The debate about the housing crisis has taken a new turn in the Telegraph-Journal, as one of its editors finally echoes housing activists’ calls for rent control.
No doubt, it is hard to ignore the dozens of stories in the last few weeks of people receiving 50 per cent or more in rent increases.
But this has not stopped the province’s propertied classes (and their promoters at the Telegraph-Journal) from making suggestions that would harm the public. Because they frame the question incessantly in terms of market supply, they fail to see how the institutions of the market are failing renters and homeowners alike.
That means their policy proposals are good for them, but detrimental to almost everyone else.
A supply problem?
The assumption that there is a lack of supply conveniently deflects from the lack of construction of new affordable housing, and calls for proposals that will facilitate development. If we don’t do what the developers want, as economist Herb Emery recently claimed, we will make the housing shortage worse!
But is there a supply problem, and if so, when and how did it emerge? More importantly, a supply problem for whom?
Over the same period (excluding the fourth quarter of 2021 as that data is not yet available), New Brunswick’s population estimates have risen from 765,000 to 794,000. In short, about 29,000 people have been added to the population—5,000 in the most recent quarter of 2021 alone (the third quarter).
The average household size in 2016 was 2.3 persons per household, meaning that the addition of 11,203 units would house approximately 25,767 people. That leaves a small deficit of about 1,500 housing units needed to fully house our growing population—a deficit that only emerged in the second half of 2021, well after the housing crisis was underway.
This is the “supply problem.”
To put the deficit into proper perspective, housing starts in five of the last six quarters surpassed 1,000 units in New Brunswick. Any two quarters back-to-back since the start of 2018 likewise tally more than 1,000 units of completed homes being added to the market.
The number of apartments currently under construction in each of the last two quarters tops 3,000: plenty of projects already underway that can handle increased demand in the medium term and even increase overall supply.
The market is tight (as it is all across the country), but it has responded to the increase in demand and we are producing enough housing — despite taxes, labour shortages, increased materials costs, municipal by-laws, development regulations, and so on.
The bigger question is for whom are we building homes?
New apartment buildings are going up all over the province. But with rents starting above $1500 a month, they are not affordable for most people.
The market is responding to new demand for apartment rentals from higher-income groups, especially economically secure, older adults, who are making new types of housing decisions, and have the most choice about where to live.
The market logic is that if you build enough new units at or above $1,500 a month, other units will come available at $600 or $1,000, and the market will settle itself out.
Except this is not happening. There is no added supply of affordable apartments coming from anywhere. Instead, investors are buying up older, more affordable apartment units and increasing the rents 50 to 60 per cent, simply because they can.
Once these affordable rental options are gone, they are not replaced. This is the real supply issue, but it is not going to be addressed by the market, which has no interest in building affordable housing. They are building only for the top of the market, and they are going full-steam ahead.
This is why advocacy groups like the NB Coalition for Tenants Rights and ACORN NB have called for rent control. As the recent Brunswick News editorial correctly concedes, rent control is urgently needed now. It is also past time for the Higgs government to recognize this as a crisis and act.
Cutting taxes will further benefit investors
The Irving papers have consistently echoed apartment owners’ proposals to address the affordability crisis by cutting the so-called “double tax” (which is actually not a double tax), and do so regularly, sometimes publishing as many as two editorials a week on the topic.
Their attempt to manufacture consent for a tax cut that would benefit wealthier landlords ignores the serious consequences that would likely have on regular homeowners and workers.
Cutting taxes will not decrease rents. But it will increase profits for landlords, which may have some undesirable effects on homeowners and the housing market.
This is because investors are buying single family homes to rent.
As the recent Telegraph-Journal editorial points out, home sales have accelerated significantly of late: over 13,000 homes were sold in the province in 2021, 60 per cent above the 10 year average. This is taken as a sign of limited supply, but it neglects the dynamics influencing supply and demand.
If 11,000 people moved to New Brunswick in 2021 alone, as Statcan data suggest, that would be less than 5,000 households if we assume that people moving to the province have households roughly the same size as the Canadian average (of 2.4 people per household). So who is making up the extra demand?
The answer is investors.
Canada is currently awash in investors buying up new and old housing stock.
The Bank of Canada’s May financial system review noted that investors accounted for a fifth of home purchases at the start of 2021. In some markets, including small ones in Atlantic Canada, the percentage is much higher. This reflects growing wealth inequality, including between Canadian regions, and so it is urgent that we get better data to find out the extent of investor-buying in New Brunswick.
Not all housing units that are bought by investors are rented out, and many are diverted towards the short-term rental market where it is possible to make higher returns, distorting rental markets.
In Canada, 1.3 million homes currently sit empty according to a study from last fall using data from the OECD. That is 8.7 per cent of the total national housing stock.
With housing prices accelerating across Canada, similar pressures are occurring in Atlantic Canada, with wealthy Canadians purchasing “second homes” in Moncton, Fredericton, and Saint John, inflating prices for local workers.
Canadian banks are tripping over themselves to provide advice on how to use the equity accrued in high market housing to buy real estate elsewhere in Canada (for instance, see here). And new firms, like Saint John’s Canada Homes for Rent (which started after the 2008 crisis), make it easier than ever to buy houses to rent.
The Bank of Canada released a report this month showing that in June 2021, investor-buyers had doubled the number of mortgages they originated to purchase homes over the previous year (Chart 3, here). They also note that as investor-buying has increased, the number of first-time buyers has declined, swelling the ranks of those who will rent.
Similarly, in the US, investors spent $64 billion US on homes in the third quarter of 2021 alone, an 80 per cent increase year over year.
In Canada, large corporations like Toronto-based Core Development Group, is the first major investor to target single-family homes for the rental market, however similar markets are more developed in the US, with large private equity firms ready to buy up smaller fish in the event of a housing correction.
Cutting taxes on non-owner-occupied properties (e.g., cutting the “double tax”) increases the profit margins of investor-buyers big and small. It makes homes in New Brunswick more attractive for investors, who don’t work here.
Why are investors buying houses in New Brunswick, of all places?
Because of weak tenant protections. This reason alone makes New Brunswick particularly attractive relative to other parts of Canada, which are also seeing an influx of investor-buyers.
As the NB Coalition for Tenants Rights has said for the last two years, if we want to tackle the housing crisis, there are better ways of using provincial public funds than cutting taxes on landlords.
One way would be to use the proceeds of the tax to increase the supply of non-profit and cooperative rental housing.
The fastest and most important thing the province can do is bring in rent control tied to individual units (as opposed merely to tenancies, which still allow investors to increase rents on turnovers). This measure will dampen speculative investment in New Brunswick’s housing stock, without altering the dynamics that are increasing demand for rental housing, especially amongst older adults.
Municipal and federal levels also have work to do to help boost the number of affordable units, but the province is where fast action can prevent the crisis from getting worse. It is way overdue.
Matthew Hayes is a spokesperson for the New Brunswick Coalition for Tenants Rights and the Canada Research Chair in Global and Transnational Studies at St. Thomas University.