by michael shapcott · porate interests, including privately-held real estate investment trusts...

Profiting from a manufactured housing crisisTechnical Paper #5

Canadian Centre for Policy Alternatives/Ontario

by Michael Shapcott

Profiting from a manufactured housing crisis

By Michael Shapcott

Ontario Alternative BudgetA project of the Canadian Centre for Policy Alternatives

Technical paper # 5June 2002

CAW 567OTTAWA

2 Ontario Alternative Budget

Technical Paper #12 of the Ontario AlternativeBudget Working Group (OAB) and the Cana-dian Centre for Policy Alternatives (CCPA),released in May 2001, reported on the “made-in Ontario housing crisis.” It included the lat-est numbers on the provincial housing crisis andlooked at 10 urban centres, along with a numberof smaller communities. One year later, thistechnical paper updates the figures and exam-ines how the Harris-Eves government has setin place programs and policies that allow cor-porate interests, including privately-held realestate investment trusts (REITs), to profit fromthe very housing crisis that the governmenthelped to create.

The 4.8 million women, men and chil-dren living in rental housing in On-tario remain mired in the province’s

worst housing crisis in more than a decade.The province’s rental vacancy rate is stuckat a dangerously low 1.7%, rents are increas-ing at more than double the rate of infla-tion and homeless shelters are over-whelmed. The Ontario government’s “fast-track” eviction process has forced morethan 200,000 households out of their homessince the so-called Tenant Protection Actcame into effect in June of 1998.

But the bad news for millions of renterhouseholds is a virtual goldmine for inves-tors and their financial advisors, includinga former assistant deputy provincial hous-ing minister. The province’s over-heatedrental market is showering them with bigreturns even as tenants struggle to maketheir monthly rent. Property developers aretaking advantage of policy and programchanges by the Harris-Eves provincial gov-ernment since 1995. They are buying uprental buildings with moderate rents, thenusing weakened tenant protection laws to

drive up the rents and bank the profits, abig chunk of them tax-free.

Dino Chiesa was an assistant deputyhousing minister during the years that theprovincial government was slashing hous-ing supply programs and gutting rent regu-lation and tenant protection laws. He leftthe provincial ministry three years ago tomove into private sector property develop-ment. As Chief Executive Officer of Resi-dential Equities Real Estate InvestmentTrust (ResREIT) for more than two years,he is helping investors take maximum fi-nancial advantage of those changes.

“ResREIT is one of Canada’s largestresidential real estate investment trusts of-fering investors significant returns throughstable, tax-efficient income monthly distri-butions and the inherent growth potentialof Canada’s urban apartment market,” ac-cording to a May 22, 2002, media releasefrom the trust.

ResREIT, according to informationposted on its public Web site, buys existingbuildings with moderate rents, then usesthe new provincial laws to drive up rents.“We don’t just want to buy buildings be-cause it’s part of our business plan,” saysChiesa in the 2001 ResREIT annual report.“They have to be the right properties –apartments that are below market rents andfit within our strategy of 100 units or more,high-rises in a prime location. Theleveraged return has to be at least 10%, withan allowance for future growth.”

Two of the “right properties” listed ontheir Web site include:• 100 Wellesley Street East in Toronto, a

424-unit apartment building thatResREIT bought in 1999. BeforeResREIT, the average rent was $839.Two years later, rents had jumped 22%to $1,021. The province’s official rent

Profiting from a manufactured housing crisis 3

review guideline was 2.6% in 2000 and2.9% in 2001. ResREIT raised the rentsfour times higher than the guidelineamount.

• 2515 Bathurst Street in Toronto, a 115-unit apartment building bought in 1998,when the rents were an average of $660.Ontario’s official rent review guidelinewas 3% in 1999, 2.6% in 2000 and 2.9%in 2001. ResREIT pushed up the rents37% over three years to $902, well overfour times the official rent review guide-line.

In addition to the whopping increasesthat ResREIT tenants are already paying,they face more than $8 million in future in-creases as the trust uses complicated newrules under the Tenant Protection Act to winapproval for additional rent hikes from thegovernment-appointed rental housing tri-bunal. And the corporation says on its Website that it wants even more rent hikes tocover what it calls “the extraordinarily highcost of gas”. Once ResREIT gets those in-creases, the provincial rent laws practicallyguarantee that the tenants will pay thehigher gas costs forever, even if gas pricesdrop in the future.

As of December, 2001, ResREIT had9,643 units in 43 buildings, most of them inToronto, Mississauga, Burlington and St.Catharines. Other REITs are buying prop-erties in Ottawa, London, Brampton andKitchener-Waterloo. It’s no surprise thatspeculators are active in the tightest rentalmarkets, but by driving already expensiverents even higher, they are helping to makea bad situation even worse.

Rent increases piled on top of rent in-creases, followed by even more rent in-creases – this is the money-making formulafor REITs. Chiesa’s ResREIT and others are

taking advantage of provisions in the Ten-ant Protection Act developed at the sametime that he was in the upper reaches ofthe Ministry of Municipal Affairs andHousing. Buying affordable units and driv-ing up the rents is further eroding the al-ready limited affordable rental stock inOntario. Not only do REITs make big re-turns, but many of the cash distributionsare tax-deferred, which delivers anotherbonus to wealthy investors.

Even though he has left the Ontariohousing ministry, Chiesa maintains his con-tacts with governments. In addition tomembership on industry lobby groups,Chiesa is on the board of the Canada Mort-gage and Housing Corporation (the federalgovernment’s housing agency) and theHousing Committee of the City of Toronto.He is on Toronto’s Waterfront DevelopmentAgency. Chiesa was appointed by formerOntario Premier Mike Harris to sit on a pro-vincial “smart growth” task force in 2001to look at property development issues inthe greater Toronto area. “We continuallywork with all levels of government to makesure that the voice of the residential land-owner is heard,” says Chiesa, in a commentposted on the ResREIT Web site.

Another leading REIT, Canadian Apart-ment Properties Real Estate InvestmentTrust (CAP REIT), answers investors’ ques-tions on their corporate Web site:

“Q: How have rents and vacanciesperformed over the past ten years?“A: Over the past ten years, rentalrates for apartment suites have in-creased steadily with consistently lowvacancy rates, resulting in a highlystable and growing income stream.Average rents for a downtown To-ronto one-bedroom apartment haverisen over 45% since 1989, while va-


cancies in Toronto have remained be-low 2%. For the past three years, va-cancies have been under 1% through-out the entire Greater Toronto Area.”

“Q: What is driving demand forapartments?“A: Population growth in CAP REIT’skey Toronto market of 26% has sig-nificantly outpaced Canadian popu-lation growth of 14%. This increase inpopulation drives demand for rentalaccommodation, and combined withminimal new private or public sectorsupply has resulted in occupancyrates in CAP REIT’s portfolio around99%.”

CAP REIT credits the legislativechanges in Ontario with improving theircash flow:

“Q: Will changes to the Tenant Pro-tection Act in Ontario benefit CAPREIT?“A: The Ontario provincial govern-ment has recently amended the On-tario Landlord and Tenant Legislationto allow landlords to increase themaximum allowable rent increasebased on market conditions. As morethan two-thirds of CAP REIT’s port-folio is located in Ontario, the abilityto increase rents to reflect market val-ues will enhance cash flow as the newrents take effect.”

The motto of CAP REIT is “apartmentsmake money”, something they remind in-vestors time and again in promotional ma-terials.

The only dark cloud on the horizon isthe fear that tight rental markets will easeif new affordable rental supply is created.

Boardwalk Equities is one of the biggestlandlords in Canada. In a note to investorson the Boardwalk Web site, two senior vice-presidents are optimistic:

“The biggest risk would be that ofoversupply of new rental construc-tion in our marketplaces. Unlike theU.S. market, however, Canada hashad a very limited new supply ofrental product over the past decade -actually, since the early 1980s. A sig-nificant advantage is having a port-folio that was accumulated at a frac-tion of replacement cost - which wasby design. We are well positioned inour major markets with good demandgrowth and high barriers to new sup-ply. For example, in our market areas,existing rental levels continue to bewell below replacement cost rentsneeded to justify new construction.And, in fact, the rental stock in ourtwo major markets has actually de-clined over the past 10 years due tocondo conversions. Also, we do notbelieve that any potential future gov-ernment-initiated programs aimed atspurring new rental construction willhave a material impact on our mar-ket areas.”

40% of Ontarians rent

Rental housing provides a home for fully40% of all the residents of Ontario. Theprovince has about 1.8 million renter house-holds (including about 4.8 million women,men and children) and 2.1 million ownerhouseholds. Canada Mortgage and Hous-ing Corporation (CMHC), the federal gov-ernment’s housing agency, defines “con-ventional” rental housing as “privately ini-


tiated apartment buildings with three unitsand over.” CMHC calculates that there are612,417 units in the conventional market.

Social housing (or “assisted” rental)housing includes public, co-op and non-profit housing. There are about 264,000 so-cial housing units in Ontario. The admin-istration of most of those units wasdownloaded to municipalities over the pastyear. About 22,000 co-op units in Ontarioare under federal administration, and thereare 2,000 units in independent student co-ops.

Adding conventional (612,420) to socialunits (264,000) amounts to about half of the1.7 million renter households in Ontario.The other half live in “non-conventional”rental housing, or “secondary” housing.The secondary market includes tenant-oc-cupied single, semi and row dwellings,rented condominium units, accessoryapartments (self-contained basements andflats) and apartments over stores.

Renter population growing

The renter population, in overall terms andas a percentage of the entire population, isgrowing. In 1986, about 1.1 million house-holds (34%) were renters out of a provin-cial population of 3.2 million households.By 1999, the number of tenant householdshad grown to 1.8 million (40%) out of a pro-vincial population of 4.5 million.

The latest population projection fromthe Ontario Ministry of Finance (July 2000)estimates that the province’s populationwill grow significantly from 1999 to 2028.The “reference” – or mid-range – scenariois 3.8 million more people. Using this ref-erence, Ontario’s population will grow byan average of 125,000 people annually.Based on average household sizes, theprovince will need 18,400 new rental unitsannually to keep pace with the growingneed – or a total of 368,000 units for the 20-year-period to 2019.

Private rental starts – 1970 to 1990

Source: Ontario Ministry of Municipal Affairs and Housing, 2001

0

5000

10000

15000

20000

25000

30000

35000

40000

1970 1974 1978 1982 1986 1990 1994 1998


Without that new housing, the rentalmarket will continue to remain in crisis, asituation that property speculators andlandlords know is good for their bottomline.

Little new private rental housing

Private investment in new rental housingdropped dramatically in 1972. Private sec-tor lobbyists blame provincial rent regula-tion for killing new construction, but On-tario’s first rent regulation laws were notintroduced until 1975. Rent regulation didnot apply to new construction until morethan a decade later.

New construction of rental housing hasbeen less than 2,000 units annually for theprovince in recent years. Compare this tothe average of 15,000 new units annuallyfor 1988 to 1992. But even that tiny amountof new construction has been outpaced bydemolition and conversion of existingstock. There was a net loss of 631 conven-tional rental units in Ontario from 1999 to2000. Some communities that experienceda net loss in 2001 include: Hamilton – 503units; Ottawa – 643 units; and, St.Catharines-Niagara – 73 units (in additionto 122 units lost in 2000).

The prospects of new private develop-ment remain low due to the heavy finan-cial realities of rental construction. There islittle room for the private sector to buildnew rental housing except at the highestend of the rental scale, a point conceded bythe Ontario Ministry of Municipal Affairsand Housing’s Housing Supply WorkingGroup, which noted in May, 2001:

“The economics of the rental marketare such that, regardless of the busi-ness climate, developers will tend to

build at the high end of the market,where economic viability is greatest.Improvement in business climate con-ditions will encourage an increase innew rental development but will notincrease the relative attractiveness ofbuilding low end rental market hous-ing: even in the most favourable busi-ness climate, it will generally be moreprofitable to build for the high end ofthe market.”

No new social housing

The investment decision by the private sec-tor to abandon new construction in theearly 1970s did not have an immediate im-pact because the federal governmentlaunched a major social housing programin 1973. Over the next 20 years, the federalgovernment funded several hundred thou-sand co-op and non-profit units across thecountry, including 100,000 units in Ontario.The federal government began to cut fund-ing for new social housing in 1984. Overthe next decade, the federal government cutalmost $2 billion from federal housing pro-grams, then stopped all funding of newhousing in 1993.

The federal cuts were not immediatelyfelt in Ontario because, in 1997, the prov-ince launched the first of several programsthat funded tens of thousands of co-op andnon-profit units. But all that ended whennewly-elected Premier Mike Harris, emerg-ing from his first Cabinet meeting in Juneof 1995, cancelled 17,000 units of co-op andnon-profit housing that had been approvedfor development. And he stopped all fund-ing for new social housing.

During its first three years in office, theHarris-Eves government cut more than


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1970 1974 1978 1982 1986 1990 1994 1998

$300 million in housing programs (one-quarter of overall housing spending). In1998, the province downloaded the entirecost of social housing to municipalities. Infour short years, Ontario moved fromspending more than $1.1 billion annuallyon housing to spending zero.

The combined effect of the private sec-tor withdrawal in 1972; the federal with-drawal in 1993 and the provincial with-drawal in 1995 has led to a province-widerental housing crisis as the need for newhousing continues to dramatically outstripsupply.

In addition to cutting funding for newsupply, the provincial government has cutfunding for rent-geared-to-income (RGI)subsidies and rent supplement programsfor low-income renter households. Morerecently, the province restored funding for7,000 rent supplement units, using surplusfederal housing dollars. This cost will bedownloaded to municipalities once the fed-eral money runs out.

The lack of new social housing supply,combined with cuts to existing subsidies,has created long and unmanageable wait-ing lists for social housing. Applicants inmany parts of the province are being toldthat the list is four or five years long. InToronto, the latest estimate is 19 years. Bur-geoning waiting lists have led to the needfor a growing bureaucracy to administerthe allocation of scarce units. The SocialHousing Reform Act, 2001, and accompany-ing regulations, devote dozens of pages todetailed rules governing administration ofwaiting lists.

Over-stuffed social housing waitinglists can have deadly consequences, as thejury in the Gillian Hadley inquest deter-mined. Gillian Hadley was murdered byher husband in June, 2000. She was on awaiting list for social housing. In their rec-ommendations in February of 2002, theHadley jury found that “the present longwait for housing is unacceptable.” Theycalled on federal and provincial govern-ments to immediately provide adequate

Social housing starts (mostly co-ops, non-profits) – 1970 to 1999

Source: Ontario Ministry of Municipal Affairs and Housing, 2001


1999vacancy

rate

1999rent

increase

2000vacancy

rate

2000rent

increase

2001vacancy

rate

2001rent

increaseBarrie 1% � 1.8% � 0.5% � 5.8% � 0.9% � 5.0%�

Brampton 0.7% � 5.0% � 0.7% � 4.3% � 0.9% � 5.7% �Cornwall 11.1% � 2.0% � 7.8% � 2.3% � 6.0% � 0.0% �Guelph 0.5% � 2.3% � 0.7% � 6.0% � 1.0% � 4.0% �

Hamilton 1.9% � 5.4% � 1.7% � 3.0% � 1.3% � 3.3% �Kingston 3.4% � 0.0% � 1.8% � 3.2% � 1.4% � 4.3% �

Kitchener/Waterloo 1.0% � 3.0% � 0.7% � 5.6% � 0.9% � 3.6% �London 3.5% � 0.0% � 2.2% � 2.8% � 1.6% � 3.9% �

Muskoka 3.1% � 1.8% � 2.4% � 2.6% � 1.9% � 2.7% �North Bay 3.9% � 0.0% � 5.5% � 1.9% � 2.7% � 1.9% �Oshawa 1.7% � 2.6% � 1.7% � 4.4% � 1.3% � 1.5% �Ottawa 0.7% � 3.8% � 0.2% � 12% � 0.8% � 3.9% �

Owen Sound 2.9% � 0.0% � 2.8% � 3.2% � 1.6% � 3.8% �Peterborough 4.4% � 1.6% � 3.2% � 0.4% � 3.7% � 3.7% �

Sarnia 8.8% � 4.7% � 7.3% � 0.5% � 6.3% � 1.8% �St. Cath./Niagara 3.2% � 2.8% � 2.6% � 2.9% � 1.9% � 3.3% �

Sudbury 11.1% � 0.02% � 7.7% � 1.1% � 5.7% � 0.0% �Thunder Bay 7.5% � 0.0% � 5.8% � 1.0% � 5.8% � 0.0% �

Timmins 13.0% � 0.0% � 13.6% � 2.3% � 8.1% � 0.0% �Toronto 0.9% � 4.0% � 0.6% � 6.8% � 0.9% � 4.5% �Windsor 2.7% � 2.4% � 1.9% � 5.7% � 2.9% � 0.0% �Ontario 2.1% � 3.2% � 1.6% � 6.2% � 1.7% � 4.0% �

funding for new permanent and transi-tional housing. Neither government hasformally responded to this recommenda-tion, nor the seven other housing recom-mendations.

Conventional rental crisis

The annual rental market report for 2001from Canada Mortgage and Housing Cor-poration confirms a conventional rentalmarket in deep crisis. A rental vacancy rateof 3% or less is a danger sign, warning of arental market in severe distress. The prov-ince’s rental vacancy rate has been below3% for more than a decade. Fifteen of theprovince’s 21 urban areas are experiencing

a vacancy crisis. Four of the six urban ar-eas currently in the healthy zone have seentheir rates drop significantly in the pastyear.

Four Ontario centres are among theworst 10 rental markets in Canada. And va-cancy rates are expected to remain criticallylow in Toronto and Ottawa in the next twoyears, according to official forecasts.

The rapid increase in average rents isanother troubling sign. Average rents inOntario rose at more than double the rateof inflation in 2001 and also in the year 2000.All this at a time when tenant householdincomes are stagnant or declining.

The 2002 provincial rent guideline (theamount that landlords can legally raise

Source: CMHC, 2001


rents without any reason) is 3.9% - onceagain, more than double the current rate ofinflation. The guideline is not a ceiling.Average rents in Ontario in recent yearshave outpaced the guideline amount.

Provincial rent regulation rules allowlandlords to increase the rents as high asthey want on vacant units, which giveslandlords a major financial incentive toforce tenants out. And the rent rules allowlandlords to get big rent increases for someexpenses – such as increased energy costs– even though landlords are not requiredto lower rents when those costs decrease.

The number of evictions in Ontario con-tinues to grow. During 2001, almost 61,000tenant households faced eviction – morethan 80% of them because they couldn’tafford to pay the rent. Many tenants leavevoluntarily, but close to 35,000 were orderedout by the provincial tribunal. An averageof 250 Ontario households face evictionevery working day of the year.

Whether tenants facing eviction leavevoluntarily, or stay until they are orderedout, the bonus for the landlord is the same:they have a vacant unit which, under rentregulation rules, allows them to charge anyrent that they want for the unit. “Vacancyde-control,” as it is known, is the majormechanism that REITs use to increase therents many times over official guidelines.

“Non-conventional” crisis

About half of all tenant households in On-tario live in “non-conventional” rentalhousing.

Municipal zoning regulations prohibitsecondary units in many parts of the prov-ince, which means that the secondary stockis generally unregulated. Conditions are

sometimes poor, even substandard, in ille-gal units. Fire safety and occupancy stand-ards are not always enforced. Rent regula-tion is non-existent in much of the second-ary stock.

The Ontario Ministry of Municipal Af-fairs and Housing and Canada Mortgageand Housing Corporation hired The StarrGroup to research the secondary rentalmarket. The final report was delivered inApril, 2000. Among the conclusions in thereport’s executive summary:

“This review, however, cautions thatmost forms of secondary rental hous-ing are highly elastic; that is, theiravailability depends heavily on over-all economic and real estate condi-tions and therefore they cannot becounted on as a long-term permanentsupply. Indeed, our analysis showsthat the supply of various forms ofsecondary rental housing in manycommunities has declined signifi-cantly at various times. . .

“The market analysis finds that mostforms of secondary rental housinghave not been growing in most com-munities. Condominium rentals, inparticular, have been declining asmore owner-occupants move into thecondominium market. . .

“Because of the lack of expansion ofthese markets, vacancy rates for suchforms of housing are quite low inmost centres. Rents for most forms ofsecondary rental housing have beenrising sharply in most areas, consist-ent with the low vacancy rates in boththe secondary and conventional mar-kets. Even the most affordable forms


of secondary rental housing, acces-sory apartments, units over stores andduplexes/triplexes, are increasinglymoving out of reach of those at thelower end of the income scale, espe-cially those on social assistance orworking at minimum wage. . .

In other words, the secondary marketis offering no relief from the crisis in theprivate rental and social housing sectors.

Rising homelessness, hunger

Perhaps the most cruel manifestation of thehousing crisis is the province-wide home-lessness disaster, and growing hunger.

Here is a brief snapshot of develop-ments since the May 2001 OAB-CCPA pro-vincial housing and homelessness report:

In Kitchener-Waterloo and Cambridge,a growing number of people with jobs areusing the Out of the Cold program (a vol-untary initiative by faith groups to provideovernight shelter) because they cannot findaffordable housing. About 80 people areusing the program on a typical winter night.An estimated 2,000 people are homeless inthe region in the course of a year.

In Hamilton, the nightly count of peo-ple forced to stay in homeless shelters hasincreased from 172 in 1998 to 343 in 2001 –more than double in just three years.

In Peel Region, to the west of Toronto,single-bed shelters have reported a 22% in-crease in the last two years, while familyshelters are reporting a 40% increase overthe same period. A recent study found thatonly 30% of people leaving shelters in Peelwere moving into housing.

Women’s Community House, a hostelfor women and children in London, pro-

vided shelter for 388 women and 327 chil-dren during 2000, but they had to turn away1,025 women and children because therewas no room. Other shelters in that city re-port a similar growth in need for tempo-rary shelter. The Men’s Mission had a dailyaverage occupancy of 120% in Novemberof 2001. The Salvation Army in London re-ports an increase of 63.5% in overnight staysin its shelters from 1998 to 2001.

Five of the six homeless shelters in YorkRegion report 100% occupancy rates. Thesixth, a women’s shelter, has a 120% occu-pancy rate, according to a recent survey.

Toronto, the biggest city in the province,continues to have the most gruesomehomeless statistics. The Toronto DisasterRelief Committee (TDRC) sponsors amonthly memorial to remember the home-less people who died over the previousmonth. With every memorial, more namesare added to the hundreds already on thelist of homeless people who have died onToronto’s streets or in shelters. In the win-ter of 2001, a tuberculosis outbreak at a To-ronto homeless shelter led to 14 confirmedcases and two deaths. The city’s shelters areso crowded that the TDRC has documentedthat some shelters fail to meet even theminimal standards set by the United Na-tions for refugee accommodation.

Hunger is a major concern for manyrenter households, as rapidly rising rentsswallow a growing portion of their limitedincomes. One emergency food program inKitchener-Waterloo found that 9% of thefood bank recipients had no income at all,a new phenomenon related to continuingcuts to federal and provincial income as-sistance programs.

In London, city council decided to re-store the $37 monthly nutritional allowancefor pregnant women on welfare, a subsidy


cut several years ago by then-Finance Min-ister Ernie Eves. Dr. Evelyn Vigilis, profes-sor of family medicine and epidemiologyat the University of Western Ontario, hascorrelated the high rate of poverty in Lon-don with high rates of low birth weight in-fants and teen pregnancies.

Meanwhile, Dr. Valerie Tarasuk, a nu-tritional scientist in the Faculty of Medicineat the University of Toronto, and colleaguesreported in the January/February 2002 is-sue of the Canadian Journal of Public Healththat low welfare rates, combined with ris-ing rents, leads to “serious problems ofhunger and food insecurity.”

Favouring the private sector

The election of the Conservative govern-ment in 1995 brought a major new ideol-ogy to provincial housing policy. Officially,the government said it was going to “getout of the housing business.” But the realgoal was much different. The Harris-Evesgovernment set out to make the provincialhousing crisis even worse, then re-wrotelegislation and regulations to allow its cor-porate friends to benefit from the crisis.

The Harris-Eves government cut about25% of provincial housing spending in itsfirst three years in office, then dumped theentire cost of social housing off the provin-cial books by downloading to municipali-ties. It also carried out a comprehensivescheme to re-write provincial laws to makesure that private speculators could make aprofit out of the housing crisis that the gov-ernment triggered.

Under increased questioning in the On-tario Legislature over their housing poli-cies, senior provincial politicians have of-fered up a couple of interesting comments.

Premier Ernie Eves, on May 21, 2002,told the Legislature that his government isspending $1.7 billion annually on shelterallowances for low-income households.What he didn’t mention was that those shel-ter allowances, which are delivered throughthe welfare system, were cut by 21.6% inthe fall of 1995 by then-Finance MinisterEves. And there has been no change sincethe 1995 cuts, even though rents have in-creased by more than 25% in the past sevenyears.

Housing Minister Chris Hodgson, onMay 14, 2002, boasted that his governmentis spending more per capita on housingthan any other province in the country.While the Ministry of Municipal Affairs andHousing still had a substantial budget in2001, most of the housing spending by theprovince was, in fact, funded by municipaland federal governments. In 2001, munici-palities paid $741,089,341 and the federalgovernment paid $589,597,806 to Ontarioto pay for provincial housing programs.

Since 1995, the Harris-Eves governmenthas handed millions in cash to the privatesector:• The Provincial Sales Tax Grant Program

offers a grant of $2,000 per affordableunit to encourage builders to build af-fordable rental housing. Four milliondollars in provincial sales tax relief onconstruction materials for new afford-able housing has been provided for2,000 units. The province has an-nounced it will spend an additional $20million in new funding for PST grants.

• Starting in 2001, the province has com-mitted to make public land available tobuild at least 500 units of affordablehousing on a number of sites.


The province is constantly touting thesehandouts, but is coy about specifics. It hasrefused to release information about whichbuilders, which buildings and which siteshave benefited from provincial spending.In response to requests from oppositionpoliticians and housing advocates for de-tails, Ministry of Municipal Affairs andHousing bureaucrats hide behind the cum-bersome Freedom of Information process.

The province has also made a numberof regulatory changes that benefit privatedevelopers:• Regulations under the Fair Municipal

Finance Act allow municipalities to cre-ate a separate class for new rental build-ings and to provide these buildingswith favourable tax treatment for 35years. This means that these new multi-residential buildings can be taxed at thelower rate than single residentialhomes.

• Amendments made to a regulation un-der the Municipal Act will allow munici-palities to provide financial incentivesto private sector developers of afford-able housing through reduced fees andcharges, low interest loans, the elimina-tion of taxes and waiving or reducingdevelopment charges.

• Amendments have also been made tothe Building Code, Development ChargesAct and Planning Act – all designed tocut the regulations and developmentcharges that developers face in build-ing new rental housing.

The financial burden of these changesfall entirely on municipalities, which willeither give outright grants or offer up taxor fee cuts, which will leave the municipal-ity with less revenue for local services.

But the biggest and most lucrativehandout from the province has been thechanges to the Tenant Protection Act in 1998.In addition to gutting rent regulation laws(which has allowed REITs and other specu-lators to make big profits through big rentincreases), the Act abolished previous pro-vincial legislation that controlled the demo-lition and conversion of affordable rentalhousing.

The Harris-Eves government, when itintroduced the Tenant Protection Act, saidthat the rent increases were needed to helpfund new affordable rental housing.

Based on CMHC numbers, Ontario ten-ants have paid about $850 million in rentincreases since June of 1998 when the Ten-ant Protection Act was implemented. Thatmoney would have funded 17,000 newunits of affordable rental housing (coinci-dentally, the same number of units that theprovincial government axed in 1995).

Over the past three years, the privatesector has built less than 2,000 new unitsannually across the province. Take away thethousands of units that have been lost todemolition and conversion, and there hasbeen a net gain of only 300 units since 1998.All this at a time when the province neededtens of thousands of new units to cope withgrowing need.

In exchange for hundreds of millions ofdollars in rent increases, renter householdsin Ontario have received almost no newrental housing, tens of thousands have losttheir homes thanks to the “fast-track” evic-tion process, rents are increasing every yearat double the rate of inflation and wealthyinvestors are cashing lots of mostly tax-freedividends based on the advice of shrewdproperty speculators.


Federal-provincial housing deal

After considerable political pressure fromhousing advocates, municipal leaders andothers, the federal, provincial and territo-rial housing ministers meeting in QuebecCity in November of 2001 signed an Afford-able Housing Framework Agreement. Thenew housing deal commits the federal gov-ernment to spend $680 million over fiveyears on new housing. Every province andterritory agreed to provide matching fund-ing. Under the terms of the frameworkagreement, the federal government is sup-posed to negotiate separate deals withevery province and territory, spelling outhow the money will flow in each jurisdic-tion.

Ontario signed a bilateral deal with thefederal government on May 30. As this re-port was being written, the full text of thedeal still hadn’t been released. But there aretwo serious flaws, and plenty of uncertain-ties that are already obvious. The federalgovernment will pay $245 million over fiveyears, but the Ontario government is onlygoing to contribute about $20 million innew money.

The bulk of the so-called provincialshare comes from about $180 million in fu-ture municipal tax cuts and $10 millionfrom charities. The province also wantscredit for about $35 million that it has al-ready spent on housing programs sinceJanuary of 2001. The Harris-Eves govern-ment is taking maximum advantage ofloopholes in the framework agreement, butthose accounting tricks won’t fund newhousing.

The second big flaw is the affordabilitydefinition. The housing is supposed to beaffordable for low and moderate-income

households. Ontario wants to define afford-able as equal to current market rents. Butyears of rent increases, often at double therate of inflation, means that market rentsare much higher than the level most renterhouseholds can truly afford. The averagemarket rent in Ontario is $815. Renterswould need an income of $32,600 to affordthat rent (based on 30% of income). Yet two-thirds of Ontario renter households (1.2million of 1.8 million renter households)have annual incomes below $32,000.

So, only the richest one-third of renterhouseholds would be able to afford thehousing Ontario wants to fund – a clearviolation of the Quebec City deal.

It remains uncertain exactly who willget the money to build the new housing.The province is expected to try to steer allor most of the money to private develop-ers. Barriers to participation by co-op andnon-profit housing providers could be in-visible (such as mandatory equity require-ments, which would prevent social hous-ing providers from participating), or theremay be actual limits on the number of so-cial housing units that can be funded.

The province insists it should set thebasic rules for the new housing program,even though it is making only a tiny finan-cial contribution, just a fraction of the shareof the federal or municipal governments.Ontario will start negotiations with 47 mu-nicipal service managers across the prov-ince to sign another set of housing deals thatwill set out more of the specifics of the newprograms. Municipalities will make the fi-nal decision on who will get the new units.

The media release from the federal andprovincial governments at the time of thesigning says that the deal will produce10,500 new units over five years, but thetiny provincial contribution means that it


is unlikely that all of those units will actu-ally be built.

Even with the announcement of thenew housing deal, Ontario will fall wellshort of the level of new affordable rentalhousing that is needed. The federal-Ontariodeal provides less than 5% of the new hous-ing that is required every year in this prov-ince.

Housing doesn’t trickle down

Taking the lid off rent regulation at a timewhen the rental housing market is in deepdistress will only lead to one result: Rap-idly increasing rents. And that has hap-pened with a vengeance in Ontario. Thispolicy, combined with all the other initia-tives of the Harris-Eves government, reston a very shaky ideological premise: Pro-vide public benefits for the creation of ex-pensive, private rental housing, and thebenefits will trickle down to those whoneed it the most, low and moderate incomehouseholds.

The provincial government’s HousingSupply Working Group says this explicitlyin their interim report, issued in 2001. Theysay that wealthy renters will move out ofexisting units to move into the new supply,then slightly less wealthy tenants will moveinto the recently vacated units, and so ondown the line until a homeless family liv-ing in a shelter can move into a vacant unitat the bottom end of the rent spectrum.

Interesting theory, but affordable hous-ing doesn’t trickle down, especially in ErnieEve’s Ontario. Any vacancy in the provincetriggers an immediate rent increase, underthe terms of the Tenant Protection Act, so themost likely outcome of the provincial poli-cies to create middle and upper-income

rental housing is rent increases right acrossthe spectrum. The homeless family won’tbe able to afford any units that may openup.

The Ontario Alternative Budget Work-ing Group, and key advocacy groups suchas the Housing and Homelessness Networkin Ontario, are calling for a provincial hous-ing policy that specifically targets the hous-ing needs of low, moderate and middle-in-come renter households.

The Ontario Alternative Budget pro-poses that the province get back into thehousing business with a set of programsthat address both affordability and supply.About 15,000 new affordable units wouldbe funded annually under this plan, two-thirds of which would be geared to the low-est income households.

In addition, the OAB would make therents affordable for more than 27,000 house-holds living in existing private or socialhousing. And we would upload the cost ofprovincial social housing programs frommunicipalities back to Queen’s Park, wherethe responsibility should be.

On the supply side, the OAB would pro-vide $49 million annually as the province’smatching share of the Affordable HousingFramework Agreement. Ontario signed thisagreement in Quebec City last November,and agreed to match the $49 million annu-ally over five years that the federal govern-ment has promised to spend on new hous-ing in Ontario.

Despite its commitment in Quebec City,Ontario has only promised about $4 mil-lion annually. Matching the full federalshare will help to generate about 2,000 newaffordable rental units in Ontario each yearover the next five years.

That 2,000 is a good start, but it’s notenough. The OAB will also provide an ad-


ditional $650 million to fund 13,000 newrental units annually. About 15,000 unitswould be created under these two initia-tives. The supply dollars would fund a one-time capital grant to housing developers tobuild affordable housing. The programwould be simple and cost-efficient, unlikethe administratively-cumbersome socialhousing programs of the 1980s and early1990s.

Add to the 15,000 new affordable unitsthe expected 2,000 or so private sector rentalunits, and the total number of units comesclose to the need estimated by the Ministryof Finance.

On the affordability side, more than47,000 renter households would receiverent supplements annually to help thempay their rent. About 10,000 of these house-holds would be in the units that will befunded by the OAB supply program. Sub-sidizing two-thirds of the new units ensuresthat low and moderate-income householdswill find a place to call home. Ensuring thatthe remaining one-third of units are set atmarket rents will create mixed-income com-munities, the model that has been used sosuccessfully in the past 30 years in Ontario.

The remaining 27,200 rent supplementagreements will cover renter householdsliving in existing private or social housingunits.

The OAB sets aside $850 million to re-turn the funding responsibility for provin-

cial social housing programs back to theprovince, where it belongs. Many tenants,co-op members and housing providers be-lieve that the administration of housingprograms can remain at the municipal level,but the funding should come from the prov-ince.

The capacity of co-op and non-profithousing providers to build new units hasbeen severely cut under the Harris-Evesyears. The OAB program would be phasedin. The first year would see the full provin-cial share of the new federal-provincial pro-gram (2,000 new units), plus almost half ofthe planned new annual allocation of units(6,000 new units out of the planned total of13,000). In addition, half the new rent sup-plement units (28,500 units) would befunded in the first year, with the full an-nual allocation in subsequent years.❖

Statistics for this technical report are drawnfrom Statistics Canada, Canada Mortgage andHousing Corporation, the Ontario Ministry ofMunicipal Affairs and Housing and the Centrefor Urban and Community Studies, and fromresearch reports by members of the Housing andHomelessness Network in Ontario.

Michael Shapcott is an expert on housing andhomelessness. He is a Research Associate at theUniversity of Toronto’s Centre for Urban andCommunity Studies. E-mail:[email protected].


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