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Housing as consumer product

Housing has for decades been a major component of economic growth–and economic decline–in Canada and the US. The recent economic downturn was linked to the subprime mortgage crisis in the US, in a bid to encourage low-income renters to move into the housing market since house prices declined after September 11, 2001. While Canada wasn’t hit as hard (Canada Mortgage and Housing’s zero-down-payment mortgage only lasted from 2004-2008), every time the housing market threatens to level off, the Bank of Canada lowers the interest rate. Why are we so obsessed with housing as an investment? Why do policy, government programs, and society in general insist that homeownership is necessary? Shouldn’t housing’s postwar definition as a consumer product come secondary to its role as primary shelter?

While I harbour a fascination for conspiracy theories, this isn’t one. Before WWII, renting a home was the norm in Canada. But the National Housing Act was revised in 1944, and the Central Mortgage and Housing Corporation established in 1946. Like the FHA in the US, CMHC effectively controlled the physical design of suburbs because it directly insured residential mortgages and gave grants for social housing. It was basically a national planning agency with strong regulatory and financial power, the first to ever exist in Canada. Throughout the 1940s, Canadian planners began using Chicago School principles to identify neighbourhoods “decaying” or “blighted”. Usually these were areas with a large proportion of older, poorly maintained multifamily housing tenanted by the poor, immigrants, and renters. Urban renewal schemes, and their corrollaries, suburban housing developments, took off in the 1950s. Homeowners were redefined as wealthier, more stable, more family-oriented…and housing was redefined with the single-family home in the suburbs being the ideal.

While homeownership grew in prestige, renting declined. Steadily, the federal government and the renamed Canada Mortgage and Housing Corporation have removed subsidies for rental housing, affordable housing and decreased its role in the development of other types of housing such as co-operatives and cohousing. The passing of Condominium Acts in the 1970s sealed the fate of rental housing: able to outbid rental developers and access federal and provincial subsidies, condo developers have changed the face of high-rise living in Canadian cities. In 2006, 10.9% of homeowners in Canada lived in condos, more than double the 4% who owned condos in 1981. Interestingly, the highest condo ownership rates were seen in Vancouver, Abbotsford, Victoria, and Kelowna. Single-person households traditionally have lower homeownership rates (52.2% in 2006 were renters), and they are one of the most rapidly-growing household types in the country. According to the 2006 Census, Canada’s homeownership rate that year was 68.4%, its highest since 1971. J. David Hulchanski, Director of the Center for Urban and Community Studies at University of Toronto, believes that high ownership rates are the direct result of federal and provincial housing policies that subsidize ownership over renting.

We’re often told that housing is a good investment. But a lot of that depends on where you buy and when you need to sell: what if you buy in a neighbourhood whose value doesn’t increase substantially? And what if you need to sell…well, now? Richard Florida recently compared US house prices in 300 cities and found on average, a 15% drop in prices from 2006-2009. Cities with an even greater price drop include L.A., San Francisco, Phoenix, Miami, Chicago, and Washington, D.C; prices didn’t drop as quickly in New York, Portland, Seattle, Baltimore, Boston, or Houston.

While housing may be a great long-term investment, should that be its primary purpose? What about the right of Canadians to suitable, affordable, and adequate housing? Housing affordability in Canadian cities is a major issue. From 2001-2006, housing costs increased by 12% for renters and 22% for owners. A quarter of homeowners spent over 30% of their incomes on housing, which is one of the three characteristics CMHC uses to measure core housing need (suitability, affordability, and adequacy). In 2006, half (50.1%) the households over the affordability threshold were renters and 41% were homeowners with mortgages. In 2001, renters were four times as likely as owners to be in core housing need. Other major groups in core housing need include those living in Canada’s largest cities, Aboriginals, the elderly, single-parent households, immigrant households, and those whose incomes are less than $20,000/year. These trends and the meteoric rise in housing prices in Canadian cities until last year mean that more people are buying housing merely to “flip” the next year, selling at a higher price to make a profit. This unrestrained profiteering further erodes affordability, although the recent economic decline has temporarily increased housing affordability in Canada.

Nearly 6 out of 10 homeowners in 2006 had a mortgage, which means big business for banks and for CMHC, which corners 70% of the mortgage market plus mortgage insurance (necessary for anyone who puts less than 20% down on their mortgage). Unlike our friends south of the border, Canadian homeowners cannot deduct mortgage interest from their taxes. While we may not have a mortgage crisis here, mortgage debt is very significant for many Canadian homeowners. Housing affordability concerns have started to edge out the market’s need for ever-increasing prices.

It’s particularly interesting that what’s good for renters is not good for owners. When housing prices rise, rents rise as well. This leaves owners richer if they decide to sell, and renters poorer. When interest rates rise, fewer people can afford to buy, which forces more people to stay in rental housing, lowering the vacancy rate. But these high rates also prevent developers from building new rental housing to fill the increased need, i.e. the law of supply and demand does not work for rental housing. Most Canadian cities have built decreasing numbers of rental units since the 1970s, so not only are there fewer rental units per capita than there were back then, but the ones we have are rapidly aging. Rental units are also extremely vulnerable to condo conversion, to the extent that some municipalities, such as North Vancouver, have passed by-laws banning condo conversion if their percentage of rental housing drops below a certain threshhold.

Municipalities have had to get pretty creative in their search for affordable housing options with almost no support from the provincial and federal governments. Vancouver just passed a by-law approving laneway housing in a bid to increase affordable housing options. Single-family homes backing onto a lane will be able to create units up to 500sq. ft. and 1 1/2 stories high to add affordable rental units to the city’s dwindling supply. The units will not allowed to be sold separately from the house, and are intended to supply smaller housing for particular life stages (in other places they’re known as “granny flats”). Vancouver had previously legalized secondary suites, usually in basements of single-family homes, to help deal with its housing affordability problems.

In Canada, many affordable housing and homelessness advocates argue that there is a crisis in housing affordability in our cities that can only be met by increased federal and provincial funding and incentives for rental housing. Richard Florida, in an article in the Globe and Mail at the height of the mortgage crisis (Nov. 28, 2009), recommended a massive increase in rental housing in the US to help alleviate housing needs for low- and moderate-income people, including the purchase and conversion of foreclosed properties to rental housing. He wrote that “Our reliance on single-family ownership is a product of the past 50 years—and the experiment has outlived its usefulness. Not only is it now readily apparent that not everyone should own a home, and that the mortgage system is a big part of what got us into the current financial mess,but homeownership also ties people to locations, making it harder for them to move to where the work is. Homeownership made sense when most people had one job and lived in the same city for life. But it makes less sense when people change jobs frequently and have to relocate to find new work.”

Florida’s recommendations were prescient: a major shift in US housing policy occurred on August 16, 2009. The Obama Administration announced it would spend $4.25 billion of economic stimulus money on the creation of tens of thousands of federally subsidized rental units in American cities. The money will go to build apartments and townhouses, but also to buy and refurbish foreclosed homes to be rented to low- and moderate-income families at affordable rates. Funds for the new units will be available to states on a competitive basis. Analysts call the move a practical solution to skyrocketing foreclosure rates, tight credit, and the economic crisis, saying “the Obama White House has acknowledged that not everyone can or should own a home.” It is expected to ease homelessness, which has increased during the mortgage crisis. In addition to the stimulus money, the government had also set aside $1.8 billion for the construction of rental housing, the same amount Congress approved last year.

While this is a major shift and worthy of celebration, it is very interesting to note what the conservative critics have to say. David John of the Heritage Center said the benefits of homeownership include building equity, family stability, and an overall improvement in society. Other conservative critics have said that homeownership decreases crime and helps people achieve financial independence. Likely these critics agree with George Bush, who in 2002 described the US as a “nation of homeowners.” Since the mortgage crisis, this ideology seems false or at least outdated. In both Canada and the US, the definition of homeownership as ideal, and homeowners as somehow better and more stable than renters, is what got us into the current mess. Not only has the relentless homeownership agenda now displaced thousands of people in the US, but it has made homeownership barely affordable in many Canadian cities as well.

Like the Obama administration, we need to acknowledge that homeownership is not the only answer. Housing needs to once again be redefined as primary shelter to which every Canadian has a right, rather than a consumer product that helps keep the economy buoyant. It is rather significant that it took a crisis as earth-shattering as the sub-prime mortgage crisis to redefine housing in the US. Let’s not wait for that moment in Canada.


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