The Real Solutions to the Housing Crisis

In summary:

  1. Stricter controls are needed on short-term rentals, such as those offered through Airbnb.
  2. Smart densification, close to amenities and jobs, is needed in urban areas.
  3. Multi-year approval processes for denser housing need to be sped up.
  4. NIMBY (not in my back yard) prejudice against affordable housing needs to end.
  5. Single-family home sprawl in suburban and rural areas won’t solve the problem.
  6. Building on remaining urban public green spaces will only make viable attempts at densification fail.

The housing crisis in Canada has many faces. Almost 1.3 million Canadians have nowhere to call home. Others are spending much more than half their income on housing. Anyone in an affordable rented space is afraid of losing it to a “renoviction”. Some young people have given up hope of ever having their own home. There are numerous refugees and asylum seekers, most fleeing war and violence, still sleeping in church basements.

“It’s not just an availability crisis, it’s an affordability crisis,” says Tony Gioventu, executive director of CHOA (the Condominium Home Owners’ Association of B.C., a consumer housing association with over 250,000 members). He has also served as a director and/or committee member for the Province of BC and the Real Estate Council of B.C. Currently, and sits on the Consumer Advisory Councils for construction and housing for British Columbia and Ontario. As a syndicated columnist, he has written and published over 1,100 columns dedicated to housing since 2002.

“A lack of good decision-making over the last decade or so has gone into making this situation. There is no easy solution now; it’s going to have to be a combination of efforts.”

A Problem with Multiple Causes — Including Investment Firms

The housing crisis has its roots in the early and mid-1990s when both Conservative and Liberal federal governments reduced and eventually cut programs that built affordable housing. In 2009, Airbnb (and eventually other short-term rental platforms) began operation, promising higher profits for landlords. Around the same time, partly in response to the 2008 financial crisis, real estate prices across the country began to rise dramatically. Then the COVID-19 pandemic lockdowns required more people to stay home, prompting many to seek houses with more space. Meanwhile, supply chain issues interfered with new home construction.

It all added up to an increased focus on real estate as an investment vehicle. And as Canada’s real estate market heated up, real estate investment companies bought up much of the supply. To be clear, these are not mom-and-pop operations with one or two rental properties. As Martine August, an assistant professor in the School of Planning at the University of Waterloo, explains in this article, about “20% to 30% of Canada’s rental apartment market is owned by institutional landlords”.

Most of these institutional landlords prefer short-term rentals because of their profitability.

The Problems with Short-term Rentals

Displacement of Affordable Rentals

“The impact across the country is about 750,000 units lost to short-term accommodations. Everybody keeps saying we’re short 500,000 units. You know, I think I know where those units have gone.”

Gioventu has been looking into the housing shortage and the short-term rental situation in B.C. and across Canada for many years as part of his work. Even small local governments are now adopting municipal bylaws to severely restrict short-term accommodations contributing to housing shortages. In the Fall of 2022, the municipality of Sechelt, on the Sunshine Coast north of Vancouver was one of the first communities to institute a restriction.

“If we go back ten years to when we didn’t have this housing crisis and then look at the number of units we’ve lost into short-term accommodation pools, the impact that no one is acknowledging is that this is very much a trickle-down effect,” he says.

“It’s not because we’ve taken units and put them into Airbnb exclusively that this has been created. But what has occurred is that we’ve displaced tenants at multiple tiers with units that are now used for short-term accommodations. Every time we do that, it pushes them further down the hill and they have to compete for a smaller inventory. The outcome is that the very people who are the most vulnerable at the bottom are now competing with everyone else on an affordability basis, which of course they can’t.”

“We’ve looked at target buildings here in B.C. that 10 years ago were 100% occupied and now are 60% short-term accommodations. And when you start looking at that number it makes you realize that of all units of housing that are being built today, how many of them are being taken up by investors for short-term accommodations.”

Who’s Behind the Investments?

While much of the news coverage around short-term rentals has focused on partying and property damage, the problems with short-term rentals go much deeper.

Some real estate investment firms are simply large companies that use fake “personal” photos to present a friendly face to the public. Others are numbered shell companies owned by organized crime, using real estate investments for money laundering. This analysis of Toronto housing states, “The data shows that billions of dollars in GTA housing has been acquired by anonymous owners using funds of unknown origin.”

Problems for Existing Condo Tenants

From the perspective of existing tenants in buildings where short-term rentals are offered in some units, the issues include parking, managing safety and security, and the fact that the vast majority of investors typically have no interest in putting capital back into the property for maintenance and repairs.

“We’re seeing that where there’s a high ratio in the building, communities are finding it impossible to approve budget increases or changes in capital repairs and maintenance. And so we’re seeing a sliding scale of the standards of these buildings,” says Gioventu.

If one or more large investment companies have bought blocks of units, it can be very difficult to pass bylaws that impose standards at general meetings.

More Legislation Needed

“I think Ontario needs to consider a different threshold for bylaws that prohibit short-term accommodations. It shouldn’t be a conventional bylaw that requires 50% of the owners to vote in favour because it gives too much control to the minority, who are the people benefiting from the Airbnb rentals.”

Gioventu notes that the Minister of Housing in B.C. is putting through new legislation that will clamp down on short-term accommodations over the next two or three years. But he notes that many politicians may be in a conflict of interest.

“You know, the irony of this is that the very levels of government that are complaining about the housing crisis are in fact depending on the short-term accommodation industry to produce revenues for them, and they’re not taking these revenues and converting them into housing.”

Why More Supply in the Suburbs Won’t Work

Politicians in many levels of government have pointed to the “lack of supply” issue, promising to build more homes. But building more market-rate condos or single-family homes in suburbia and rural areas won’t fix the supply issue because many people simply cannot afford them.

Consider that the average price of a single-family home in Ottawa was $721,600 as of November 1, 2023. A family making the median Canadian after-tax household income of $68,400 would be unlikely to purchase a home at that price.

Using a standard mortgage calculator, buying an average-price home would leave less than $1,500 per month to cover utilities, property taxes, a car (as transit is often unavailable or unreliable in suburbs or rural areas), food, and other expenses. People are left to choose between owning a home and saving for their children’s education and their retirement.

For people who decide to try buying, tales of bidding wars on properties that meet most people’s needs are legion, so the listed price is rarely the final price.

More Densification, Fewer NIMBYs

We’ve made the case for smart intensification before. Building more densely becomes “smart” when it preserves public green spaces and creates walkable neighbourhoods with amenities. The overall goal is to encourage families to stay downtown instead of assuming that they “have to” move to the suburbs because they have kids.

Any change, however, can bring protests from existing residents who are concerned, rightly or wrongly, about denser development. The NIMBY issue is a complex one, with some residents saying that any attempt at establishing limits can be branded as nimbyism, and others saying that even the most reasonable efforts can earn protests from locals who don’t want immigrants or low-income earners in their neighbourhood. Some are worried about property values declining, although densification doesn’t reduce property values; it’s about what’s going on in the market.

Gioventu confirms that densification laws were a success in Vancouver, and points to the fact that there is more than one way to build more densely. He cites the ability to build small additional homes on existing properties in backyards or laneways.

“They called them carriage homes for a long time; they work incredibly well and they keep the low profile perspective in residential neighborhoods. So you’re not putting high rises or mid-rise buildings in residential neighborhoods, but you’re basically doubling or tripling what’s available for housing and neighborhoods, which in the long term is quite substantial.”

Ottawa also has a pilot program to convert unused office space into more housing, a project that includes some units that are available at a lower cost than the other luxury units. If this project does well, others may follow, with hopefully truly affordable units as part of the mix.

There is also land that could be used better. “Ottawa has an unbelievable number of vacant parking lots downtown,” says Gioventu. “Why are we building and taking up green space when we should be dealing with these parking lots? Why does parking a car get greater priority over housing?”

Time and Cost Barriers to Densification

The other problem with densification is that municipal processes, including multi-year zoning approval changes and extra fees, can stand in the way of timely development, especially in the current high-interest rate conditions.

The problem is a familiar one for Gioventu. “So a good example is a project that was ideally located in East Vancouver. I was helping them close out the corporation for a decrepit old building that needed to be demolished so a new, denser building could be built. It was a 2-hectare site, two blocks away from a metro station and a Skytrain station.”

He continues, “The city agreed to consider redevelopment for this site, but then said it would be a three-year zoning approval change. So instantaneously, the developers were stepping back because they had to pay a $1 million deposit with the city for this three-year cycle. But the worst part was the “community amenity charge” — and it was just a zoning penalty that’s unconstitutional. The city wanted $55 million as part of the uplift in value that’s going to come with the property. Of course, that’s going to trickle down and be applied to the cost of construction for the site and to the subsequent units.”

A Long Road Ahead

The time for change was years ago, and now cities like Ottawa are trying to catch up. Unfortunately, the price of inattention is being paid by lower-income Canadians and the skilled newcomers for whom the situation in Canada is less than what was promised.

If there’s one bright spot in the situation, it’s that the issue is finally getting some attention. The next step is to learn how to address the situation without building on our public green spaces, and losing the very thing that keeps urban neighbourhoods liveable and thriving. We’ll cover that in our next article.