Financialization of Housing In Canada – Getting A Handle On The Issue

Until 2017, ‘financialization of housing’ had a low profile. In that year Leilani Farha brought it to the international stage. In her role of UN Special Rapporteur on Housing, Farha wrote and spoke about the financialization of housing, and described changes in financial markets and the role of real estate in the global economy. She pointed out that there were winners and losers in the financialization of housing. She also called on UN member nations to step up to guarantee housing rights for all of their citizens.

The issue of the financialization of housing in Canada is hotly contested. Here’s one example. The supply of housing renting at under $750/month (affordable for someone earning $30,000) has declined drastically in recent years and isn’t being replaced. There are widely divergent views on why this is happening. Here are a few:

• Private equity firms are buying up affordable stock and raising rents to increase their profit margins.
• Private developers can’t raise capital to build homes with rents this low.
• Renters paying $750/month don’t generate enough revenue to support a mortgage.
• The public incentives to build housing aren’t enough to be able to build and operate housing that people earning $30,000 per year can afford.

Is the real problem one of these things? Some of these things? All of these things?

Can the people who hold these divergent views be persuaded to work together? The Canada Mortgage and Housing Corporation (CMHC)¹ certainly hopes so.

CMHC has sponsored a ‘solutions lab’ to build bridges among these stakeholders. Solutions labs have been developed specifically to help resolve complex systemic problems. The financialization of housing is certainly a complex problem. And with a growing number of people unable to afford their homes as, well as a growing number of people experiencing homelessness, it’s clear it’s a problem that needs to be fixed. That’s especially true in a country which has declared that its residents have a right to adequate housing.

A ‘Financialization And Housing Solutions Lab’ (The Lab) began work in 2019. Late last year, it gave an account of its progress and issued a report. Here are a few highlights:

• The Lab’s report contains a plain language explanation of why Canada was less affected by the sub-prime mortgage crisis than other countries. The measures Canada took have also contributed to affordability issues the country faces today. This helps to understand the specifics of the Canadian context.
• The Lab developed a definition of  the financialization of housing, which it uses when considering how financialization affects the housing market. The three part definition is also used to structure the report.
• The Lab used ‘Core Housing Need’ ² to gauge the urgency of the situation and who is most affected. This means that affordability is based on income as well as elements of housing quality and crowding. The threshold for affordability is 30% of household income. In Canada, ‘Core Housing Need’ is widely recognized as a proxy for housing need.
• The Lab identified areas for further investigation, which are consistent with the issues identified by the lab participants. These include:
  • innovations in financing
  • innovations in ownership
  • aligning federal, provincial and municipal housing incentives, and
  • protections for renters to ensure housing stability.

Readers should also be aware that The Lab has not considered on-reserve housing, assisted and supportive housing or homelessness. The Lab’s report is upfront about this limitation. This decision made The Lab’s work more manageable. However, it could also set a course for innovations that don’t help the people who are in most urgent need of housing³.

Readers outside Canada who are considering how to move forward on the financialization of housing in their jurisdiction may be interested in The Lab’s work and its report as a model for their own approach to the problem.

You can read more at Social Innovation Canada: Financialization and Housing: A Social Innnovation Approach To A Better Housing System

1. CMHC is responsible for implementing the National Housing Strategy, which also launched in 2017. CMHC is also the national program lead for implementing the right to adequate housing in Canada, which the country explicitly acknowledged in 2019. As well, CMHC is the primary provider of mortgage insurance in Canada. In this role, it has long and deep connections with Canadian financial institutions and the development industry.
2. ‘Core Housing Need’ consists of four scales. The scales are: affordability, building condition, and the fit between the number of occupants and the number of rooms (suitability). The fourth scale — whether there is alternative housing available at an affordable price — comes into play when there is need in one or more of the other three. The scales are established by Statistics Canada. The measures are collected and reported at five year intervals as part of the national census. You can read the official definition here: Core Housing Need
3. UN guidance on the right to adequate housing outlines that governments should implement plans to progressively achieve the right to housing, starting with those who are most in need. There is evidence from various studies in Canada that there is a shortage of housing on reserves, as well as assisted housing and of supportive housing. These are not national in scope, but the findings indicate a very high level of need. As well, homelessness counts, which are coordinated nationally, are clear evidence of need.