This year on November 22nd for National Housing Day we discuss the National Housing Strategy. As a mortgage lender in Canada on a mission to deliver the bright side of mortgages, this day is an important one for us to join in the conversation! We’ll discuss the history of National Housing Day, and the various causes of housing affordability, and tie it all together with our final thoughts. For those who want to educate themselves and get a taste of this instrumental day, read on!

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Key Takeaways

• National Housing Day was established 22 years ago to reduce homelessness in Canada.
• National Housing Act made it easier to own a home for everyone.
• Home affordability has affected buyers and renters.
• Homelessness is a product of the rapid decline of home affordability and why it should matter to lenders.

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What is National Housing Day?

This federal initiative was originally created to implement a plan nationally to house vulnerable people, mainly through 2 government agencies as sponsors. Canada Mortgage and Housing Corporation (CMHC) and Infrastructure Canada were used as the main springboards for various programs to address housing issues affecting many vulnerable communities. 

The National Housing Strategy defines “vulnerable groups” as survivors fleeing domestic violence, seniors, people with disabilities, people dealing with mental health and addiction issues, racialized minorities or communities, recent immigrants, the LGBT community, veterans, Indigenous people, young adults and people experiencing homelessness.

Importance of having a home to share and keeping your family safe is paramount to everyone’s dream. Regardless if you’re renting or owning, being able to afford a roof over your head is important to your mental and physical well-being. The National Housing Initiative was created to make more housing available for vulnerable people throughout this country. 

Housing unaffordability has been on the nation’s mind as the top issue since inflation started surging this year, resulting in the BoC relentlessly trying to control it with many rate hikes to curb demand. There is a growing segment of the population experiencing this issue empirically through the lack of a safe place to call home. As 22 years have passed since the federal government created the National Housing Strategy, we look back at how effective this strategy has been in reducing endemic homelessness in our big cities and elsewhere.

How owning a home has evolved in Canada through the years

Owning your own home is a dream for many; it’s been taunted as the ultimate goal since the National Housing Act was established to make home financing more accessible for the average person back in the 1950s. The housing industry has been the driving force behind Canada’s surge in GDP over the decades following the second world war.  New immigrants made Canada their home and after some time spent as renters, moved forward to owning their own homes.

With an abundant supply of wood and other materials, for decades Canada banked on housing and infrastructure needed to house millions of immigrants each year. Increasing the working class not only provided net growth for the population but also provided much-needed income taxes to service our large and generous social system — especially as the population ages.

If we compare the decades gone by to the situation that is resonating today, we would find that homeownership is a tougher goal to attain for the average Canadian today. Between the 1950s and the 1980s, there were many examples of families who bought their homes in Toronto. In those formidable years, this goal of homeownership was still very new, and typically families were buying for about 3 times their household income. 

Let’s run with some numbers here…

• Say in the 50s you might have bought an average Toronto home in the range of $12K to 15K with an annual income of $6K annually so the factor would be close to 2 or 2.5 times your income. The high-end home in the city will run you about $30K and likely your income would be in the upper echelons of $10K or more. Again about 3 times your income for those times – if you bought in say Forest Hill or Moore Park.

• As the 60s progressed and the 70s rolled in, the 3 times income factor became the norm.  Average prices hovered around $60,000: whereas, income hovered around the $20,000 to $25K range. As the 1980s rolled in and inflation hit, mortgage rates doubled from 10% to an unprecedented 20%. When your mortgage payment jumped from $800 to $1600 in a given month – it was tough. Now imagine if our mortgage rates have jumped almost a whole 8 fold from 0.25% to possibly hitting 4% before this year ends. 

• Today the home market is quite different. The average household income nationally is just over $75K. The average house price has come down quite a bit since BoC started increasing rates due to inflationary pressure, but still currently starts at $644,000. This house price to household income ratio now sits at 8.6 times. This increasing factor is making house buying unaffordable.

These prices and incomes don’t reflect what was happening at the apex of the pandemic. Prices were on average about 30% higher and incomes had not compensated for surging inflation. All in all, this paints a thorough picture of housing affordability as it is impacting Canadians – fewer are able to achieve the homeownership goal.  They are pushed to keep renting or make changes to their other life goals so that they can put more of their income and savings to pay for their mortgage.

Now, let’s talk about renting

Typically, renters would exit the rental market once they have saved enough for a down payment to become homeowners. However, surging rates have made it difficult for many people to get stress-tested to qualify for a mortgage loan. 

People are either sticking with renting or staying on the sidelines. This has created double the demand for rental units. To add fuel to the fire, ongoing increases in mortgage rates, which directly influence mortgage carrying costs, have made owning investment properties costlier. 

In this way, Canadian housing is situated in a precarious cycle centred around the supply and demand of housing. Currently, the demand for housing outweighs the supply significantly, and the decline in housing affordability has pushed more people towards renting in a market where the availability of rental properties is reduced, as investors exit the market. Demand curves even higher as supply dwindles and we end up in a market where it is too costly for anyone trying to find affordable housing, whether they are buying or renting. 

Rent control seems to be very similar to inflation as it takes away the monetary stimulus for investors to want to own and rent homes if they can’t break even. But as our economy hinges mostly on balancing supply and demand, the real issue rests in creating more supply as we know there is plenty of demand. The demand at this time is so outweighed that housing affordability is affecting everyone.

The impact of housing insecurity is affecting marginalized people more than it ever has, its scope growing to now include the middle class as well. People making 6 figures in Toronto are spending half their paycheck on housing, a significant leap from the 30% that is considered “affordable.” 

When looking at what other factors are fueling housing affordability and homelessness, we noticed that Canada’s largest city, Toronto, for example, has created rules for new developments to encourage the availability of some units for low-income families. There are many options for builders to take advantage of funds available through the National Housing Strategy. Other cities, like Vancouver and Montreal,  have adopted similar rules for new developments to ensure the creation of low-income housing. However, these efforts run into the same issue presented by the market: not enough supply to meet demand and affordability. 

Homelessness in Canada and the Effectiveness of the National Housing Strategy

In its most recent audit, the Auditor General of Canada said that there was no data being collected to confirm how these initiatives have actually affected the very vulnerable people it was mandated to assist.  Data did not confirm if actually, the people who benefited from the National Housing Strategy were actually from the communities identified in its guideline.  Furthermore, CMHC set the guidelines for low-income rentals as 80% of the national median whereas the initiative was set up to make rents affordable based on the 30% of the pre-taxed income of the benefactors from those designated homes.

• For starters, not everyone in need of low-income housing has access to it and for some, the application process alone is too inaccessible. 
• Second, a majority of Canadians living in these low-income housing units report paying way more than 30% of their paychecks and describe their living situations as far from “affordable.” This is in part due to the varying definition of “low-income housing” between the federal government and the programs they fund, on top of the continued overall hikes in prices. 
• Finally, while these programs are meant to increase housing accessibility for Canadians, they do not serve as a solution to chronic homelessness in Canada and are reluctant to hold accountability for the country’s most vulnerable populations when it comes to housing. 

The federal government’s plan to reduce chronic homelessness by 50% by 2028 has amounted to $4.6 billion dollars divided among six different programs, making this lofty goal more unattainable than ever. Since the pandemic, there’s no doubt that chronic homelessness has been on the rise across Canada, especially in larger cities. With the continued lack of housing affordability, the severity of the issue only increases, creating an even wider gap between these vulnerable populations and access to housing. 

Additionally, the issue of chronic homelessness spans the intersection of various other social issues beyond housing accessibility. Unemployment, mental health, social isolation, and substance abuse surround chronic homelessness, but cannot be resolved without the security of housing as a basic human need. 

Final Thoughts

As a national lender, it’s in nesto’s interest that more people can afford to have a roof over their heads. We will continue to shed light and be a voice on this issue as we believe that making homes affordable will benefit everyone. Industry benefits as there will be more supply for sales providing for the long-term growth of the businesses that service the mortgage and housing industries. 

Investors benefit as they are able to continue to invest in real estate –  keeping costs lower gives a financial stimulus for the longer-term growth of their assets. Homebuyers benefit from housing that meets their needs and achieves their goals for homeownership. Renters would benefit from being able to have access to low-income or affordable rental housing to provide a permanent living situation instead of homelessness. Finally, Canada would benefit as fewer people would spend time focusing on the basics of providing food and shelter for their family –  and adding more value to the overall output of our economy.

We believe that the lack of housing supply is the #1 risk to our National Housing Strategy and National Housing Act goals. Unless Canada puts serious weight behind improving our supply of homes, we are only virtue signalling.

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