If you thought big cities like Toronto were already way too expensive, get ready for things to get a lot worse. A recent report by the McKinsey Global Institute estimates that the number of households that spend over half their income on rent will increase by 25% over the next decade.
Although the factors affecting affordability are complex, they boil down to the fact that rents are rising faster than incomes in every major city in the world. The average worker earns less today than they did in 1973 according to the US Census Bureau, yet rent has risen 20% over the past ten years and house prices are currently rising by about 8% per year according to Scotiabank.
So how do we fix this mess? A key conclusion of McKinsey’s report is that traditional approaches – like handing out housing subsidies or hoping that the private market will come to the rescue – are likely to fail. “The economy alone is not going to solve this problem,” said Andrew Jakabovics, senior director of research at Enterprise Community Partners, when speaking with Bloomberg Business. “It brings us back to the need to expand affordable housing.”
We asked four people who spend a lot of time thinking about Canadian real estate to tell us what they would do to tackle the affordable housing crisis facing renters in Toronto and Vancouver. These are their answers:
Jared Rogers, Broker at RE/MAX West Realty Inc
“I think the rental prices in Toronto and Vancouver are comparable to other larger cities in the world, especially when comparing square footage. Look at how small the units are in London, Hong Kong and NY. These cities continue to attract expensive rents that are much higher than Vancouver and Toronto. The one thing that Vancouver and Toronto cannot compare to these cities is the superiority in infrastructure, specifically public transportation. Toronto’s subway system is subpar. If we want lower rents then we need to build arterial subway lines or an efficient mode of public transportation to give tenants the opportunity to find lower rents in the suburbs and arterial communities. In Toronto the number of new inhabitants was over 100,000 last year. Perhaps this number would decrease or stay constant if enhanced public transportation was the focus (‘Accurate’ GPS to show when trains are arriving and departing, longer service times, more subways, water taxis, etc. etc.)”
Dr. Paul Kershaw, Founder of Generation Squeeze
“Governments must reduce municipal taxes on residential properties priced below the municipal median value. Properties priced above the municipal median should face progressive increases in their tax bands as a cooling mechanism at the top end of the housing market, and to collect new revenue required to pay for other components of the Better Generational Deal – including directly investing in the stock of available rental housing.
We also recommend that we can help people manage higher rents today by reducing other costs that are more under the influence of government policy than housing costs typically are. Most notably, we recommend that governments invest in child care services so these don’t cost the equivalent of another’s years rent on top of already higher rents.”
Michael Emory, President and CEO of Allied Properties REIT
“To my mind, the most significant trend in Canadian real estate today is urban intensification, which is putting inexorable upward pressure on the cost of owning and renting living space in the inner-cities. The only realistic way to reduce or minimize this pressure is to reverse the current preference for living, working, playing and learning in the inner-cities, and I don’t see that happening any time soon. Who knows what’ll happen in the long-term, and we’ll all be dead then anyway.”
Stephen Gaetz, Professor in the Faculty of Education and Director of the Canadian Observatory on Homelessness and the Homeless Hub
“I think it’s simple. We need to have all levels of government reinvest in social housing, coops and affordable housing generally. After the 25 year experiment of having the private sector fill the gap on affordable housing, the results are in: it didn’t work. In the State of Homelessness 2014, we costed out a plan for a federal reinvestment in affordable housing, which would bring us close to what was spent in the late 1980s. This would cost each Canadian $46 bucks annually. Doable, and less expensive than income splitting.”
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