Affordable housing in Canada - Wikipedia. The iconic Habitat 6. Montreal was an attempt to create affordable housing which failed largely because high market demand made the units too cheap for many tenants. The concentration of employment in Canada's largest cities and a trend towards urbanization continues to put pressure on housing affordability in the country. Affordability of housing in Canada presents a complex paradox. By 2. 00. 4, 1. 7 million Canadians had housing affordability issues, yet Canada is considered to be among the more affordable places to live, using a market- oriented analyses of affordability such as those provided by the Royal Bank of Canada. Canadian government public policies intervene when affordability of housing is stressed to the point home ownership becomes inaccessible even to individuals with full- time employment. The continuum of affordable housing in Canada includes market (affordable rental housing, affordable home ownership), non- market (affordable rental housing, affordable home ownership), government- subsidized housing (emergency shelters, transitional housing and social housing). Measuring affordability of housing is complicated by Canada's vast physical and human geography which includes remote northern communities and affluent urban regions. Housing prices and construction costs have risen dramatically in Canada as they have elsewhere in the world. Income levels in the upper quintile have increased exponentially while those in lower quintiles have remained stagnant. The rising inequality gap presents a significant challenge for Canadian households who are . In the market- based housing system, individuals finance their own housing, independent of government assistance. A recent (2. 01. 2) RBC Economics report on home affordability says its index deteriorated only slightly. Nationally, it is 4. Major cities such as Vancouver rate worst in the world at 8. Calgary is considered affordable at 3. Montreal is 4. 1. Toronto is 5. 3. 4%. The RBC Indicator provides data on a quarterly basis on home ownership affordability, it measures the proportion of homes currently for sale that are affordable to a median income household. Measurements of affordability that are oriented exclusively to the ability to buy using mainly shelter- cost- to- income ratio (STIR) provide useful information for one end of the continuum of housing in Canada, home ownership in the private market at market price. In its 2. 01. 6 second quarter report Canada Mortgage and Housing Corporation warned housing prices are overvalued in 9 Canadian markets, with Vancouver at high risk. In the mid- 1. 99. Canada, homelessness. All levels of government in Canada began to include housing policies and strategies that respond to the crisis although anti- poverty and ending- homelessness activists argued that the efforts are not sufficient, efficient, or sustainable. The construction and rehabilitation of affordable rental units has not kept pace with the number of affordable rental units lost to demolition, urban intensification projects and the more profitable conversion to condominiums. Fewer than 1. 0 per cent of new housing starts are rental units. Housing Bubble Blog focusing on real estate and investing. Bill 140, Strong Communities through Affordable Housing Act, 2011 Bartolucci, Hon Rick Minister of Municipal Affairs and Housing. Current Status: Royal Assent received Chapter Number: S.O. Since 2. 00. 5 the number of rental units declined. Since 2. 00. 0 the cost of renting increased by more than 2. The FCA finds the shortage of available rental housing is worsening at the same time that more Canadians are being priced out of home ownership. Measuring affordability of housing is complicated by Canada's vast physical and human geography which includes remote northern communities and affluent urban regions. Housing prices and construction costs have risen dramatically in Canada as they have elsewhere in the world.
Income levels in the upper quintile have increased exponentially while those in lower quintiles have remained stagnant. The economy has grown from the mid- 1. About 1. 5 million Canadian households or 1. Canadian households were in core housing need. Housing policies across Canada that address the issue of affordability of housing acknowledge a housing continuum that encourages home ownership and rental in the private sector but also provides rental and/or income assistance to low income households, high level support services to the most vulnerable citizens (frail elderly, disabled, mentally challenged, single parents, etc.) from short- term transitional housing, longer- term supportive housing, to emergency shelters for the homeless. Housing policies and strategies consider repeat users and those who face multiple barriers to meet and maintain core housing needs and therefore provide a wide range of support services including life skills training and assistance programs to break the cycle of poverty (BC Housing Strategy 2. In this way housing strategies and housing studies related to affordability of housing overlap with anti- poverty strategies and studies. Fundamental forces of supply and demand in the Canadian housing market. New housing supply is relatively more flexible in Canada than in continental European countries and in the United Kingdom. Caldera and Johansson argue that new housing supply depends on . In supply- constrained markets like Vancouver, most adjustment occurs in higher prices rather than expanding housing supply. In the short to medium term supply- constrained/high- demand markets result in higher prices. Greater supply and low demand result in lower prices. Unresponsive housing markets cause price volatility including demand shocks that affect residential investment resulting in economic instability. Given the historically . Shelter expenses include . In 1. 98. 6 CMHC entered into Global and Operating Agreements under the National Housing Act and the CMHC Act, with the provinces and territories regarding administration and cost sharing of social housing programs. The core housing need concept was developed and adopted as an eligibility criterion to target households who were in need and as a basis to allocate federal funds through CMHC to participating provinces and territories. Core housing need does not measure progress against some measurable indicator. Pomoroy suggests that affordability of housing public policy analysts should also monitor other indicators that are more appropriate for the contemporary Canadian context such as, what proportion of rental units are affordable to a median income rental household, a comparison of wage requirement needed to rent unit, the demand for housing assistance, the number of households in core need as a milestone measure, the number of people using emergency homeless shelters, number of people filing notice of eviction, arrears or foreclosures, rental vacancy rates at market prices, rental vacancy units at modest- low income stock and the number of MLS sales affordable to marginal buyers. Market- based affordability. A decline in the ratio indicates an improvement in affordability. This measure of affordability is not oriented towards renters. A 2. 01. 2 report produced by the Bank of Canada argues that affordability of housing . Despite increases in house prices, generally favourable labour market conditions (gains in real income) and low interest rates have supported affordability and contributed to the significant increases in home ownership and mortgage debt. Housing market growth, in part fuelled by availability of debt and mortgage financing, augments existing inequities. While many homeowners benefit from low interest rates, the national pool of private affordable rental stock remains small and affordable rental vacancy rate remains low, less than one per cent in many cities. When the monthly carrying costs of a home exceed 3. Determining housing affordability is complex and the commonly used housing- expenditure- to- income- ratio tool has been challenged. Canada, for example, switched to a 2. In the 1. 98. 0s, this was replaced by a 3. Unresolved issues remain about the elements of affordable housing. Affordability of housing may have differing definitions to governments, mortgage providers, developers, urban planners, economists and individual householders seeking a residence. Income levels in relation to housing prices are the most frequently used variables in deciding housing affordability but other factors such as employment trends, access to (and the cost of) finance, demographic shifts, housing preferences and other housing costs besides the price of purchase impact on housing affordability. One question is what should be included in 'housing' costs. Such expenses could include taxes, insurance, utility costs, maintenance and/or furnishings and rent for owners and/or tenants. Another question is what is meant by 'income'. Does this include gross or net income; one or all adults' income; and children's income, if any. It is also unclear how sharp temporary fluctuations in income and non- cash sources of goods and services get factored into the calculation. Londerville also notes that the maximum Total Debt Service ratio (the . It could be different for different income levels . Young homeowners who have children in daycare can be paying a fee almost equivalent to a second mortgage payment; this is not taken into account when calculating the maximum the bank will lend because it is not defined as a debt. While the 3. 0% rule may be used for the latter, banks and lending agencies might require a much higher Qualifying Income before approving a mortgage. The Royal Bank of Canada Housing Affordability Measure describes a qualifying income as . Typically, no more than 3. While affordability in housing has improved for many Canadians, due mainly to income gains, the fortunes of the lower half of Canadians remain stagnant or have declined. Across Canada, renter households in the lowest income quarter have highly elevated . The banking industry views greater credit growth and higher debt loads related to house purchases as a positive. The CMHC: Canada's mortgage monster. David Le. Poidevin isn’t the first person to suggest Canada’s roaring housing market is headed for a U. S.- style crash. But he is a rare breed of money manager for daring to point a finger at the Canada Mortgage and Housing Corporation, the country’s biggest mortgage insurer. In a fall 2. 00. 9 note to his clients, Le. Poidevin questioned what was underpinning the country’s skyrocketing home prices, aside from rock- bottom interest rates. In fact banks have actually reduced the number of their mortgages held from the peak of third quarter of 2. The smoking gun is the CMHC and its securitization policies.”As mainstream economic commentary in Canada goes, it was damning stuff. And it provided ammunition to critics who argue the Crown corporation’s policies have inflated a housing bubble. The CMHC is arguably the most influential player in Canada’s $1- trillion housing market. Its main function is to provide mortgage insurance for prospective homeowners who put less than 2. The CMHC also helps to spread risk by finding investors to buy CMHC- insured mortgages that have been pooled together into so- called mortgage- backed securities. All of this is guaranteed by the government. Almost immediately, Le. Poidevin’s bosses at National Bank leapt to the CMHC’s defence. In a letter to an Ottawa newspaper that had referred to the commentary, co- chief executive Ricardo Pascoe said the Vancouver portfolio manager’s views were “personal” and “do not reflect the views of National Bank Financial Group.” When reached by Maclean’s, Le. Poidevin declined to talk about the public rebuke or the CMHC in general. A National Bank spokesperson justified its actions, saying the company “felt that the commentary was treading on social and political issues.”The apparent unwillingness of the country’s sixth- largest bank to challenge the CMHC is curious given the role similar U. S. But it’s far from unusual. Several other critics, including economists, realtors, lawyers and analysts contacted by Maclean’s, say they have also been the target of attack. One bank economist who once publicly raised fears about a housing bubble says he didn’t dare openly criticize the CMHC because of the agency’s reputation for snuffing out dissent. The economist spoke on the condition his name not be used. Even worse, the public knows next to nothing about what lurks inside the CMHC’s books, aside from the smattering of details it releases in its annual report. And, unlike every other major insurance provider in the country, the CMHC doesn’t answer to Canada’s top financial services regulator. It falls under an amalgam of government acts and departments, including Finance and Human Resources, while also working with the Bank of Canada. Yet on specific decisions that dramatically loosened mortgage lending rules last decade, CMHC officials have testified they did so on their own with the approval and oversight of the CMHC’s board of directors. And, as Le. Poidevin found out the hard way, asking hard questions seldom yields satisfactory answers. Since taxpayers, through the CMHC, and not the banks are ultimately on the hook in the event of a housing crash, a growing chorus of critics has been calling for more transparency and oversight, if not outright reform. Stephen Jarislowsky, a billionaire Montreal investor, says home prices are likely overvalued by as much as 2. Canadian markets thanks to CMHC policies that encouraged banks to lend far too much money to people to whom they shouldn’t have. The core problem, he argues, is that promoting home ownership makes for good politics in Canada, if not always sound economic policy.“The CMHC is influenced by the political process, just like . He notes the average debt- to- income ratio of Canadian households recently surpassed that of the U. S. The CMHC also assists the financial sector by buying pooled mortgages and reselling them to investors as bonds, giving banks and other institutions an immediate source of cash that they can re- lend. As of 2. 00. 9, the CMHC had securitized $3. So critical is this function that Ottawa relied on the agency to prop up the country’s big banks during the financial crisis, giving the CMHC permission to buy $6. Chris Sorensen And Jason Kirby. It’s a familiar- sounding story to American ears. Using the CMHC’s 2. CMHC says it has another $6. By comparison, in 2. Fannie Mae backed up US$2. US$4. 0 billion of capital, or 1. But the CMHC says its capital levels are double what the Office of the Superintendent of Financial Institutions requires of mortgage insurers (though the CMHC is not regulated by the OFSI). But such assurances in the absence of transparent disclosure offer limited comfort. Howe researcher Finn Poschmann wrote in a recent report: “Parliament and the voters to whom it answers have no formal documentation of the way these exposures are calculated or managed.”What bothers Grant is that the CMHC’s government- backed guarantees encourage banks to feel they have less to lose if loans go bad. And if house prices fall and borrowers get into trouble, the ripples would run far and wide. It points out that the Canadian mortgage system is fundamentally different than in the U. S. That’s because mortgage interest is not tax- deductible, a relatively small number of mortgages are securitized, and lenders can generally go after homeowners who don’t make their payments. The CMHC also points to Canada’s low rate of mortgage arrears, currently less than one per cent. Finally, the industry never got swept up in the subprime lending trend, the CMHC says. But it’s not like they shied away from taking risks. For two years beginning in 2. CMHC offered insurance on mortgages with amortization periods of up to 4. The products were later reined in by Ottawa after the U. S. While the government had previously relaxed conditions for guaranteeing mortgage insurance as part of a plan to introduce more private sector competition, it was the CMHC’s management and board that ultimately made the decision to go to 4. In the same way, in 2. CMHC introduced a program for self- employed Canadians who have difficulty documenting their earnings to nonetheless obtain mortgage insurance by “stating” their income. While the program was restricted to borrowers with good credit ratings, one mortgage broker told Maclean’s self- employed Canadians were able to get much larger mortgages than those in the same field who had documented incomes. Then, a year ago, the CMHC backtracked and significantly tightened its rules on stated- income mortgages.“We’re allowed to operate and make decisions with regards to mortgage insurance products and policies within the . Still, the move to riskier mortgage products drew the ire of then- Bank of Canada governor David Dodge, who sent a letter to CMHC chief executive Karen Kinsley in 2. Borrower, you’ve got to have an equity stake in this as well, so if things go really bad it’s not all on the Canadian taxpayer. It’s not like they’re deciding what to do about the price of ballpoint pens.”So how much risk have taxpayers been exposed to? The CMHC doesn’t reveal specific data about the credit exposure that it has taken on, other than to say it is manageable and in line with internal guidelines. As for the question of whether the CMHC’s policies could contribute to a housing crash, the agency says there’s no reason for Canadians to lose sleep. It says more than half of CMHC- insured mortgages have a loan- to- value ratio of less than 8. CMHC- insured property is 4. Important questions remain unanswered? Of those people with lower equity in their homes, what is the size of their mortgages? What classes of loans are they? Winsor Macdonell, the vice- president and general counsel of Genworth Financial, told the committee he assumed the CMHC’s portfolio looks similar to Genworth’s given that both provide mortgage insurance for the entire Canadian market. The last thing we want, as a government insurer, is to get people in a position where they can’t manage their debt.” For the sake of Canada and its fragile economic recovery, let’s hope he’s right.
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