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Posthaste: Affordability crisis could be fixed by addressing social housing shortage, Scotiabank says

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housing-crisis-gs0118

Good morning!

Addressing Canada’s severe shortage of social housing could help alleviate the country-wide affordability crisis, a new report from Scotiabank suggests.

Social housing accounts for approximately 655,000 units or 3.5 per cent of Canada’s shelter stock, with lengthy wait lists reported for those units. But more than 10 per cent of Canadian households, or 1.5 million, are living in housing that doesn’t adequately meet their needs “with nowhere else to go in the marketplace,” the report, released on Jan. 18, said. Another 235,000 people are homeless, though the number is likely even higher.

Meanwhile, homeownership is becoming increasingly impossible for many people. “Buyers face materially higher ownership costs in every market we track,” Royal Bank of Canada economist Robert Hogue wrote following the December release of the bank’s long-running affordability tracker. With affordability on the skids, Canadians are turning to the rental market, pushing rents higher and pricing out the lowest-income households. 

“Shortages in one segment will have — and are having — spillovers across the continuum,” said Rebekah Young, vice-president and head of inclusion economics at Scotiabank, and the author of the report. “Unlocking greater supply across segments should relieve price pressures across the system.”

Low-income Canadians face a host of challenges when it comes to housing. The national average rent increased by more than 12 per cent year over year in November and nearly 25 per cent year over year in Toronto and Vancouver, Young said, citing data from Rentals.ca. December data released on Jan. 18 shows a similar overall increase.

“The average renter in the bottom income quintile would need another $670 monthly to afford a two-bedroom rental at 2021 prices without exceeding the affordability threshold (of not spending more than 30 per cent of before-tax income on housing),” the report said.

Social housing also remains in short supply, making the country a global laggard. Of 18 Organization for Economic Co-operation and Development (OECD) countries, Canada is sixth last in how much social housing it has as a percentage of its total residences. In order to meet the social housing average for the OECD and the G7, Canada would have to double its stock to about 1.3 million units.

That might be a tall order, given current government commitments to housing for lower-income Canadians, Young said.  For example, she called Ottawa’s Canada Housing Benefit “trivial at best.” The program, worth $1.2 billion, provides a one-time payment of $500 to 1.8 million low-income households that rent. An earlier iteration of the Canada Housing Benefit would have provided $300 annually to renters at a cost of $4.3 billion over six years to 2028.

Meanwhile, the country is struggling to expand its housing supply. Housing starts are currently running at 275,000 units on an annualized basis, but the Canada Mortgage and Housing Corporation estimates roughly 600,000 units need to be built each year to provide enough homes and achieve affordability by 2030.

Young said there are many reasons why government and other partners need to act to solve Canada’s housing crisis. For example, she cites a study by the Mental Health Commission of Canada that estimates that every “$10 invested in supportive housing resulted in an average savings of almost $22 through costs avoided on top of social returns.”

Canada also made the right to housing into law in 2019. “The moral case to urgently build out Canada’s anemic stock of social housing has never been stronger,” she said.

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Housing’s hard stop spells trouble ahead for the economy, writes Peter Hall.

Housing is like an economic funny bone. First and foremost, it’s likely the one asset in the system we can all relate to. Second, most of the average Canadian’s wealth is tied up in it. Third, there was a rush of home purchases in the past two years as prices surged and buyers feared getting left behind. Purchases at the peak — especially by first-time buyers — are the most vulnerable to a correction. Fourth, consumer debt is among the highest in the Organization for Economic Co-operation and Development (OECD) countries at 185 per cent of income, and has surged by 29 percentage points since 2007. Most of that is mortgage debt.

Read the full story here.

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  • Rosenberg Research presents Breakfast with Dave Live — The Year of the Rabbit: Hopping out of the Hole! The Financial Post will provide live coverage for subscribers

  • Sport Minister Pascale St-Onge, who is also the minister responsible for Canada Economic Development for Quebec Regions, and Industry Minister Francois Philippe Champagne are in the Mauricie region of Quebec to meet economic stakeholders regarding small- and medium-sized businesses making the green shift. She will also present CED’s action plan to foster the emergence of a more sustainable economy in Quebec’s regions

  • Announcement regarding zero emission public transit infrastructure with Mona Fortier, president of the Treasury Board and Liberal MP for Ottawa—Vanier; and Mark Sutcliffe, mayor of Ottawa

  • Terry Sheehan, Liberal MP for Sault Ste. Marie; and Patty Hajdu, minister of Indigenous services and minister responsible for FedNor, will announce funding to support innovation, tourism and agri-food projects in the Sault Ste. Marie area

  • Dan Vandal, minister for PrairiesCan, will announce a new PrairiesCan service location in Lethbridge and outline a wide range of economic development initiatives across various sectors to bolster jobs and growth in the Lethbridge region

  • Canadian Pacific’s executive vice-president and chief marketing officer, John Brooks, will address the CIBC Western Institutional Investor Conference

  • First Nations, non-government organizations, government, and business leaders gather for the final day of the 20th annual BC Natural Resources Forum. Speakers today include Chris O’Riley, the CEO of BC Hydro

  • Julie Dabrusin, parliamentary secretary to the minister of natural resources and to the minister of environment and climate change, will make an announcement to support electric vehicle infrastructure in Canada

  • Yukon Premier Ranj Pillai; Brendan Hanley, Liberal MP for Yukon; Tracy-Anne McPhee, Yukon minister of health and social services; and Laura Cabott, mayor of Whitehorse, will make an announcement regarding housing in Whitehorse

  • Today’s data: Canadian wholesale trade; U.S. initial jobless claims,  housing starts and building permits, Philadelphia Fed Index

  • Earnings: Costco Wholesale Corp., Netflix Inc., Richelieu Hardware Ltd.

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If Canadian investors thought 2022 was rocky, 2023 isn’t likely to be any calmer. Economists continue to warn that a recession could hit this year. And while it’s likely to be a mild one, according to analysts such as Sal D’Angelo, head of product for Vanguard Canada, it’s certainly causing some Canadians to panic about their investments. That’s why analysts such as D’Angelo recommend going back to basics ahead of a recession, especially when it comes to exchange-traded funds (ETF). Since becoming available in 2011, Canadian investors looking to gain access to the market have opted for ETFs. They’ve allowed investors to build low-cost portfolios diversified in both assets and countries. Our content partner MoneyWise has gathered a list of ETFs to consider ahead of a looming recession, mild or not.

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Today’s Posthaste was written by Gigi Suhanic (@gsuhanic), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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