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Harper Budget Stiffs Homeless

Ignores Vancouver mayor's idea to boost rentals.

By Monte Paulsen 28 Feb 2008 | TheTyee.ca

Monte Paulsen is investigative editor of The Tyee. He welcomes e-mail and invites respectful comment in the forum below.

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PM Harper: Not a penny.

Prime Minister Stephen Harper's 2008 budget offers nothing to alleviate the housing insecurity already worrying more than 1.5 million Canadian households, and effectively threatens to withdraw what little federal funding exists to help the nation's homeless.

"There's not a penny for new truly affordable homes in federal budget 2008, even though all three national housing and homeless programs are due to expire this year," said Michael Shapcott, a policy fellow at The Wellesley Institute in Toronto.

Vancouver Mayor Sam Sullivan also expressed disappointment in the Harper budget's lack of support for housing (though he praised commitments to continuing the gas tax and hiring additional police officers). Even his pleas for adjustments to the tax code were rebuffed.

"I have spent a considerable amount of time in Ottawa promoting the idea of tax changes that would help stimulate the private development of new rental housing," Sullivan said. "Obviously, I haven't been successful in making this case."

Shapcott warned that if the Harper government continues to ignore "Canada's extremely shaky housing fundamentals," the nation's shortage of affordable housing could soon push tens of thousands of working-class families into homelessness.

Too few homes for rent

The problem is simple: Throughout most of Canada, there are far more renters than there are affordable homes for them to rent.

Vancouver's rental shortage is acute. The nationwide average rental vacancy rate was 2.7 per cent in 2006, according to figures compiled by the Canadian Mortgage and Housing Corporation (CMHC). British Columbia's vacancy rate was only 1.2 per cent, and Vancouver's was a mere 0.7 per cent.

The cause of this shortage is also simple: Few new rental units are being built, and as a result the old ones are fetching higher rents.

About one third of Canada's 12.5 million households are renters. But rental construction accounted for less than 9 per cent of the nation's new housing starts in 2006. And each time an older house or apartment building is torn down to make way for a new duplex or condo tower, there are fewer homes available for rent.

Vancouver's 2006 shortfall was dramatic: Of 18,705 housing units started that year, only 509 were purpose-built rentals, according to the CMHC. That's a mere 2.7 percent.

In other words, more than 97 per cent of new homes are created for the roughly two-thirds of households that can afford to buy Vancouver real estate, while less than 3 per cent are destined to house the one-third of Vancouverites who rent.

This trend away from rental construction has grown steadily in the 1980s and is expected to accelerate. Metro Vancouver is projected to face a cumulative shortfall of up to 48,000 rental units by 2021, according to a 2006 report.

Rental housing 'market failure'

"What's happening is what economists refer to as 'market failure,'" Shapcott said

"There are plenty of renters with cash in their hands, but the free market has failed to provide housing for them," he continued. "With demand exceeding supply, rents have risen sharply while incomes have remained stagnant. We're now at a point where working families are literally left standing on the sidewalk."

Real estate investors began pulling their money out of rental housing in the 1970s, when commercial real estate (such as shopping malls) began offering higher rates of return. This trend accelerated in the 1980s and 1990s, as condominiums came into vogue. "Why would an investor tie up his money up for 30 or 40 years, when he could receive the same return on investment by selling those apartments right away?" Shapcott asked.

After decades without significant investment in new rental housing, Vancouver rents have risen to the point where prospective tenants compete to pay $1,200 a month for drafty 1960s apartments and mouldy basement suites.

Nationwide, more than 1.5 million Canadian households -- about 4.2 million people -- are in what the government calls "core housing need." These are households that are both paying more than 30 per cent of their income for shelter, and are living in substandard or over crowded homes.

Again, British Columbians fare worse than the nation as a whole: 223,700 B.C. households were in core housing need in 2001. That's 15.8 per cent of all B.C. households. Among Canadian provinces, only Nunavut provides a lower standard of housing.

Single-parents and seniors bear the heaviest burden in Metro Vancouver, where fully half of all households headed by a single person were in core housing need, as were 45 per cent of households headed by a senior citizen.

"The other long-term trend that has shadowed the deterioration of rental housing is a growing income gap between owners and renters. The average income of a renter household is now less than half the average income of an owner household," Shapcott said. "So now we have two Vancouvers: the owners, and the renters."

Sullivan's plan: tax breaks for investors

Mayor Sullivan has lobbied Ottawa for eight changes to the federal tax code that he believes will help stimulate the creation of new rental housing and new forms of supportive social housing.

The first three items on Sullivan's wish list would restore some of the tax breaks formerly available to rental housing investors. Sullivan has lobbied the Harper government to reduce GST payments on rental housing, to allow rental investors to qualify for small business deductions, and to restore capital cost allowance rollovers.

These three items also top the list of tax law changes being sought by the Canadian Federation of Apartment Associations, which represents landlords.

"Since the 1970s there have been a whole slew of changes that make the tax treatment for rental properties much less favourable than it was formerly, and in many cases less favourable than the treatment of commercial property or shares or owner occupied homes," said association president John Dickie, who provided a list of 15 such changes.

Dickie acknowledged that fiddling with the tax laws would neither reduce the lure of condominium investments nor spur the construction of new low-income housing. But he predicted that a new supply of market-rate rental housing would "trickle down" and help slow the rise of rental rates for less desirable homes, such as basement suites.

"Would these tax changes take us back to building 60,000 to 70,000 units of rental housing a year, as we did in the late '60s? Probably not," Dickie said. "Would these take us up to building 30,000 to 40,000 units a year? Yeah, probably so."

The remaining items on Sullivan's wish list would facilitate the creation of new forms of public-private partnerships, such as that proposed by last year's stalled Dobell-Fairbairn plan.

Among Sullivan's requests of Ottawa: permit the creation of an investment pool for affordable housing, allow a private foundation to create a limited partnership for the purpose of owning supportive housing, and permit the holders of such partnership units to deduct losses against income and to avoid capital gains if they donate their units to a charity.

'Monumental failures'

"What Mayor Sullivan is attempting is to find a Holy Grail that many politicians have sought for some time: A way to get the private market to deliver affordable housing," Shapcott said.

"It's a great idea, but it doesn't work," he continued. "There is no jurisdiction in the world where tax policy has been used to create affordable homes. It hasn't worked in the U.S., where they tried numerous tax schemes but are now facing a low-income housing crisis. And it hasn't worked in Canada, where we have had considerable experience with tax schemes to stimulate rental housing; all of them have been monumental failures."

That view is supported not only by other housing analysts, but also by the research arm of one of the nation's largest lenders. A report from TD Economics reached a similar conclusion.

"Tax changes are unlikely to bring the biggest 'bang for the buck' to affordable housing," the 2003 report stated. "Some of the provisions, such as the capital tax and the distortion between property taxes on rental and owner-occupied housing, should be fixed for their broad merits. The other recommendations would no doubt increase the supply of rental housing, but the benefits would be diluted across the full spectrum of housing and have a limited 'trickle down' effect to affordable housing. A greater benefit-cost ratio could be realized through initiatives to directly target the lower cost segment of the market."

In other words, said Shapcott" "Bankers and economists have concluded that cuts are less efficient than a direct investment in new social housing."

Shapcott does see promise in one item on Sullivan's list: the investment pool. He said a housing trust fund in Edmonton has been successful in developing affordable homes for the long term. He added, "I'd caution against any expectation of a market-rate return."

$20 million for DES mental illness

Sullivan said Vancouver did receive $20 million toward a project to address mental illness in the Downtown Eastside, which he hoped "could involve some housing." He also hoped that Finance Minister Jim Flaherty's mention of a crown corporation for public-private partnerships was a nod to the Dobell-Fairbairn plan.

"The creation of affordable housing remains among our top civic priorities in Vancouver," Sullivan said. "It's my job as a municipal representative to make the case for housing investments in Ottawa and Victoria. The provincial government has made historic investments during the past year. And I will continue to make the case for further federal involvement."

Opposition Coun. Raymond Louie, who is widely expected to seek Vision Vancouver's nomination to run against Sullivan in this November's election, said Sullivan has been an ineffective lobbyist.

"What we needed was a clear, concise message going to Ottawa -- not Mayor Sullivan's incoherent list of random priorities," Louie said. "The mayor just isn't getting it done."

Shapcott warned Vancouver politicians to "be careful what you wish for," and stressed that tax breaks would not alleviate B.C.'s housing insecurity.

"Ultimately, there are really only two practical options," Shapcott said. "Either we put more money into the pockets of rental households -- by raising the minimum wage, increasing income assistance or some other mechanism -- or we recognize that the market is failing renters and build a million units of non-market housing."

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