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Session 8June 11, 2008

Housing affordability and housing quality

GGR 357 H1F

Geography of Housing and Housing Policy 

DR. AMANDA HELDERMAN

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Announcements

Midterm:

Pick-up Office @ 5th Floor of Sid Smith Building!

Registration writing/ assignment tutorial:

Form is circulated in class Registration is necessary -if you read this online, please

send me an email before non on Thursday June 10! Monday June 16, from 3-5 pm Room 21.24A in SSH

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Introduction housing affordability

Housing affordability Housing quality Measuring housing affordability/ quality Canadian situation Implications of shortage affordable housing Symptom of deeper rooted problem? No easy solution Policy suggestions

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Housing affordability

Housing is allocated by the free market to an extent And beyond that, it is also the responsibility of the

government In most countries a balance of allocation Housing affordability and housing quality are

interesting concepts in relation to this

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Housing affordability

If a government agrees that it should meet the housing need of all, housing affordability automatically becomes a problem:

If the market mechanism drives up prices or rents to a level that is too high for some groups

If there is not enough housing for households who are limited to some segments of the market

Underlying problem: poverty

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Housing affordability

Why is housing affordability in the interest of governments?

Important for individual households Important for governments’ electorate Important for economic growth: disposable income,

access to employment, health, inclusion Important for children’s health and well being and

future level of education, social engagement and responsibility

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Housing affordability

Price and quality determine housing affordability A dominant market mechanism implies that prices of

cheap rented homes are driven up Cheap rented homes therefore will not stay cheap for

long Low-income families stayed behind in income in growth

economy Type of housing attractive to developers did not match

with this group

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Resources on growing income gap

http://www.growinggap.ca/Canadian Centre for Policy Alternatives(Income test)

www.gtuo.ca Maps and graphs of Toronto's neighbourhoods showing

income polarization

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Housing quality

The ratio of price and quality is influenced by tenure, housing availability, demolition of housing, additions to the housing stock, and government policy, among other things

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Measuring housing affordability

The Canada Mortgage and Housing Corporation Measure of housing conditions: Core housing need Two-step process of assessment in relation to three

standards Adequacy, suitability, affordability

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Adequacy

The physical condition of the dwelling Safety dwelling Inadequate:

– If it needs major repairs– If it lacks basic plumbing facilities

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Suitability

Size of the dwelling Uses national occupation standards Effective measure of crowding: number of bedrooms Number of bedrooms in relation to:

– Size household– Composition household

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Affordability

Refers to the cost of a dwelling as a share of the occupant’s household income

Rule of thumb: households should not have to spend 30% or more of pre-tax income on housing that is both adequate and suitable (meets the other two standards of housing)

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Assessment of core housing need

Two-step process:1. Dwelling situation matched with each three

standards2. If a standard is not met, a means test is carried out to

determine if an acceptable alternative may be found for less than 30% of the before tax income, based on median rent. If not, the household is in core housing need

The 50% level indicates that a household is severely burdened; housing costs may compete with other important costs

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Core housing need

If a dwelling fails to meet one of three standards at least and the household needs to spend 30% or more of pre-tax income to find a suitable alternative (based on median rent!)

Affordability is by far the most serious problem of the three standards: 95% of people in core housing need do not meet the affordability standard: combination of low incomes and relatively high rents

Criticism: median rent (arbitrarily chosen as bench mark) is not a good way of characterizing affordability

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Core housing need

CMHC prepares the programming to calculate core housing need, and submits them to StatsCan

StatsCan calculates the level of core housing need by matching the calculations with the latest Census data

About 250,000 households in Ontario were in “core housing need” in 2004

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Other measures of affordability

Shelter gap: The difference between what the poor can afford and

the average rent or the average cost of building new units

Of course the same criticism applies to this measure: Average market rents do not indicate affordability for

low income households!

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Other measures of affordability

Funding gap: What the poorest can afford compared with 2/3 of the

average rent The average income of the bottom 40% compared with

¾ of the average rent

Joint Centre for Housing studies at Harvard University: “more than half of household income spent on housing”

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Underlying factors of affordability problems

Geography Demography (age and number of members household) Migration/immigration/ethnicity (limited knowledge of

housing market and discrimination) Income recipients (number of potential income earners

in household) Income source (self-employment, wages and salaries

etc.) and income polarization Employment and gender Education (skills and abilities) Housing tenure (homeownership insulates from price

shocks)

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The Canadian situation

According to CMHC measure (1996 census): 68% of households live in dwellings that meet all three

standards 14% fails one of the three standards but an alternative

that meets all three standards may be found within 30% of household income (before tax)

17% is in core housing need according to the 30% threshold

7% is even in core housing need when the threshold would be placed at 50% (severe cases)

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The Canadian situation

Who are the people in core housing need? 68% are renters 26% are seniors 27% are females living alone 17% are males living alone 19% are one-parent families are over-represented (17%

of which female headed) People earning less than $20,000 are over-represented,

39% of lower quintile have affordability problems Singles and aboriginal (non-farm and off-reserve)

families are prevalent among those in core housing need

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The Canadian situation

Large part of the problem is INCOME LEVEL More than half of core need households are recipients

of social assistance While correcting for inflation, median family income

came down between 1980 and 1995! Not just an urban problem, if you are a renter, but most

severe in Vancouver and Toronto Vacancy rates are rising, but not at the bottom 40% of

the rent rates!

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The Canadian situation

Country Percentage public housing

Canada 5%The Netherlands 40%United Kingdom 22%France 15%Germany 15%United States 2%

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The Canadian situation

Rising rents as a consequence of removing rent controls and persisting low level of new supply, and decline in rental vacancy rates

Ongoing erosion of existing, privately owned, affordable housing stock

Even though the 1990s saw a great economic expansion, personal disposable income of the lowest-income groups has only seen a modest increase

Middle income families are lured into homeownership Developers stepped up pace to build the more lucrative

homes: single family homes and condominiums

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The Canadian situation

Shortage of cheap rented housing for low-income families Or is it? Income level highly differentiated! Too many

low-income families? The Canada Mortgage and Housing Corporation has

successfully focused on the owner-occupied market since the 1940s (amortized mortgages and mortgage insurance)

CMHC helped the average Canadian housing standards, even though the unplanned tract housing and the recent planned subdivisions (low density) have received criticism from an environmental perspective

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Subdivisions

1911

1960

2006

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The Canadian situation

CMHC was less successful in providing services for rented accommodations: one in five Canadians cannot afford acceptable shelter (Drummond et al., 2004)

1940s till 1985: several programs promoted construction in private sector rented housing

Mixed results because few units remain affordable for long. Lowest rents only realized in poor quality buildings and in poor locations

Continuous interventions to make sure market mechanism works

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The Canadian situation

Erosion of rent controls, dramatic declines in funding for social housing and the reduction of social assistance rates

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Consequences of affordability problem

“De-housing process” or “homeless making process” Marginalized groups: aboriginals, immigrants and

refugees, race issues

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Causes for failure

1. Obstacles by government policy for creating affordable housing

2. Market prevents creation of adequate and affordable housing supply

3. Low-incomes stayed behind (widening gap)

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Government policy history

Bulk of affordable housing subsidized by governments:1. Direct spending on government owned public

housing2. Subsidies non-profit organizations and cooperatives3. Subsidies to private developers (grants and interest-

free loans)

Position of CMHC:Insurances against high ratio mortgages (up to 95%)

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Obstacles by government policy

Lack of money always is the biggest obstacle 1970s: tax incentives made tax treatment of rental

properties less favourable turning high-end rent, owner-occupied housing, and commercial real-estate into more lucrative investments

Budgets at the federal and provincial governments were slashed in the 1980s and 1990s; the municipalities got more responsibilities

In Ontario, and most other provinces, housing slid from to a more municipal level

Municipalities got new responsibilities without many revenue tools, beyond the slow growing property tax

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Obstacles by government policy

Downloading responsibilities to municipalities leaves an unfair burden on tax payers. The highest burdens would fall on households in cities with the highest rates of unemployment

Municipalities have a varying fiscal capacity Unfair to potential clients in households facing same

circumstances will be treated differently because the different fiscal capacity of the municipality in which they live and the spatial distribution of unemployment

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Obstacles by government policy

1990s: characterized by priority at eliminating deficits: belt-tightening by provinces and federal government

CMHC hiked premiums in the 1980s and 1990s and reduced the size of the mortgage possible, which cut back money available for new construction in the rented sector

At the end of the 1990s it became easier to obtain mortgages for existing properties, but the criteria for new rental housing became harder, just when it was most necessary!

Regulations and rent control: fight against inflation Much higher property taxes on rented units

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Obstacles by government policy

Significant difference between pre-tax and after-tax incomes for low-income families

Benefit levels frozen to level 1993, cuts in benefits for child care and shelter

Increasing daily out-of-pocket costs that compete with costs for shelter

Obstacles to acquiring skills for lower-wage employed Until 1995: Canada Assistance Plan: Act that specified

five rights. To adequate income, to income assistance when needed, to appeal welfare decisions, to claim welfare, to welfare without forced participation in work or training programs. No longer in place due to budget cuts

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Obstacles by government policy

Provinces are not cost-sharing federal programs. While the federal government traditionally focuses on building, the provincial government is more focused on (subsidies to) people. This division of tasks has not fully crystallized yet

Zoning restrictions are strangling supply of affordable housing

Supply of land and restrictions on unit sizes also do not help realizing new rented units

Tax breaks are targeted to the whole rented supply, not only the affordable side of the spectrum

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Obstacles by government policy

Rehabilitation can be very hard because policy said that all current residents had to be eligible for social housing, but to renovate/ redevelop everyone had to move out

Other than that, pension funds (institutional investors) are generally quite interested in revamping old buildings that are still in a reasonable condition

Changing regulation on municipal level, e.g. new fire codes that make it hard to build new housing in the city

Small rental investors are not considered as ‘small businesses’ and are not eligible for lower small business tax

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Market obstacles

Non-profit sector could not build after government support had evaporated in the mid-1990s

Private lenders were unwilling to lend to non-profit developers

Labour and material costs are established in a private market

Mindset of non-profit developers: spoiled by government funding? “Buildings are owned by government so we don’t see putting in our money as investment?”

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Market obstacles

Lack of experience in taking full ownership of projects Non-profit developers are unaware that they could use

less government money by lengthening amortization of the mortgage

NIMBY in neighbourhood

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Market obstacles

No control on demolition and conversion that lead to gentrification, a process that generally means a decline in affordable rented housing

Lifting rent controls boosts rents, which hurts low-income tenants, but rent controls also discourage new construction and encourage demolition and conversion (due to aging of the housing stock)

Demolition and conversion outpace new construction

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Market obstacles

Competition in the affordable segment, driving up prices

Secondary rental market is a safety valve but it also represents a highly elastic supply

Suites in secondary rental market often home built and not safe (no permit process), limited parking space, often illegal

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Market obstacles

Trickle down effect is minimal, so adding any rented supply at all is not necessarily beneficial

Developers get immediate return on condominiums. While income gap is growing, why build for a group who cannot afford the rent levels necessary to sustain a new apartment building?

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Obstacles in labour market

Job creation concentrated in higher segment Lower wage occupation: shift to developing countries

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Paradigm change (Drummond)

Housing need no longer treated as inevitable Low-incomes no longer treated as given poverty

issue can be fixed The problem is not that there is insufficient housing,

there are too many poor people

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Paradigm change?

Solution? Raise market incomes over the long term (more and

better paying jobs, Old Age Security, Guaranteed Income supplement, Canada and Quebec Pension Plans)

Shorter term: improve supports for low-income households, address supply shortage, remove market imperfections that contribute to shortage

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Attempts to tackle the problem

1990 National Liberal Task Force on Housing (Paul Martin, Joe Fontana): report with housing recommendations but lack of political will to implement

1998 Toronto Disaster Relief Committee raised awareness by launching its One Percent Solution campaigns

1999 Community based groups created the National Housing and Homeless Network

2000 Partnerships with municipalities

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Attempts to tackle the problem

2001 Affordable Housing Framework (AHF) from the federal government: cost sharing program with the provinces (who match contribution of fed. gvt. for units that are and must remain affordable for 10 years, can also be renovation, rehabilitation, conversion etc.) to create 35,000 units until 2007-08 [$680 million, 1 percent of budget]

Federal government hoped that the provinces would contribute an equal amount (One Percent Solution)

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Attempts to tackle the problem

Why did the one percent solution fail? Loopholes:1. Agreement allowed provinces to pass on the costs to

municipalities and third parties2. Loose definition of affordable housing

Besides that: Tax base eroded, capacity to respond was not there

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Attempts to tackle the problem

2003 Income support: raising Canada Child Tax Benefit Federation of Canadian Municipalities, range of options

ranging from waiving or reducing development fees and property taxes in return for approval of affordable housing construction to reviewing zoning by-laws

Challenge of FCM: great diversity, each city has its own problems, resources, funding and legislative arrangements

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Attempts to tackle the problem

2003 CMHC once again increased insurance flexibility 2003 Federal-provincial negotiations Winnipeg: calling

on fed gvt to use powers to bypass unwilling provinces and deal with municipalities directly (need for larger scale financer and overview seems necessary though…)

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Attempts to tackle the problem

2003 Liberal government Ontario (McGuinty) who made more housing commitments

2003-04: Provincial deficit 2004 Mayor’s affordable housing summit Toronto (and

follow ups): an agenda for action with participants from the city, Ontario representative, University of Toronto, housing associations, rotary clubs, self help organization, recreation parks, community services, children’s aid society, street health, pensioner’s associations etc.

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Policy measures

Two types of income subsidies (all provinces):1. Rent supplements2. Shelter allowances

Ad 1. Between government and landlordsAd 2. Direct payments to the tenant

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Rent supplements

Administrative burden Private landlords opting out at renewal due to

restrictions on rents Private landlords in cities can generally fill their

vacancies with tenants that do not receive supplements without having tenants selected by someone else or administrative requirements

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Shelter allowances

Less disruptive to the market No negotiations with landlord necessary Freedom of choice Mobility is preserved Takes into account both income and market rent May be used in competition for housing Drives up house prices No guarantee that allowance will be used for housing

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Shelter allowances

Same allowance in Kingston as in Toronto No waiting lists (also means potential high level of total

expenditure Scope and cost of this program is concerning Cost could be reduced by selecting certain client

groups, or setting lower benefit levels By encouraging tenants to select units with low rents,

costs would be minimized for both the government and the tenant

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Policy measures

Change system of capital tax (most governments have already addressed this issue)

Tax incentives for realizing rented housing in the affordable segment

Focusing on renovating, conversion etc. is usually more cost-effective and takes less time than building from scratch, and contributes to revitalization

Purchase of older rented housing by non-profit provider would raise less NIMBY-effect and would launch a new social housing venture

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Policy measures

Many of these activities were carried out under the Residential Rehabilitation Assistance Program (RRAP), conceived in 1970s to address problem of sub-standard housing (indirect!)

These measures will never substitute for new construction, but more attention to these measures is a component of any good strategy

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Policy measures

Single room occupancy can be realized at lower cost, but not for everyone:

Shared facilities Social stigma Maintenance NIMBY High turnover Unpopular

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Policy measures

May be a good alternative for newly employed single people, part-time or low-paid work

Half of core need households are low-income and single…

Can be cost-effective (smaller floor space) Popular in some US cities Make the difference between being housed and being

homeless, so zoning restrictions may be more flexible… Can supplement more traditional housing forms

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Policy suggestions

Make affordable housing also a problem of the corporate community

Housing market is a selling point for attracting and retaining staff

People to provide essential services must be attracted Remain competitive with regard to labour costs, and

labour costs must rise if housing costs rise Businesses need healthy, productive employees Partial solution to Toronto’s traffic problem (deliveries

and transportation costs)

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Corporate community suggestion

A healthy rental sector is a vital component of the economy of a major city

Toronto’s renters, for example, include many of the people who make Toronto a livable and lively city: artists, office workers, restaurant staff, store clerks, and students (!)

Young people Old people

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Government instruments

In conclusion: There are three general approaches for government policy

1. Supply side measures: Reducing the cost of construction (public or non-profit production, incentives for private parties)

2. Demand side measures: Increasing the ability to pay (rents supplements and allowances)

3. Influencing the price of existing rental housing (rent control)

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High level advice from David Peters, special advisor of the government of Ontario: (ONPHA)

Keep what you got, you need to justify demolition and conversion.

Neighbourhoods should be better integrated mixed income communities

All sectors, including the third sector must be engaged (access to capital)

There must be a commitment to long-term funding, housing should have equal importance as education and health that can both count on long-term funding already

The housing system should be approached with understanding of linkages to other problems.

The issue can be easier approached at a municipal level. Community and economic development should be part of the

housing agenda

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Role government?

Government has to be a direct investor in affordable housing

How to get the private sector engaged?

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Level of government?

Municipalities have a good eye for the daily practice of housing issues

Municipalities are also diverse Municipalities do not have sufficient funding to tackle

socio-economic and housing issues of this scale Programs need to meet national goals to be successful

Important theme for geographers and planners! Many different visions are provided in Hulchanski & Shapcott

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Literature for this session:

- Drummond, D., D. Burleton & G. Manning (2005), Affordable housing in Canada: In search of a new paradigm. In: J.D. Hulchanski & M. Shapcott (eds. 2005), Finding room. Policy options for a Canadian rental housing strategy. Chapter 2. pp. 15-68.

- The Canadian Mortgage and Housing Corporation (2007), Housing Affordability. In: Canadian Housing Observer 2007. pp. 67-78.

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Literature for next session:

- Doling, J. & J. Ford (1996), The new homeownership: the impact of labour market developments on attitudes toward owning your own home. Environment and Planning A, pp. 157-172.

- Saunders, P. (1990), How the meek inherited the earth. In: A nation of homeowners. Chapter 1. London: Unwin Hyman. p. 11-56.

- Sinai, I. (2001), Intraurban housing mobility in a traditional West-African city. Shelter or business decision? Urban Studies, 38/3, pp. 535-540.

- Soldressen, L.S. & S.S. Fiorito (1998), An exploration into home-based businesses: data from textile artists. Journal of Small Business Management, 36 (2), pp. 33-45.