In 2017, Canada’s federal government created the national housing strategy, a group of programs overseen by Canada Mortgage and Housing Corporation (CMHC) with the purpose of ensuring everyone in Canada has a place to call home. Lauded by the government as Canada’s first-ever national housing strategy, its primary goal is to reduce homelessness and core housing need through the creation of affordable housing.
The federal government’s return to supporting affordable housing development was cheered by advocates, but now there is a new problem.
It has become difficult, and in many cases impossible, to build affordable housing using NHS programs. Housing simply cannot be created fast enough – or at all – to meet demand with current federal support.
A starting point to address this problem is through a significant investment into flagship program of the national housing strategy (NHS), the National Housing Co-Investment Fund (NHCF) so that it is sustainable in the current high interest rate environment. It’s also imperative for the federal government to rethink housing policies and programs while leveraging the expertise of affordable housing practitioners to respond to Canada’s housing crisis more effectively.
In a June 2022 report, CMHC estimated that Canada needs to build 5.8 million housing units to restore housing affordability by the end of 2030. This is 3.5 million units over and above the current pace of new home construction.
Market-priced housing, however, will likely never be accessible to a serious number of households. According to the 2021 census, over 1.5 million households are in core housing need, meaning they live in inadequate or unaffordable housing, and can’t afford alternatives.
Scotiabank’s January 2023 report, Canadian Housing Affordability Hurts, recommends a targeted increase in affordable housing. This means doubling Canada’s supply of social housing to bring it in line with OECD and G7 averages. Achieving this objective requires access to federal funding through the national housing strategy.
The National Housing Co-Investment Fund
In November 2022, the Office of the Auditor General of Canada released a report exposing major issues with the NHS’s execution. Programs have not created the targeted number of units, and many of those created are not affordable. Doubling the supply of affordable housing can’t happen unless practical programs – adapted to the current economy – are put in place.
The NHCF is a big part of this problem. The data in the auditor general report indicates only about five per cent of new builds and about 7.5 per cent of repair and renewal projects have been completed. With the NHS only set to last another five years, it is already falling short of its targets.
Recent changes in Canada’s economic picture have made the program practically unusable. The rise in interest rates over the last year has significantly increased the cost of borrowing. This means that affordable housing providers are able to borrow significantly less money to finance their projects than they were this time last year. Now there’s a significant funding gap for affordable housing projects that cannot be filled without support from NHS programs.
As interest rates spiked over the latter half of 2022, CMHC was forced to allocate more funding to save projects already underway. As a result, the NHCF grant budget is severely diminished with less funding available. Maximum grants dropped from up to 40 per cent of total project costs to only $25,000 per unit. Depending on the project, this could be a reduction of more than $175,000 per affordable housing unit.
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In other words, the cost of creating housing has increased significantly over the last year, while federal funding has dramatically decreased, making it nearly impossible to create affordable housing using the NHS’ flagship program at a time when we need to more than double Canada’s affordable housing stock.
Our team at the Canadian Housing and Renewal Association consulted with organizations seeking NHCF funding for examples to illustrate these current challenges.
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One faith-based organization was looking to create an estimated $52-million, 111-unit affordable housing project in Scarborough, Ont. The project is currently in line to receive $77,500 per unit from the City of Toronto. This is more than triple the maximum contribution available through NHCF. Assuming the project does receive NHCF funding, it will still have a funding gap of $16 million. This shortfall could be covered if the decision to cap NHCF grants at $25,000 per unit was reversed. A gap of this size typifies the current norm found by applicants when pursuing NHCF funding.
Building a more effective national housing strategy
The NHCF needs a multi-billion-dollar infusion to make the program usable in this high interest rate environment. Without it, demand will continue to far outpace the supply of affordable housing across Canada. While the NHCF issue is a significant one, it is emblematic of a larger need. Canada’s federal housing policies and programs need to be adapted to the current economy if we want to assist those who need affordable housing.
There is a moral imperative to ensure that people have access to adequate housing. The Bank of Montreal, Scotiabank, some large corporate landlords, community foundations and others represent stakeholders are motivated to address the issue. The federal government should mobilize their support through a “Team Canada” approach to housing by rallying all levels of government along with non-profits, the private sector and the community. Two components are critical to this approach:
1. NHS programs must be updated to reflect the current economic environment of higher interest rates and construction costs.
2. NHS programs need to be co-designed, co-developed, and when possible, co-delivered with the organizations that are implementing them. By integrating practitioner expertise at the outset of program design, funds can be more easily accessed to create the affordable housing Canada needs.
The process of building housing, from development to delivering a new set of keys takes a long time, and Canada’s housing supply is lagging far behind demand. Now, it has become near impossible to build affordable housing relying on key federal programs like the National Housing Co-Investment Fund. It’s time to rethink federal housing policies and programs if we want people to have affordable homes.