Building only low-cost rentals isn’t the best way to restore housing affordability, the federal mortgage insurer says. Instead, a balanced mix of construction, including expensive rentals, proves more effective in lowering costs overall.
“The study finds that building mid-cost or a balanced mix of low-, mid- and high- cost housing is the best strategy. This is because it makes homes more affordable and benefits most household types,” CMHC stated in the report, as first reported by Blacklock’s Reporter.
The report looks at how building new homes increases the overall housing stock and leads to a process known as “filtering,” which is described as the gradual transition of housing units from higher-income households to lower-income households as newer units are built.
With mixed construction, affordable vacancies would naturally occur as “households with higher income move into newly built units,” releasing former units to lower-income tenants. When lower-income households move into the newly vacated units, they in turn create vacancies in their former homes. CMHC called this phenomenon a “vacancy chain.”
In contrast, building only low-rent buildings could cut property tax revenues and drive higher-income households out of a neighbourhood, CMHC said. While building only high-cost housing improves amenities, it does not enhance affordability or the welfare of low-income households.
“Relative to a new building, rents tend to fall 5% in the first 4 years after construction (after adjusting for inflation),” the report said. “ This declines to just short of 20% near the 20-year mark. As buildings mature, they tend to become more affordable for lower-income families.”
Housing Minister Sean Fraser has also voiced opposition to “building cheap homes” as a way to restore affordability.
“I want them to be integrated into communities and have full participation living alongside people from different income backgrounds.”
