Housing is a puzzle with many pieces

By Brent Bellamy, Associate + Creative Director 
Originally published in the Winnipeg Free Press

Last week, a proposed mixed-use development on Sherbrook Street in Winnipeg’s West Broadway neighbourhood was made public as the project moved through the city’s approval processes.

The planned development would replace four old houses with a seven-storey apartment building. The project would provide new homes for as many as 150 people, welcoming them to a neighbourhood well served by public transit and bike infrastructure with walkable access to local shops, groceries, parks and schools.

These new residents would support local businesses, increase density to optimize the use of existing infrastructure and improve neighbourhood safety. The building’s ground floor would provide space for up to seven local shops, contributing to the growth of an up-and-coming commercial high street, creating new jobs for community residents and providing small business opportunities for local entrepreneurs.

Despite these positive impacts, as with most new multi-family developments, the project still faced opposition from the local community. One of the criticisms was that the proposed rents will be too high. The anticipated costs will be typical market rents for new construction, with 38 homes being defined as affordable by the Canada Mortgage and Housing Corp.

This affordability benchmark is typical of many new private developments as a requirement for loan incentives from federal programs intended to provide homes with below market rents, but not deeply affordable housing.

The need for deeply affordable rent-geared-to-income, social and supportive housing is critical, and must be a major public priority, but it is not achievable within a private developer framework.

In Canada, housing is recognized as a human right, but to ensure that everyone can live in security, peace and dignity, government must play a central role. For private housing development to be viable, the cost of construction, land acquisition, financing and operation must be balanced by an economic return through rental income.

Developers are often painted as greedy and profit driven, but as long as our social and economic system relies on the private sector to deliver the housing that people need to live in, making the development economics work — including profit — is a necessary reality that requires certain rent levels to be charged.

If we want to achieve the lower rent targets of deeply affordable housing, public funds must bridge the economic shortfall between development costs and reduced rental income.

It’s well understood that building new, deeply affordable and social housing must be a public priority, and government partnering with co-ops, not-for-profits and the private sector to deliver the desired affordability outcomes is critical to addressing housing need.

Criticism of market-rate apartments, however, fails to recognize that all housing types have an important role to play in achieving overall affordability. The rise in housing costs has been largely driven by demand outpacing supply, with competition pushing up rates.

The CMHC has identified that to stabilize housing costs by levelling this imbalance, Canada must add 3.5 million more homes (170,000 in Manitoba) to its current construction rates by 2030. We simply need to build more housing, and lots of it. This includes significant amounts of market-rate housing.

In 2023, American cities such as Austin, Texas, Salt Lake City, Utah, and Raleigh, N.C., began to prove that this idea can be successful, with average rental rates declining by more than 10 per cent, driven largely by significant increases in the supply of new market-rate housing that cooled demand and reduced competition.

Another factor that makes new market-rate housing important to affordability is that when it is introduced to the market, there is a cascading effect across all housing income levels.

The vast majority of affordable housing in Canadian cities was not purpose built for low-income residents but was once market-rate housing that has depreciated in value over time. An American study in 2013 by Syracuse University found that when adjusted for inflation, the cost of a rental apartment declines by about 2.2 per cent per year, meaning that 20-year-old apartments typically become affordable to people with about half the income level of those who can afford new apartments.

As new market rate housing is built, it becomes attractive to people with growing purchasing power looking to upgrade their home. As they move into new buildings, they vacate older housing that is rented to people in a lower income bracket. This movement filters all the way through the market spectrum.

When the supply of market-rate housing is restricted, higher-income households are forced to remain in older homes. This increases downward pressure on lower-income renters because when people aren’t moving at the top income levels it creates a bottleneck in the market below them, with fewer options becoming available at each rung of the housing affordability ladder.

A relatable analogy of this concept can be found in the automobile market. During the COVID-19 pandemic, very few new vehicles were being built. People at the upper end of the market who would typically be buying new cars were either forced to keep their old cars or begin buying the better used ones. This caused a spike in the typically affordable used car market as there were fewer older cars being passed down, and with demand outstripping supply, there was more competition at every price point.

Solving Canada’s housing crisis is a complex puzzle that requires diverse solutions and significant investment in all housing types. It might not seem intuitive, but even the higher rent and market-rate apartments that are so often criticized for not being affordable can play an important role in creating housing affordability.