Yukonomist: We still need more affordable housing

What’s being suggested is only about a quarter of what we need to keep up with population growth

The announcement that the Yukon government was giving $3.6 million for “affordable housing” to 10 real estate developers raised eyebrows along the political spectrum.

The developers, which include private-sector, non-profit and First Nations landlords, will build 123 new affordable rental units over the next year and a half. In return for government cash, the landlords committed to keeping rents “at or below median market rent” for 20 years.

Some on the left might see this as privatizing the social housing activities undertaken traditionally by public agencies such as Yukon Housing. On the other hand, free-market purists see this kind of program as government interference in the housing market.

Strictly speaking, both views are correct. Subsidizing real estate developers to encourage them to offer affordable housing falls in between a purely private housing market and one where the government owns units and rents them directly to tenants.

It’s meant to be a pragmatic way for government to nudge markets to provide more affordable housing, while costing a lot less to the government than building 123 units all by itself. Even if a new unit could be built as cheaply as $300,000, then 123 units would cost $36 million to build.

Maintaining units on government books is also expensive. Yukon Housing’s annual report for 2016-17, the latest available, shows the agency running a $10 million deficit. That works out to a bit over $10,000 per year for each of the 943 social housing and staff housing units it owns or for which it provides supplemental rent.

That number may be a bit high, since Yukon Housing also performs some other activities for the government such as training and home-repair loans, but even with that caveat we see that government-owned housing is not cheap to manage.

The costliness of government-owned housing probably explains why Yukon Housing added less than 25 units per year to its housing stock in the four years prior to 2017.

One can see why government officials might want to experiment with other options.

As for concerns about interference in the free market, it’s worth remembering that the housing market is hardly free. The federal, territorial and municipal governments have spent decades putting deep layers of regulation over housing. It is one of the most regulated sectors in our economy.

Territorial law strictly governs how landlords and tenants can treat each other. Federal agencies guarantee millions of mortgages, and federal regulators set the rules for how banks make decisions on whether you can get one. Cities set zoning rules and building codes dictate what kind of buildings you can or cannot build on the land you own. These have a powerful impact on the cost of construction and real-estate prices. All three levels of government have programs aimed to help people afford homes.

The key question is how effective the $3.6 million program will be in addressing the Yukon’s housing crisis. High rents and low vacancy rates are not just a painful social problem. They also threaten to choke off the growth of our economy, making it expensive for workers to live in the Yukon and therefore more costly for our firms to offer them jobs.

If you spend time at a chamber of commerce meeting, it won’t be long before you hear worrying stories of unfilled vacancies and valuable employees moving to other towns with cheaper housing.

The problems finding housing for the new staff of the Whistle Bend continuing care complex are notorious, and they are fortunate enough to have full-time government jobs unlike many of those who need affordable housing.

To put the $3.6 million program in context, it represents about 21 hours worth of spending for the Yukon government, which plans $1.485 billion in total appropriations this year. The subsidy to the landlords averages about $30,000 per unit, or ten percent if you can build a small rental unit for $300,000. To give you a sense of the financial benefit that creates, if you got $30,000 taken off a 25-year mortgage then your monthly payment would go down about $150 per month.

Without access to the business cases of the developers, it’s hard to tell how this benefit is shared between the renters and the landlords. Or if the money is really causing new units to be built that would not have otherwise been built, rather than just padding bottom lines.

But the government does get that 20-term commitment that landlords will keep rents below the median, and doesn’t have to worry about maintenance and repair costs.

According to the latest Yukon Statistics Bureau numbers, the median rent for an apartment in Whitehorse last April was $950 per month. Hard-pressed renters may point out that the median rent figure is based on current rents, not the rents people paid a few years ago before the market started its surge.

We should also remember that 123 units over a year and a half is about 80 a year. Builders completed over 300 units per year in 2016 and 2017, and our population growth suggests that we’ll need to continue at this rate. So it is helpful to add 80 units at the affordable end of the market, but 80 is only about a quarter of the total units we need to keep up with population growth.

In the big picture, the Yukon government is spending $3.6 million of its billion-dollar transfer payment to give a subsidy of around 10 percent to nudge landlords to build affordable units representing about a quarter of the total new housing we need to build each year.

All in all, it’s a relatively small amount of government spending and it may provide a measurable boost to rental construction. That’s good.

But we shouldn’t think this solves the affordable housing problem. 123 units may sound big, but our housing shortage is even bigger.

If our politicians really took affordable housing as seriously as they say they do, we would be hearing more about an ambitious and comprehensive “all of the above” housing strategy that involved things like fast-tracking major new land development, rethinking zoning and building codes, and doubling or tripling the affordable housing subsidy scheme for next year.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.