To help solve the long-running affordability problem, Canada might consider following the example of European nations, where the private sector plays a large part in the creation of new purpose-built rentals.
Earlier this week, veteran market observers Murtaza Haider and Stephen Moranis stated that the practices in territories where renting is more common may provide Canada with some effective solutions.
In particular, Germany had to wrestle with the loss of fully 20% of its housing stock during World War II, a volume corresponding to roughly 2.25 million homes. Another 2.5 million residences have been damaged by the frenzied fighting.
“What is worthy of learning from the German experience in housing is not just the outcome of lower homeownership, but the mechanisms introduced by the German government to address housing shortages,” the duo explained. “Contrary to what the supply skeptics in Canada believe, the German government dealt with the housing crisis by building more housing.”
To resolve this quandary, the leaders of the time urged private entities to work with the government in building millions of new homes.
“The German government encouraged the private sector to build and maintain social housing by offering extensive tax incentives in return for keeping rents at affordable levels for 15 to 30 years.”
“The supply-side solutions worked. By 1962, the housing shortfall was down to 658,000 units,” paving the way for the enduring institution of subsidized assisted housing in Germany.
On the other hand, purpose-built rental construction in Canada has significantly waned over the past few decades. This slowdown has mainly stemmed from a lack of profitability brought about by changes in capital gains tax and rent control regulations.
“If the German housing model is to be emulated in Canada, the private sector must be incentivized to produce new purpose-built rentals and reverse the decline in rental construction. Germany was able to build millions of rental units by partnering with, and incentivizing, the private sector — not the other way around.”