It seems that every year there are fewer and fewer places to rent, and as everyone knows, decreased supply invariably means increased rents. This has an especially negative impact on those at the bottom 30% of the economic spectrum.
The latest stab at fixing the problem comes via the federal government as they promise to blow another 4 billion on housing over the next few years.
In addition to public money, governments have been trying to coerce homeowners into renting out their places, but to no avail. Renting out your place incurs risk that many homeowners don’t want to take. Bad renters are rampant, and the law is often against the landlord when things go sideways.
This stick approach will not solve the problem. All it does is kick the can down the road, saddling the next generation with even more government debt.
Solving the rental shortage in a real way needs more carrot and less stick. That is to say, finding ways of providing benefits to the landlord without hurting renters. Here’s one idea: eliminate income tax on rental income, at least under a certain threshold. The last thing they need to do is increase the tax burden on Canadians looking to rent out their basements as the feds are keen to do now. This will only restrict supply even further. Make no mistake about it, any extra costs the government puts on landlords will be passed on to tenants in the long run.
At the very least, the government needs to bring back the incentives available 30 years ago that led to the apartment housing boom in the first place. Affordable housing is driven by apartment buildings, and most of those in use today were built in the 1970s and 1980s. That means that many of these buildings are nearing the end of life, so the crunch will only get worse without real incentives to invest in housing.
Back in the 1980s rental apartments were shooting up like mushrooms because the federal government provided incentive to developers to expand the rental market, which in turn, drove down prices for low-income citizens. The old provisions of the Income Tax Act allowed investors (not real estate developers) to acquire (or build) qualifying rental units.
Under the program, investors could take generous capital cost allowance losses of 10% per year, and apply these loses to other income they had earned. From the government’s perspective, too many investors eventually became more interested in the tax breaks than actually maintaining housing for the most vulnerable in society. As a result, the program was cut back over the years until being turfed entirely in 1988. But there’s no question the policy worked. Large swaths of housing projects were built, such that most relatively affordable apartment buildings in use today stem from this legacy.
This tax change was at the federal level, but provincially, policy has not been much better. British Columbia has some of the most expensive rents in Canada thanks to Bill Vander Zalm, the Premier responsible for creating the Property Purchasers Tax.
There are some smaller measures the governments could do to drive down rental costs. For one, the elimination of sales taxes on house related services — contractors, roofers, painters, etc. as is the case with food — would lower the costs associated with operating rental housing.
But most significantly, bring back the generous CCA similar to that of the 1980s as a means of reversing the housing crunch. History shows us that this would incentivize builders to favour rental apartments over the more expensive, lower occupancy housing we see going up today.
In addition to all that, there’s another important factor driving high housing costs — centralization. Starting in the 1980s, governments — and then later, private enterprises — started centralizing.
Rural forestry offices started closing, small town weather offices have all closed, tax assessment offices have closed, health care services have centralized to larger centres, etc. These changes have had an indirect impact on rural communities. Schools shrink in size, and young families move away before the school closes. Then the school closes because there are no longer school age children around.
This has led to the bigger getting bigger and the small smaller. That’s why Whitehorse accounts for more than 110% of the population growth in the Yukon (the smaller towns are shrinking while Whitehorse is busting at the seams).
The irony here is two fold. First, that experts predicted that the internet age would allow small and remote communities to thrive as people could work remotely when in reality, the reverse has happened. Second, land values continue to escalate in Vancouver and Toronto while smaller towns, even ones on Vancouver Island with nice climates, have extremely low housing costs with no people to fill vacant homes.
Perhaps the solution should not just focus on the large cities, but also on more evenly distributing the population growth across Canada. After all, it’s the rapid population growth in urban centres that’s driving up demand beyond what can be sustained. If the governments would spend time crafting policies to encourage small town growth, this would alleviate some of the demand for housing in the big cities.