Canada’s social housing legacy has focused on keeping rents low to make housing affordable. By addressing income challenges with housing solutions, low rents have effectively become a substitute for income support. There is a critical need to support low-income workers to improve their skills and increase their earnings, but we need to address the problem correctly.
The strategy of using low rents to offset low incomes is fundamental to the current policy framework. However, the inherent risk is that we continue expanding the affordable housing supply without adequate investment in the ongoing maintenance of these buildings. Over time, we’ll end up with an aging housing stock that is inadequately maintained.
Rental units are long-term assets that need to generate positive cash flows from their net operating income. Unfortunately, housing affordability discussions completely overlook the revenue aspect of this equation. Without a viable financial model, we cannot attract investments beyond philanthropic contributions.
Although not addressing this directly, a recent study by the National Apartment Association (NAA) in the US raised concerns about rent regulation and its impact on housing and neighborhood quality. The study found that 93 cents of every rent dollar is allocated to operational expenses, including repair and maintenance costs.
Limiting the net operating income of housing providers could lead to deteriorating property and rental housing conditions. The NAA study examined neighborhood and housing quality in the 15 largest metropolitan areas in the US from 2015 to 2021. It found that increasing the number of rent-controlled units led to reduced housing and neighborhood quality. This decline was linked to poorer living conditions, likely due to deferred maintenance.
Rent regulation leads to a decrease in residential investment and development because of the limited return on investment. For years, no purpose-built rental units were constructed as builders shifted to condo developments where they could make a return on their investment. The challenge of maintaining this housing stock extends beyond the private sector. The Toronto Community Housing Corporation, Canada’s largest landlord and often cited as one of the city’s worst, has faced ongoing issues with renovations and repairs. It has relied on asset sales and support from federal and provincial governments to fund repairs.
Currently, federal government programs are the primary financing source for building affordable housing. This approach is not sustainable in the long run and inadequate to solve our housing problems. To address this, we must attract investment into affordable housing by establishing a revenue framework that makes sense. Without it, we cannot attract the necessary capital—whether from private investors, institutions, or those focused on social impact—to build more affordable units.
Until we solve the revenue equation, we lack a sustainable model to support affordable housing, and we will continue moving from one crisis to another.
Independent Opinion
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