Build it: they’re coming: The need for affordable rental housing is critical across the country. But private developers can’t deliver it

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In the wake of the devastating terrorists attacks, as the nation slips into recession, so many issues have understandably fallen to the bottom of every government’s agenda. But the acute shortage of rental housing is a problem that should not be ignored. Construction began on just eight rental units within the boundaries of the former city of Toronto last year; only 133 units were started in all of metro Toronto. Twelve went up in Calgary. Sixty-six in Winnipeg. The few developers that even go near the business usually avoid the construction of costly concrete apartment complexes. “We cannot afford to build rental housing in apartment form,” says Mitchell Cohen, president of Toronto-based developer the Daniels Corp., which is putting up three-bedroom townhouses in Mississauga, Ont., with rents of $1,580 a month. “The cost of construction is so high with all the levies and taxes that the rents we could charge would not cover our costs, let alone provide a return on investment.”

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The situation is serious — because the need is pressing. The children of the baby boomers, the baby boom echo born between 1980 and 1995, are starting to look for rooms of their own. More than 200,000 immigrants are arriving each year. Existing buildings are deteriorating. The Federation of Canadian Municipalities says the nation should be producing 45,000 units per year until 2010 just to keep pace with new demand. Instead, the supply has been pitiful. Across the country, in centres of more than 10,000 people, developers erected a paltry 9,075 rental units last year. (At the same time, they put up more than 21,000 condos. Some of those were rented, too, but not often at rates the needy would consider.) By contrast, in the early 1990s, when the federal and most provincial governments still had subsidy programs, more than 27,000 rental units rolled onto the market each year.

Worse, even if developers could somehow meet today’s demand, most tenants could not afford the rent. David Hulchanski, director of the University of Toronto’s Centre for Urban and Community Studies, has calculated that between 1984 and 1999, the median income of homeowners increased by five per cent — while the median income of renters actually dropped by three per cent. That is because, in the tough economic climate of the 1990s, many renters lacked the skills to maintain income growth, let alone scratch together the money for a down payment. But rents increased by 23 per cent between 1989 and 2000. And that cost is not likely to decline: competitive rental markets don’t exist when vacancy rates are below three per cent. They’re below that amount in many urban centres. “Many tenants have a social need for housing,” says Hulchanski. “They just don’t have enough money to generate effective demand. They can’t pay the rents that would allow a developer to break even.”

No one wants to go back to the bad old days when Ottawa put up the buildings — and managed them. It was a formula for disaster. But, belatedly, governments are inching towards a solution. Ottawa has earmarked $680 million for housing over the next four years — and asked the provinces to match that amount. Originally, Alfonso Gagliano, minister responsible for Canada Mortgage and Housing Corp., suggested the two levels of government contribute up to $12,500 apiece per unit as a subsidy to private developers who erect rental housing. In return, the developer would pledge to maintain affordable rents for 10 years. But the FCM calculated that such contributions would still leave the units out of reach for low-income households: the rent for a modest unit in Vancouver, for instance, would gobble up more than 30 per cent of the income of households earning less than $33,000 per year.

So Ottawa and the provinces are now working on a compromise package — which they hope to unveil at their next meeting in Quebec City on Nov. 30. Ottawa will raise the level of the contribution for each unit — and allow provinces to claim credit for existing programs such as Quebec’s Acc?s-Logis, which provides social housing subsidies. Provinces, in turn, are bringing cities into the partnership. Fewer units will be built — but they will be more affordable.

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Different provinces will also be able to use the money in different ways: Newfoundland needs to renovate existing housing stock; Winnipeg has devised a remarkable program to help North End families purchase their own homes — an initiative which is reducing the twin ills of absentee landlords and drug dealers. “We want to start construction as soon as we can,” says a senior federal official. “We have been very flexible.”

Most important, Ottawa and the provinces have put together a group to find longer-term solutions. Last year, the federal government pared the GST on construction materials for rental housing — and it is also backing rental housing with its $2.65-billion infrastructure program. Now, both levels of government are looking at breaks, ranging from total GST elimination on rental construction materials to a cut in the cost of CMHC mortgage insurance. Budgets are tight. But this must be a priority. “Unfortunately, the only market solution for affordable housing today is slums,” says Toronto councillor David Miller. “This is a place where you need government.”