CMHC). These are either new or renovated units returned to the market.

Metro Vancouver anticipates 64,900 new rental units will be required to meet demand in the next 10 years:  21,400 low-income (<$30k) rentals, 25,400 low to moderate income ($30-$50k) rentals, and 18,100 market rentals for those who earn $50k or more per year.[5]

Rents are rising on average 3.7% in response to market pressure, compared to 2.4% from the previous year – despite current rent controls of +2.9%[6]. The average turnover rate in the Lower Mainland is 18.8%[7] providing an opportunity to substantially raise unit rents with each new tenant. Further, there is a growing trend by property managers or landlords to require tenants nearing the end of a fixed-term lease to sign a new agreement if they wish to stay. As it is considered a brand new agreement, the new rent can be set without imposed limits.[8] With few options, most renters have no choice but to sign for a much larger rental increase.

As an incentive to developers, it would be desirable to remove rent controls, but until there is sufficient rental stock, a lack of adequate supply will cause rents to rise rapidly out of reach of all but a few with sufficient income – similar to the current housing market. Therefore, new or expanded incentives are required for developers to construct purpose built rentals in the short-term while continuing to find a more sustainable return on investment for developers in the long-term.

Historically, incentives through government programs (federal and in partnership with provinces) provided developers with low interest loans to construct non-market units, most of which were targeted to those earning less than the median income for a region. The first program under the National Housing Act in 1938 allowed for construction of low-rent housing. In 1959, the act expanded to include partnerships with provinces to fund publicly owned and provincially managed housing for low-income families, seniors and the disabled. In 1970, a $200 million stimulus program for low-income housing, culminating in a 1974 expansion to include co-operatives, public and non-profit housing for mixed styles and sizes for low to modest incomes. At the same time, the federal government encouraged private market rental development by insuring mortgages and providing direct loans in smaller communities, plus grants and taxation concessions including multiple-unit residential-building deductions, assisted rental programs and a rental supply plan.[9]

By 1986, B.C. had 8% of the 253,500 public housing units in Canada, but the programs were undergoing reviews and cut-backs. CMHC focused limited funding on a maintenance program for 12,800 units per year. By 1993, all social housing programs ceased; most market rental- assistance programs had ended, and there was a shift to off-load subsidized housing to non-profits and provincial coffers. B.C. currently is one of few provinces that will subsidize development of social housing and provides for vulnerable populations, e.g., the SAFER program for seniors,[10] which allows seniors to remain in their homes with provincial support.

There are programs to help with the development of social housing – a recent announcement from the Province of B.C. to partner with non-profits is an example. However, to address the projected housing needs for low to mid-income workers that B.C. will need to keep up with economic growth, a stimulus package will be required not dissimilar to the Federal Housing program of the 1970s – to support both non-market and market rental development: density bonusing and 20% social housing set-asides for new development are unable to provide sufficient units fast enough to meet demand.

There is a gap in the upper-low income and mid-range incomes for rental accommodation. For example, the Lower Mainland’s current median income is $63,000 (most renters fall under the median[11]), and an average 2-bedroom suite is $1,287 requiring an income of $51,480 in Vancouver[12], the problem is not affordability for Vancity’s list of skilled workers, it is a deficit of mid-range lightly subsidized to market rental units. There is opportunity for developers to reach this market.

The units that currently exist, developed with assistance of past government programs, are nearing end-of-life and require major upgrades or outright replacement. A combined federal-provincial government program to provide a combination of guaranteed loans, grants, and taxation offsets will encourage re-investment in current affordable stock.

To address the shortfall of market rental units, CMHC, in conjunction with provincial and local governments, can develop property tax, income tax, and capital gains tax incentive policies, in conjunction with other levers, to provide incentives for innovative development. It will require cooperation to develop a program utilizing current tax tools to invest in purpose built rental construction. Government’s assistance is required to help overcome access to land – however, through land remediation grants, assistance in land accumulation, and the appropriate use of public land, developers, in partnership with provincial and federal governments, can begin to address the rental deficit. As Vancity pointed out, there is a market of skilled workers ready to move in.

The investment of government to incentivize rental market construction will result in increased economic development for the community and the province. The Center for Housing Policy[13] collated a number of studies that demonstrate clearly the connection between the development of low- to mid-level income housing units and employment. They concluded that not only are employers able to attract the best and the brightest, there are spill-over benefits for the local economy.

The solution is for the Province of British Columbia to work with federal and local colleagues and find ways to create incentives and opportunities to save and increase the current rental stock, protect and expand co-op and co-housing units, and encourage innovative solutions. British Columbia is doing well economically; however, to continue to do so, we need to ensure that a lack of housing for skilled labour does not become a barrier to future economic growth.

THE CHAMBER RECOMMENDS:

That the Provincial Government:

  1. Work with the Federal Government to develop tax and other incentives for purpose built market rental housing units for low- to mid-range income levels, using innovative designs and locating near transit hubs; and

  2. Work to combine other social program supports to help support those in the lower income ranges to access market rentals, such as expanding the SAFER program to other vulnerable populations.

Footnotes

[1] TD Bank Financial Group, 2003. Affordable Housing in Canada: In Search of a New Paradigm.

[2] Metro Vancouver, 2015. Housing and Transportation Cost Burden Study.

[3] Vancity, May 2015. Help wanted: salaries, affordability and the exodus of labour from Metro Vancouver. https://www.vancity.com/AboutVancity/News/MediaReleases/Archives/MediaRe...

[4] CMHC, Fall 2015. Rental market report – British Columbia Highlights. www.cmhc.ca/housingmarketinformation

[5] Metro Vancouver, 2015. Housing and Transportation Cost Burden Study, p.24.

[7] Canada Mortgage and Housing Corporation, March 2016. Tenant Turnover Rate: A New Measure of Rental Market Conditions.

[8] Tenant Resource & Advisory Centre, http://tenants.bc.ca/month-to-month-vs-fixed-term/

[9] McAfee, Ann, 2009/2015. Housing and Housing Policy. http://www.thecanadianencyclopedia.ca/en/article/housing-and-housing-policy/

[11] Metro Vancouver, 2015. Housing and Transportation Cost Burden Study.

[12] Zon, Noah. 2015. Renewing Canada’s Social Architecture: Access to Affordable Housing.

[13] 2011, Center for Housing Policy, The role of Affordable Housing in Creating Jobs and Stimulating Local Economic Development: A Review of the Literature.

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