Ottawa lends billions to developers. The result: $ 1,500 ‘affordable’ rents

When Birch Meadows, a 76-unit apartment complex on the outskirts of Moncton, NB, opens this fall, it will offer renters a range of perks: heated underground parking, quartz countertops, storage cabinets and an in-house gym.

Earlier this year, when Federal Minister of Social Development Ahmed Hussen announced that Ottawa was handing over a $ 16 million loan to the project developer on very favorable terms, he elaborated on another significant bonus.

Half of the units, he said, would be “deeply affordable” as part of the agreement, signed under the federal government’s $ 25-billion-dollar rent construction financing initiative. It was an important consideration in a small town that witnessed examples of huge rent increases in a province that was considered the poorest in Canada.

But it turns out that “deeply affordable” is relative. Federal data released under the Access to Information Act shows that the “average affordable rent” for the Birch Meadows project is $ 1,500 a month — far higher than Moncton’s average rent last year of $ 880.

The Birch Meadows apartment complex in Moncton, NB, was built using a $ 16 million loan under the federal government’s rental finance initiative. (Pierre Fournier / Radio-Canada)

Birch Meadows is hardly an outlier, according to a CBC analysis of the data related to more than 130 low-cost loans — some topping $ 300 million — that have been distributed nationwide under the construction rental financing initiative.

Affordability requirements are an important condition for the loans. However, in more than half of the cases, the average rents at an affordable price are higher or are expected to be higher than what most tenants currently pay in the city or town where the project is located.

“It’s a cruel joke,” said Aditya Rao, a lawyer and organizer at the New Brunswick Coalition for Tenants Rights. “We know that people who try to rent are struggling.”

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Affordable housing has become a major concern in many areas of Canada and a problem in the federal election, where each of the three main parties promises to build, renovate or preserve at least one million homes.

The Liberals’ center-right initiative on the issue has been the National Housing Strategy, a $ 70 billion program that was launched in 2017 and is primarily aimed at building affordable housing and reducing chronic homelessness.

While the rental building financing initiative began as a modest part of it, it has since swelled to become the largest single item in the strategy. As of March, close to $ 9.7 billion has been committed to help build more than 29,700 units, of which at least 18,000 are described as “affordable.”

‘Affordable’ formula questioned

The rental program is administered by Crown Corporation Canada Mortgage and Housing Corporation (CMHC). At the very least, developers who make use of it must promise that a certain number of units will be rented for at least 10 years at a rate that is less than 30 percent of the median family income for the area. And the total rent should be 10 percent lower than what would otherwise be possible.

But the 30 percent criteria have been criticized as wildly out of touch, mainly because the median income for tenant attitudes is often significantly less than an area’s total number, as used by the CMHC.

It’s a formula that makes some sense, according to Steve Pomeroy, a housing policy research consultant in Ottawa who has studied the program. In many cases, he said, it would not force rents to be less than $ 2,000 a month.

“It’s very, very easy for the developer to meet the criteria,” he said, “and therefore for the CMHC to write press releases to the Minister’s Office so that the Minister can stand up and proudly say, ‘The Government of Canada has provided funding for the project and these entities. will be affordable, ‘without distinguishing between what affordable really means.’

The CBC analysis shows that several projects have “average affordable rents” approaching or even exceeding $ 2,000. One-third of all projects average $ 1,500.

Neil Lovitt, vice president of Turner Drake & Partners Ltd., a real estate consulting firm in Halifax, said the program is useful because it provides developers with incentives to build apartments. What bothers him, he said, is that people who are already struggling to pay market rent will have little hope of being able to afford many of the resulting units.

“There have been a lot of announcements about projects under this, very much boasting about the affordable devices being set up,” Lovitt said. “They are affordable in a sense, in that they are more affordable than they would otherwise be. But they are not necessarily deeply affordable. They are not affordable forever.

“And they certainly missed the mark, I think, in terms of where the greatest need and the most critical new supply needs to be addressed.”

The initiative poses a “catnip” for politicians, he said. The money is a loan and therefore has to be repaid, which means that it is easier to parade large numbers out without the budgetary worries caused by a grant.

The program was devised at a time when rental construction in Canada was low, with developers in many cities focusing on condominiums and houses.

The main purpose was to encourage the private sector to build more rental housing with the hope that more storage would keep total rents in check. The initiative lures developers through loans that often contain very low interest rates and 50-year depreciation periods that allow building owners half a century to pay back what they owe.

Aditya Rao is the organizer of the New Brunswick Coalition for Tenants Rights and a human rights lawyer in Fredericton. (Ed Hunter)

The CMHC declined to comment on this story, citing the federal election. A spokesman for Hussen, the Liberal minister responsible for the CMHC who is running for re-election, said he was not available for an interview.

But in a statement, Hussen said the goal of the program is to increase the supply of rental housing for middle-class Canadians. The projects built under the program, he said, “are good opportunities for middle-class Canadians who are experiencing affordable pressure in markets with high housing prices and a shortage of rental supplies.”

A review of the program found that it accounted for two-thirds of rental starts in Toronto in 2019, he said, though none the year before. It stated that one-bedroom rents were generally lower than market prices, but also recommended examining how the initiative could achieve “greater affordability”.

John Lafford, the developer behind the Birch Meadows project in Moncton, said he would have gone ahead with the apartment complex without help from Ottawa. But he said that without the low-cost loan, unit rent would have been about $ 200 higher.

Affordable means different things to different people, he said, but it’s up to the program – and not him – to define it. His deal, he said, requires him to keep rent increases at the inflation rate for at least 20 years, which he considers a critical component.

“People can move in and suddenly know they won’t get their rent raised every year,” Lafford said. “That way, it’s very affordable, because they can make their mark on what they can pay for rent, and then they know it’s stable.”

The house will be unveiled at Mount Saint Vincent University in Halifax on July 13. He is running for re-election in the Toronto riding in York South-Weston. (Andrew Vaughan / The Canadian Press)

Pomeroy argues that the program should be reformulated so that half of the loan budget is dedicated to non-profit organizations that are eager to build apartment buildings as they are motivated to keep rents low. Not-for-profit accounts for less than 10 percent of funding, according to data released earlier this year.

He said he was so concerned about how the program was portrayed that at one point he warned the minister’s office that it should stop referring to affordable entities in press releases about projects. The language changed, he said, often referring to “middle-class Canadians” instead.

Still, many messages remain in the form of affordable prices.

In some cases, projects continue to be explicitly described as affordable housing, including a $ 115 million loan for a Halifax building that will have an average “affordable” rent of more than $ 1,500. The average rent in the municipality last year was $ 1,172.

In July, Liberal leader Justin Trudeau announced a $ 120 million loan to build 302 “affordable units” in Brampton, Ont. He referred to the middle class and then said that the apartment building would be a place a “young grocery worker” could call home.

But CMHC data shows that the average affordable rent on the project is expected to exceed $ 1,700 – probably out of reach for someone earning little more than the minimum wage.

Since the program was launched, rental construction has increased significantly in Canada; the last two years there have been record numbers. Along the way, the Liberal Party has continued to increase funding for the program and added another $ 12 billion to the spring budget.

But Pomeroy said it is a mistake to credit the program with the increase in apartment construction. He estimated in January that the program was responsible for less than five percent of rental starts since 2017, when private developers jumped on the market without government help.

“It really raises the question, five years later, do we really need this initiative?” Said Pomeroy. “And that certainly begs the question why in the 2021 budget an additional $ 12 billion was set aside for this when this evidence was clearly available to CMHC officials who advised the government on the budget.”

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