Some ‘affordable’ rentals funded through a federal loan program are being priced above market rate, say researchers

A federal program that has approved billions in loans to get more rental housing built across Canada is using a formula that lets above-market-rent units count as affordable housing, according to researchers contracted by the federally appointed National Housing Council.

The Rental Construction Financing Initiative, or RCF, was first introduced in the 2016 federal budget. The idea was to stimulate rental construction, and boost the kind of supply that some experts see as a key factor to tackling prices in red-hot housing markets such as Toronto.

Since its inception, thousands of new units in Ontario have been announced through the RCF.

But the authors of a recent report, from the non-profit Blueprint, argue the affordability rules of the RCF program didn’t put “any meaningful downward pressure” on prices — and in many cases, the affordable portion of the resulting buildings charged more than local market rates.

Using actual and projected rent costs for RCF-funded sites provided by CMHC, the authors zeroed in on a building in Laval, Quebec, where an “affordable” two-bedroom reportedly cost $1,896, more than twice the $903 average for a local two-bedroom. bedroom. In Winnipeg, they wrote, an “affordable” bachelor unit cost $1,756 — 2.3 times the average market rate for that size unit.

Although the report doesn’t provide specific examples in other municipalities, Blueprint researcher Conor Beer said it was a trend that cropped up across the map. Of 62 developments for which the price data was available, he and his co-authors found just 23 sites — or 37 per cent — produced any units that cost less than the local average market rent for that unit type.

“A lot of these projects are above this line,” said Beer. “I would describe it as a sort of pattern we observed consistently, rather than an isolated thing.”

Blueprint’s findings align with concerns outlined by some affordable housing advocates, who’ve questioned the RCF’s effectiveness in creating a more affordable market.

To qualify for loans, a developer needs to set aside at least 20 per cent of their units as “affordable” — which, according to the program, means they cost less than 30 per cent of the median total monthly income for local families. That figure is often higher than the income for all households including single people.

(The total residential rental income for the building also has to be at least 10 per cent less than might otherwise be achievable, CMHC says. In some cases, the affordable units in an RCF-funded building may be subject to other, stricter criteria, if the project is receiving incentives or benefits through another government program.)

The RCF rules don’t distinguish between unit sizes, the researchers noted, writing that in an area with a median family income of $70,000 a year, a bachelor unit could be considered affordable at $1,750, while a three-bedroom wouldn’t be considered affordable at $2,000.

While CMHC declined to confirm the Star’s calculations or provide the same data given for the study, Blueprint confirmed that using Toronto’s $89,150 median total income for families in 2019, their understanding was any rental could be considered affordable if it cost $2,228.75 or less, which is higher than Toronto’s average market rate in 2021 for a three-bedroom apartment.

“That’s clearly not an affordable unit,” said National Housing Council co-chair Tim Richter.

He sees the initial strategy behind the RCF — which he sees as creating enough new rental supply that market prices would drop — as “flawed.” Operating in so many cities countrywide, he cast doubt on the prospect of the RCF or other programs being large enough to move the dial.

He believes federal officials see “some challenges” with the RCF in its current form.

In a statement, CMHC said it welcomed the report and would “carefully consider its findings.”

“We know that many middle-class households are getting priced out of the communities where they live and work,” the agency wrote, describing the added rentals as creating “stable supply.”

The council Richter sits on aims to provide federal Housing Minister Ahmed Hussen with recommendations based on the report by June or July, he said. An area of ​​focus will be how federal programs could better help those in the deepest need, he said — those living in unaffordable or inadequately sized homes, as well as those in homes needing major repairs.

The report estimated just three per cent of units in RCF-funded developments would be suitable and affordable to low-income households, a group that disproportionately faces those needs.

“Our focus now,” Richter said, “is really on seeing how we can improve it.”