where s HOME? The Need for Affordable Rental Housing in Ontario

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1 where s HOME? The Need for Affordable Rental Housing in Ontario Sept 2011

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3 Executive Summary This year s edition of Where s Home? explores a number of disturbing trends, including the following: Housing affordability is increasingly out of reach for many low and modest income Ontarians and new data indicates the gap between homeowners and tenants incomes is growing wider. Waiting lists for assisted housing are long and have swelled to over 152,000 Ontario households since last year. Overall vacancy rates have tightened considerably across the province - most noticeably in Ontario s major urban centers. Affordable housing production remains a small fraction of what is required to meet housing need (estimated at requiring 10,000 new units per year over the next decade). In the late 1990 s, the Ontario Non-Profit Housing Association (ONPHA) and the Ontario Region of the Co-operative Housing Federation of Canada began publishing what would eventually become an annual survey of the housing universe in Ontario - Where s Home?. At the time, we did not think that this detailed study would become a yearly undertaking. The initial hope was that the wealth of information and analysis contained within the report would encourage policy and decision-makers to recognize the need for ongoing and sustained action on the affordable housing front. To a certain extent, there has been a modest rejuvenation of housing supply programs since the middle part of the last decade, with the ramping up of the joint Federal-Provincial Affordable Housing Program (AHP). At the same time, the annual publication of Where s Home? has become a recognized feature of the affordable housing policy landscape. In addition to the desperate need for increased affordable housing supply, rising energy costs are taking an ever-increasing bite out of household budgets and making it harder to maintain a home. This is forcing many households to make very difficult balancing choices between paying the rent, putting food on the table and heating their homes. During much of 2009 and 2010, mortgage rates were at historic lows, the likes of which had not been seen for 60 years. These extraordinarily low rates induced many tenants into the homeownership market. By all accounts, this pool of potential first-time homebuyers has now been fully engaged. As demonstrated in the pages ahead, given a host of contributing factors, rental demand is expected to surge in many Ontario communities in the near future. Unfortunately, there seems to be a distinct lack of nimbleness from senior levels of government in responding to this pressing need. Neither the Federal nor Provincial 2011 Budgets contained any commitment to funding an ongoing affordable housing supply program. This short sightedness not only overlooks the fundamental role that affordable housing must play as a foundation in successful anti- where s HOME

4 poverty initiatives, it also neglects the critical function that building and maintaining affordable homes can have on stimulating the economy. While negotiations recently concluded between the federal and provincial governments to continue funding a modest affordable housing program over the next four years, a long-term funded commitment is essential in order to meet the long-term housing needs of Ontarians. Affordable housing policies and programs need to be brought back to their rightful place in the top rung government priorities. For the 1.3 million renter households across the province, including the constituency of low and modest income residents and co-op members that ONPHA and CHF Canada represent, we hope that this is the case. Where s Home? 2011, has been prepared by Linda Lapointe of Lapointe Consulting, with the assistance of ONPHA and CHF Canada staff, namely Sharad Kerur, Harvey Cooper, Margaret McCutcheon, Rhona Duncan and John Wilson. 4

5 Table of Contents Executive Summary... 3 INTRODUCTION Overview Methodology The Long Term Affordable Housing Strategy: Will it Meet the Affordability Challenge? RENTAL HOUSING DEMAND Renting Over the Life Course Tenant Household Type New Immigrants More Likely to Rent Future Rental Housing Demand Mortgage Rates and House Prices Continued Demand for Rental Housing THE NEED FOR AFFORDABLE RENTAL HOUSING Tenants Incomes Have Declined Tenants Incomes Falling Behind Rents Many Ontario Tenants Still in Core Need One Fifth of Tenants Spend 50% of Income on Rent Persons in Low Income Waiting Lists for Assisted Housing Energy Costs Add to Shelter Burden Food Bank Use Increases where s HOME

6 RENTAL HOUSING SUPPLY Ontario Vacancy Rates Decline Trends in Rental Costs RENTAL HOUSING PRODUCTION Freehold and Condominium Production Accounts for Majority of Ontario s Housing Production Ontario s Private Rental Housing Stock Shows a Limited Gain Between 2005 and Additional Rental Stock Not Included in the Private Rental Universe References Endnotes

7 LIST OF TABLES Table 1: Population Growth in Ontario by Age Group, Page 22 Table 2: Population Growth in Ontario by Age Group, Table 3: Table 4: Median Total Income (Before Taxes), Owner and Tenant Households, Ontario, (Constant 2008 Dollars) Median Shelter to Income Ratio, Median Income, Median Shelter Cost and Core Housing Need by Canada-wide Income Quintile, Ontario Tenant Households in Urban Centres, Table 5: Incidence of Low Income (Low Income Cut Off, After Tax), Table 6: Table 7: Table 8: Vacancy Rates for Apartments in Privately Initiated Buildings with 3+ Units, Ontario and Selected Markets, Average Rents for Apartments in Privately Initiated Buildings with 3+ Units, Ontario, October 2009 and Change in Average Rents for Two-Bedroom Apartments, Selected Market Areas Across Ontario, 2005, 2009 and 2010, Compared to Inflation Table 9: Ontario Housing Starts by Tenure, Table 10: Table 11: Average Annual Housing Completions by 5-year periods, , for 22 Market Areas Size of Private Rental Universe in Ontario, Privately Initiated Buildings with 3+ Units, where s HOME

8 LIST OF FIGURES Figure 1: Rental Rates by Age of Household Maintainer, Ontario, Page 19 Figure 2: Tenant Households by Household Type, Ontario, Figure 3: 5-Year Mortgage Lending Rates, December, Figure 4: Figure 5: Median Owner and Tenant Household Incomes Ontario, 1990, 1995, 2000, 2005, 2008 (Constant 2008 Dollars) Percentage Change in Average Rents, Tenant Household Incomes and Inflation, Ontario, Figure 6: Figure 7: Vacancy Rates, Ontario Privately Initiated Buildings with 3+ Units, 2009 and Average Rent for 2-Bedroom Apartments in Privately Initiated Buildings with 3+ Units, Figure 8: Ratio of Rent Change, to Rate of Inflation Figure 9: Rental Starts as % of Total Building Starts, Ontario, Figure 10: Ontario Dwelling Starts by Tenure, , , and Figure 11: Completions by Tenure, 22 Market Areas, , ,

9 1 INTRODUCTION 1.1 OVERVIEW Tenant Incomes Fall Behind Between 1990 and 2008, the gap between median owner and tenant household incomes widened as median tenant incomes (in constant dollars accounting for inflation) fell by 13% while median owner incomes rose by 1%. In 1990, the median owner household income of $77,500 was 1.87 times the median tenant household income of $41,500; by 2008 the median owner household income was 2.17 times that of tenants - $78,200 compared to $36,000. Rental Costs Increase Twice as Fast as Median Tenant Incomes between 1990 and 2008 Between 1990 and 2008, average rents in Ontario for one- and two-bedroom apartments in private rental units increased by twice the level of median tenant incomes and well above the overall rate of inflation. Rising energy costs are putting pressure on rents and this trend will continue in the future. The Province estimates that electricity bills will increase by 8% over the next five years and 3.5% over the next 20 years on an annual basis. Other energy costs such as natural gas are also increasing. Vacancy Rates Decline in Ontario Between 2009 and 2010, the overall vacancy rate in Ontario for apartments in private rental buildings with 3+ units fell from 3.5% to 2.9%. Vacancy rates declined for all bedroom types with the strongest drop being for bachelor apartments (a reverse of many years). Vacancy rates declined in most major urban centres across Ontario and in most geographic regions of the province. Rent Increases above the Rate of Inflation between 2005 and 2010 in Half of the Markets Rental Housing Affordability Problems Persist In % of Ontario tenant households in urban centres were in core need. The majority of these households (80.7%) had annual incomes in the lowest quintile, $30,325 or less. In January 2011, there were 152,077 households on waiting lists across Ontario representing an increase of 7.4% since There were modest rent increases in 2010 with the average rent for a two-bedroom apartment in Ontario growing from $955 to $980 (2.6%) close to the change in the Consumer Price Index in Ontario for 2010 of 2.5%. However, between 2005 and 2010, in half of the markets the rent increase was above the change in the CPI. where s HOME

10 Rental Housing Production Below Long- Term Requirements In the most recent five-year period ( ), freehold tenure has accounted for 63% of all starts in Ontario while condominium development has increased to 31%. Rental housing has risen slightly to 6%, still well below production in the early 1990s when rental housing accounted for 26% of starts. Approximately 3,900 rental units were started annually during the period, well below housing requirements of 10,000 rental units annually. Affordable Housing Program an Important Source of New Rental Housing According to data provided by the Ministry of Municipal Affairs and Housing, 9,980 rental housing units were started under the Canada-Ontario Affordable Housing Program (AHP) between January 2006 and December 2010 or 50.5% of all rental starts in Ontario in this period. The AHP has played a very important role in the development of rental housing in Ontario, specifically affordable rental and supportive housing. According to Ontario s Long- Term Affordable Housing Strategy, non-profit and cooperative housing organizations have contributed more than 8,500 of affordable housing under the AHP since its inception. 1.2 METHODOLOGY Sources Much of the data on vacancy rates, rent and the rental housing universe used in this report was obtained from the Rental Market Surveys produced by Canada Mortgage and Housing Corporation s (CMHC) Ontario Market Analysis Branch. CMHC conducts the fall Rental Market Survey (RMS) every year in October, sampling privately initiated structures with at least three rental units, which have been on the market for at least three months, in all urban areas with populations of 10,000 and more. As well as CMHC data and publications, we have used data from Statistics Canada s 2006 Census and the Survey of Labour and Income Dynamics. Other data was obtained from the Ontario Ministry of Municipal Affairs and Housing and Ministry of Finance. Geographies Used Data is primarily based on larger market areas such as Census Metropolitan Areas (CMAs) or Census Agglomerations (CAs) except where noted. CMAs and CAs are defined by Statistics Canada as areas consisting of one or more neighbouring municipalities situated around a major urban core. A census metropolitan area must have a total population of at least 100,000 of which 50,000 or more live in the urban core. A census agglomeration must have an urban core population of at least 10,000. For the Greater Toronto Area, rather than reporting on the Toronto CMA as a whole, we report on Toronto (City), which includes the former City of Toronto, Etobicoke, Scarborough and North York; Durham Region; Peel Region; and York Region. 10

11 Calculation of Percentage Change of Average Rents In this edition, we use two different bases for reporting the percentage change in average rents: 1) Percentage Change of Average Rents (New and Existing Structures) This measure of percentage change in average rents is based on data collected for all structures, new and existing, and may be affected by changes in the composition of the rental universe (inclusion of new luxury buildings, changing tenants, or loss of buildings due to demolition or conversion) as well as rent level movement (changes in rent amounts charged by landlords). CMHC recommends the use of the fixed sample estimate (introduced in 2007) to report on year over year rent level movement, and we have used it for the comparison. We used the average rents for new and existing structures to calculate the percentage change over the period. Tenure This report refers to three different forms of housing tenure: freehold ownership, condominium ownership and rental housing. Freehold ownership refers to homeownership housing which is not condominium (under condominium ownership, some part of the property is held in common). 2) Percentage Change of Average Rents (Fixed Sample) This estimate of percentage change of average rents (fixed sample) is based on data collected for existing structures that were common to the survey sample in both 2009 and 2010, thus minimizing effects due to changes in the composition of the rental universe (e.g. inclusion of newly built luxury rental buildings). Some composition effects still remain (e.g. rental units renovated/upgraded or changing tenants). where s HOME

12 1.3 THE LONG TERM AFFORDABLE HOUSING STRATEGY: WILL IT MEET THE AFFORDABILITY CHALLENGE? Since the last edition of Where s Home?, Ontario has seen the release of the Province s Long Term Affordable Housing Strategy (LTAHS) and the passage of the Housing Services Act, 2011 (HSA), with the support of all political parties. Together, the strategy and Act are intended to provide an overarching policy and legislative framework for a range of housing and homelessness services in order to meet the needs of Ontarians across the housing continuum. The LTAHS was promised in the 2007 Liberal platform as one of a suite of initiatives, including the Poverty Reduction Strategy and the review of social assistance, to improve policy and program responses to the needs of low and moderate income Ontarians. These initiatives were intended to mitigate the effects of policy and program changes from the previous decade, which saw the withdrawal of senior levels of government from funding for new social housing, deep cuts to social assistance rates, and the downloading of a percentage of the costs for social assistance, along with all of the costs for social housing, from the Province to municipalities. Our question now is: To what extent will the LTAHS and HSA facilitate the creation and preservation of affordable housing in Ontario?...To what extent will those on social housing waiting lists be served? As successive editions of Where s Home? have shown, all the indicators the number of people below the poverty line, in core housing need, or on the assisted housing wait lists provided evidence that the needs of low income Ontarians were not being adequately met during that period. After years of calling on the provincial and federal governments to show leadership in the funding and development of affordable housing solutions, ONPHA, CHF Canada Ontario Region and other housing sector organizations welcomed the promise of a comprehensive strategy to meet the needs of low and moderate income Ontario residents. With the LTAHS released and HSA now passed, as well as the recent release of the Housing Policy Statement and the HSA regulations, the components of the strategy are now in place. As of January 2012, the HSA and its accompanying regulations will replace the current Social Housing Reform Act, While aspects of the SHRA have been carried over into the HSA with little or no change, the LTAHS and HSA include some key changes which will affect the way housing and homelessness services are planned and delivered. Our question now is: To what extent will the LTAHS and HSA facilitate the creation and preservation of affordable housing in Ontario? And a corollary question might be: To what extent will those on social housing waiting lists be served? 12

13 1.3.1 LOCAL HOUSING AND HOMELESSNESS PLANS The LTAHS and the HSA complete the process of downloading responsibility for the administration of social housing to the municipal level, creating a new relationship between the Province and Service Managers, which the Province has characterized as enabling rather than prescriptive. 1 The new model is intended to retain a provincial leadership role as steward of the system, setting out the vision and provincial interests, while providing flexibility to Service Managers to respond to unique local needs through planning, funding, and delivery of housing and homelessness services. Under the new model, the Province has outlined a series of provincial interests in the HSA and the Provincial Policy Statement to provide direction to Service Managers in developing local housing and homelessness systems. The HSA requires Service Managers to develop ten-year local plans consistent with these provincial interests to address local housing needs across the broader housing continuum. 2 Within the HSA, the Province has set out basic guidelines for the plans, including requirements for needs assessments and consultations to ensure plans reflect local needs. The focus on local planning allows for increased responsiveness to unique local needs, and may enable innovations building on strengths and opportunities at the local level. This focus also allows for greater integration of programs and services across the continuum at the local level. At the same time, the delegation of planning to the local level raises concerns about further fragmentation of an already fragmented sector, and the challenges of creating a uniform vision for housing with consistent expectations and delivery to citizens across the province. The provincial interests are intended to provide that vision, and the ten interests do provide higher level ideals, including inclusiveness, dignity, respect, and environmental responsibility. 3 For the most part the provincial interests tend to the abstract rather than the tangible, and in some cases refer to areas over which Service Managers have limited control and authority. At this stage neither the Act nor the Housing Policy Statement provides concrete guidelines for how these interests shall be defined, implemented or measured, and it is unclear how interests such as the directive to adopt a housing first approach can be met without further investment in new affordable housing. Some interests will also require the cooperation and involvement of other provincial ministries, such as the Ministry of Health and Long Term Care and the Ministry of Community and Social Services. The LTAHS and HSA are silent on how relationships among ministries and between ministries and Service Managers will be facilitated. The Act also stops short of creating full accountability to the Province. Plans will be approved by local municipal governments, with accountability residing between the public and the municipal government. Service Managers must provide a copy of the local plan to the Minister for comment, and may take the Minister s comments into consideration. However, the Minister does not formally approve the plan, and Service Managers are not required to make changes related to the Minister s comments, although the Minister may exercise remedies under the Act if a Service Manager does not complete a plan or the plan is not in line with the provincial interests. 4 The Province does require Service Managers to set targets but has set no guidelines for these targets, and the measurement and reporting requirements referenced in the Act have been delayed. where s HOME

14 A final concern is the relative capacity of Service Managers to undertake housing and homelessness planning, and to develop, fund and deliver housing and homelessness services. Northern communities where housing services are administered by District Social Services Administration Boards (DSSABs) are particularly disadvantaged due to limitations on their ability to raise funds through debentures to create or improve affordable housing. 5 About half of Service Managers have developed community housing plans in the past, and a preliminary review of these plans by ONPHA has shown that most of the strategies or actions outlined in these plans involved advocacy with the provincial or federal governments regarding funding or other programs (e.g. social assistance), rather than housing development. While these plans were developed before the current strategy was in place, the lack of additional support or long-term predictable funding for Service Managers may limit the options available within the new plans CREATING NEW AFFORDABLE HOUSING The obvious stumbling block to the development of affordable housing is lack of money, and neither the LTAHS nor the HSA contains targets or has new funding attached to meet existing or future demand for affordable housing. The LTAHS refers to provincial negotiations with the federal government for year 3-5 funding promised in 2009 for the Affordable Housing Program; these negotiations have now concluded and the Province has released the Investment in Affordable Housing in Ontario (IAH) program, to provide $480.6 million cost-shared between the provincial and federal governments over four years to create or repair affordable rental or ownership housing (existing social housing is not eligible for repair dollars) and provide rent supplements or housing allowances. As noted later in this report, the Affordable Housing Program has played a key role in rental housing production since 2005, and this iteration of the program will provide a measure of new affordable housing in the province. However, while the new program provides flexibility for Service Managers to choose from amongst components to best suit their local community interests, the short time frame and modest funding still means short-term limited outcomes. Without stable funding, municipalities cannot plan for long-term needs, and it is difficult for developers to commit to planning projects or to be shovel-ready when new funding appears. The ongoing funding vagaries preclude the setting of hard targets for the development of affordable housing, and have led to slippage in the definition of affordability itself. The most commonly used measure, the Shelter Cost to Income Ratio (STIR), defines housing as affordable if a household spends 30% or less of gross income on total shelter costs, and is used in calculating rent-geared-to-income (RGI) rent amounts in non-profit and co-operative housing. 6 The AHP program uses a different threshold, set at 80% of local market rent. The latter measure defines affordability in terms of the market "The obvious stumbling block to the development of affordable housing is lack of money, and neither the LTAHS nor the HSA contains targets or has new funding attached to meet existing or future demand for affordable housing." 14

15 rather than in terms of household income, and while it serves as a strategy for spreading out thin resources, it leads to less effective responses for those in deeper need. For those living on fixed incomes including social assistance and pensions, units at 80% of market rent is well out of reach unless additional rent supplements are also secured. The Province has also amended the Planning Ac to add a reference to affordable housing within the provincial interests: municipalities must have regard to the adequate provision of a full range of housing, including affordable housing in carrying out their duties under the Act. 7 The 2005 Provincial Policy Statement does require municipalities to establish and implement minimum targets for affordable housing, 8 which in the case of rental housing is defined as the least expensive of : The Ministry of Municipal Affairs and Housing is in the process of reviewing the Provincial Policy Statement, 2005; once the review is complete it will be interesting to see if the change in the provincial interest has any effect on the creation of new affordable housing. One strategy for creating new supply within the LTAHS is the requirement for municipalities to pass by-laws allowing secondary suites. 10 These suites, particularly those in basements, may rent toward the lower end of the market, although since they are not broadly captured in market rental data, it is difficult to assess their contribution to the overall affordable housing rental stock. 1. a unit for which the rent does not exceed 30 percent of gross annual household income for low and moderate income households; or 2. a unit for which the rent is at or below the average market rent of a unit in the regional market area. 9 Without stable funding, municipalities cannot plan for longterm needs, and it is difficult for developers to commit to planning projects or to be shovel-ready when new funding appears. where s HOME

16 1.3.3 PRESERVING EXISTING AFFORDABLE HOUSING Most of the Housing Services Act concentrates on the administration and operations of the existing devolved social housing stock. The stock represents a key public asset, and provides housing to low and moderate income households, including the lowest income households through rent-geared-to-income units, and persons with a variety of special needs through supportive and alternative housing. Within the LTAHS, provincial interests and Housing Policy Statement, the Province recognizes the important role of the sector in the provision of housing services, and sets out some steps towards preservation of the existing stock. 11,12,13 The Housing Services Act sets out service level requirements for RGI assistance, indicating the minimum number of households each municipality must serve. It also lists the non-profits and cooperatives currently providing RGI housing, and limits changes to their mandates and targets. 14 The HSA requires ministerial consent for the sale of social housing properties, and Service Manager consent for other changes to property, including mortgages. 15 Under the Social Housing Reform Act, any changes to properties required consent of the Minister. The introduction of Service Manager consents for mortgages, etc., may make the revitalization and redevelopment of social housing easier and faster. However, the retention of the ministerial consent for the sale of assets is an important protection. When first released, the HSA replaced this ministerial consent with Service Manager consent. Sector concerns about the possible sale of assets by municipalities were validated in media coverage regarding the future of Toronto Community Housing, when city leaders speculated about selling off TCHC properties to replace them with rent supplements in the private market. 16 During the standing committee review, the bill was amended to re-instate the requirement for Ministerial consent, ensuring a further level of protection for these publicly-funded assets. The Act also introduces new remedies Service Managers may use when working with projects in difficulty, which are intended to be less intrusive and more cooperative than receivership, including provisions for support when a project is at risk, or the appointment of an operational advisor for a project in difficulty. 17 The more co-operative philosophy and the new remedies are important additions. However, there is no requirement for Service Managers to use less intrusive remedies before invoking more serious remedies, and the language setting the standard for determining when a project is in difficulty has changed from the SHRA s with regard to the normal practices of similar housing providers 18 to in the opinion of the Service Manager, 19 making the test less objective. An overriding concern of the housing sector in the Province s Affordable Housing Strategy and the new statute is a lack of commitment to the communitybased model of housing featuring independent cooperative and non-profit housing providers. Government turned to this successful model almost 40 years ago as an alternative to large-scale, government-owned and run housing. While the HSA purports to create a better balance of rights and authority of Service Managers and housing providers, the new Act tilts the balance towards greater governmental control. This is one of a number of areas in the HSA that gives municipal Service Managers more flexibility and authority than the SHRA but does not give co-ops and non-profits more latitude to run their own affairs. 16

17 Non-profit and co-operative housing in Ontario faces a number of challenges to ongoing sustainability that are not fully addressed within the LTAHS or the HSA. Most of these challenges relate to inadequate or time-limited funding, including: income is re-invested in the non-profit housing project. Both the claw back and the CRA action limit the ability of non-profits to raise additional revenue to meet ongoing needs or provide additional programs. Lack of adequate and stable funding for maintenance and repairs. Due to a history of limited funding, the amount required to fund maintenance, repairs and capital improvements is beyond the capacity of many non-profits and coops. The recent stimulus funding offered through the Social Housing Renovation and Retrofit Program (SHRRP) allowed providers to complete some necessary projects, but that funding has ended, and the new IAH funding for repairs excludes existing social housing. The Province s 10 Year Infrastructure Plan commits to looking at expanding the availability of Infrastructure Ontario loans to non-profit and co-op housing, and for those projects that qualify and receive Service Manager consent, these loans present some important benefits. 20 However, many housing providers may not qualify for, or may be hesitant to borrow, these secured loans. Limitations on the ability to generate additional revenue to fund shortfalls. Under the Social Housing Reform Act, Service Managers may choose to claw back up to 50% of revenue generated by housing providers. Within the social housing portfolio, some Service Managers claw back 50 per cent of any surplus from non-profit housing providers, at a time when many providers are having difficulty maintaining properties or would like to invest in revitalization or new development. Recent audits by the Canada Revenue Agency (CRA) are looking to penalize nonprofit providers for earning revenue from sources such as roof rentals for cell phone towers or income from providing property management services for other housing providers, despite the fact that this Expiry of operating agreements and the end of federal subsidies. Public, non-profit and cooperative housing projects were developed through programs which provided federal subsidies to assist with operating expenses and the provision of subsidized rents. These subsidies were generally tied to the length of the mortgage, with the assumption that once the mortgage was paid off, providers would be able to offer affordable units without the federal subsidy, with no mortgage payment and enough rental income to cover costs. However, recent studies have demonstrated that some providers, particularly those with a high proportion of rent-geared-to-income tenants paying lower rents and/or high capital costs, may not be able to continue to offer affordable rents and remain viable. 21 Federal subsidies to social housing providers have started to decrease as operating agreements expire, and will end completely by At this point, there is no commitment from the federal government to reinvest those savings in affordable housing, and the LTAHS does not contain a strategy to address this issue if advocacy with the federal government fails. where s HOME

18 1.3.4 MOVING FORWARD The Housing Services Act comes into force on January 1, 2012, and Service Managers local housing and homelessness plans must be in place by January Although there are common elements that must be included in the plans, the structure and approach of each plan will vary across the province. Overall, as we continue to stress in each edition of Where s Home?, housing affordability, as measured by the gap between income available for housing and the cost of the housing itself, will be at the heart of Ontario s housing issues. The key challenges influencing housing affordability in the coming months and years will be: The economic recovery Interest rates Labour costs and availability for construction Creation of additional housing supply Incomes and employment rates Funding available within municipal budgets and contributions made by senior levels of government The ideology of those elected towards housing A network of organizations, including CHF Canada and ONPHA, has been working steadily to ensure that investments in affordable housing are seen as a cornerstone of Ontario s economic recovery. The construction of new affordable housing and rehabilitation of existing stock provides economic stimulus, uses domestically produced materials, creates jobs, and has a large multiplier effect. The Province is currently undertaking a review of social assistance programs, led by a Commission headed by Frances Lankin and Dr. Munir Sheikh. 22 Ironically, the best strategy for making housing more affordable may come out of the social assistance review, which includes consideration of a housing benefit available to low income households. A coalition of organizations, including ONPHA, came together to propose a housing benefit model as part of the Poverty Reduction Strategy, although this effort is not intended to replace the development of new affordable housing supply. 23 The Commission s report is not due until June well past the date of the 2011 provincial election. However, we remain hopeful that it will lead to policies and programs that will help address the affordable housing needs of low-income Ontarians. The construction of new affordable housing and rehabilitation of existing stock provides economic stimulus, uses domestically produced materials, creates jobs, and has a large multiplier effect. 18

19 2 RENTAL HOUSING DEMAND According to the 2006 Census, 29% of Ontario households rent their homes, representing over 1.3 million tenant households. Tenants are more prevalent in larger urban centres where ownership costs are higher and there is a greater supply of rental housing. 2.1 RENTING OVER THE LIFE COURSE 24 Although tenants are represented across all age groups, tenants tend to be younger than homeowners with just under a third (30%) being under 35 years of age compared to about a tenth (11%) of homeowners. As tenants form families and save money for a down payment, they tend to move into home ownership, though in larger, more expensive housing markets younger tenants also move into condominiums. Households headed by younger maintainers are more likely to rent: 80% of households with maintainers aged 25 or less and 46% of those with maintainers aged rent their homes. Rental rates decrease as household maintainers move into mid-life through the early senior years, with just over 1 in 5 households with maintainers in the 45 through 74 range renting. The rental rate increases to 28% for households with maintainers aged 75 and over. Fig 1: Rental Rates by Age of Household Maintainer, Ontario, 2006 Renters as a per cent of all households < Age of household maintainer Source: Statistics Canada, 2006 Census where s HOME

20 2.2 TENANT HOUSEHOLD TYPE 25 Single person households represent the largest category of tenants: in 2006, over half a million single persons (544,400) were renters representing 42% of all tenant households. Just under half a million families with children (403,900) rented their housing representing 31% of tenant households. Seventeen percent (17%) or 221,700 households were families headed by couples and 14% were headed by lone parents (182,200 households). Childless couples accounted for 16% (204,200) and the remaining 11% (148,900) were other family households or two or more unrelated persons living together. Single persons, lone parents and two or more unrelated persons have the highest likelihood of renting: 50% of single persons rent; 44% of lone parent families rent; and 58% of two or more unrelated person households rent. One person households 41.8% Fig 2: Tenant Households by Household Type, Ontario, 2006 Couples with children 17.0% Couples without children 15.7% Two+ person households 6.6% Source: Statistics Canada, 2006 Census Other family households 4.9% Lone parent families 14.0% 20

21 2.3 NEW IMMIGRANTS MORE LIKELY TO RENT New immigrants, especially recent immigrants, are an important source of rental demand. In 2001, just over two-thirds (68%) of those who immigrated to the Toronto CMA between 1996 and 2001 rented their homes. 26 The majority of recent immigrants are in the years of age category. 27 Over time, the rate of ownership among immigrants increases and generally reaches a level similar to, or greater than, the population as a whole by age Over three quarters of recent immigrants to Ontario (those who immigrated between 2001 and 2006) moved into the Greater Toronto Area (Toronto, York, Peel, Halton and Durham). 29 Immigration levels are projected to increase, resulting in continued demand for rental housing in Ontario, especially in the larger reception areas including the Greater Toronto Area, Ottawa, Hamilton and Kitchener. 2.4 FUTURE RENTAL HOUSING DEMAND From the mid-1970s to 1996, tenants represented over a third of Ontario households; however, this proportion declined over the following decade, reaching 29% in The total number of tenant households in Ontario dropped between 2001 and 2006 as a result of factors including historically low mortgage rates that made home ownership more affordable, strong employment growth, and the growth in condominiums as an alternative form of tenure. 30 Additional factors include the greater percentage of young adults remaining in the parental home (17.9% of young adults aged in 2006 compared to 8.3% in 1981) 31, and the better economic condition and health status of older adults, allowing them to remain in their homes or downsize to a smaller house or condo. Despite this short-term drop, rental demand is expected to increase over the next decades. According to Ministry of Finance projections, Ontario s population is projected to grow by over 3.5 million people over the next 25 years, reaching an estimated 16.7 million people by July 1, (Tables 1 and 2). Over the longer-term there will continue to be strong growth among those age groups most likely to seek rental housing: In the Province s reference (medium-growth) scenario, the annual immigration level is expected to increase, reaching 152,000 newcomers per year by Most immigrants (over 85%) coming to Canada are aged By 2031, 22.4% of Ontario s population (3.8 million people) will be seniors aged 65 and over, compared to 14.1% currently. The number of seniors aged 75 and over is projected to more than double to almost 1.8 million by Recent trends suggest that the proportion of seniors moving from home ownership to rental may decrease somewhat; 36 however, given the substantial increase in the total number of seniors, there will still be high demand for appropriate and affordable rental accommodation for those aged 65 and over. Over half of households headed by someone under 35 years of age will be seeking rental housing; those headed by someone aged will grow by over 240,000 between 2011 and % of tenant households headed by someone years of age seek rental housing and this age group will increase by about 458,900 persons by where s HOME

22 Table 1: Population Growth in Ontario by Age Group, Age Group Growth Change within # Change Age (Thousands) % # % (Thousands) Group % of Total Change , % 2, % % 15.8% , % 1, % % -5.6% , % 2, % % 17.2% , % 2, % % 8.9% , % 1, % % -10.5% , % 2, % % 26.2% , % 1, % % 31.0% % 1, % % 17.1% Total 13, % 15, % % 100.0% Source: Ministry of Finance, Ontario Population Projections Update, , Spring Note: Projections based on the reference (medium-growth ) scenario Table 2: Population Growth in Ontario by Age Group, Age Group Growth Change within # Change Age % of Total (Thousands) % # % (Thousands) Group Change , % 2, % % 16.6% , % 1, % % 2.1% , % 2, % % 6.5% , % 2, % % 13.1% , % 2, % % -0.4% , % 1, % % 8.4% , % 1, % % 27.6% % 1, % % 26.1% Total 13, % 16, % 3, % 100.0% Source: Ministry of Finance, Ontario Population Projections Update, , Spring Note: Projections based on the reference (medium-growth) scenario. The population of the Greater Toronto Area (GTA), an area with higher home prices and a greater number of tenants, is projected to increase by 3 million by

23 2.5 MORTGAGE RATES AND HOUSE PRICES One of the major influences on rental demand is the relative affordability of home ownership, based on housing prices and mortgage rates. During much of 2009 and 2010, 5-year mortgage rates were at historically low levels reducing the costs of carrying a mortgage and attracting many tenants into the homeownership market. In December, 2010, the average 5-year residential mortgage rate was 4.5%, the lowest rate on record over the past 60 years. 38 As a result, despite the fact that the economy was still recovering from the recession, resale house prices in Ontario rose by 7.5% 39 from $318,400 in 2009 to $342,200 in Much of the house purchasing in 2010 took place in the first half of the year, influenced by the recovery in the provincial economy, and concerns of prospective buyers about increases in mortgage rates and higher costs associated with the harmonized sales tax (HST). By the fall of 2010, there was less pent-up ownership demand and fewer first-time homebuyers in the market, resulting in stronger rental demand as tenants remained in their units. 41 While there was widespread agreement in the spring that interest rates would rise in Canada as early as this July, this summer s economic crises have postponed such interest hikes in the near future. There are some economists who argue that the debt crises in Europe and the US will push up interest rates while others say that the announcement by the US Federal Reserve to keep interest rates low will make it difficult for Canada to increase interest rates. An increase in interest rates would tend to keep more tenants out of the housing market while a decrease may induce more tenants into the housing market. If however, interest rate decreases are accompanied by low economic growth or by another recession, the need for affordable rental housing will increase as may overall rental demand. Furthermore, as house prices are pushed up by more home-buying in a low interest rate scenario, more and more tenants will not be able to afford homeownership even if interest rates remain low. Figure 3: 5 year Mortgage Lending Rate, December, Per cent Source: Bank of Canada (Canada Mortgage and Housing Corporation data) 4.50 (2010) where s HOME

24 2.6 CONTINUED DEMAND FOR RENTAL HOUSING Based on future population growth, we estimate an annual demand of around 10,000 purpose-built rental housing units for Ontario between 2009 and 2018 using a demographic model with different levels of renting or owning for projected age groups (propensities to own and to rent). This projection takes into account alternative sources of rental housing such as rented condominiums and secondary apartments. Rental housing production must be tailored to local market conditions and changing economic and demographic realities. Low rental housing production is resulting in tight vacancy rates in many markets across Ontario, and today s conditions plus future demographic changes suggests a strong need for more rental housing production - including a significant share of affordable housing. 24

25 3 THE NEED FOR AFFORDABLE RENTAL HOUSING 3.1 TENANTS INCOMES HAVE DECLINED Tenants have considerably lower incomes than owners: their incomes are historically about half the level of owner household incomes. And while owner s incomes have not increased substantially since 1990, tenants incomes have in fact declined when measured in real terms that take inflation into account (constant dollars). In 2008, the median income of homeowner households in Ontario was $78,200, 2.17 times the median tenant income of $36,000. The gap between tenant and owner household incomes is growing: in 1990, the median owner income was 1.87 times the median tenant income. Between 1990 and 2008, median tenant household incomes (in constant 2008 dollars) fell by 13% while homeowners median household incomes grew by 1%. 42 Fig 4: Median Owner and Tenant Household Incomes Ontario, 1990, 1995, 2000, 2005, 2008 (Constant 2008 Dollars) $100,000 $80,000 $60,000 $40,000 $20,000 $0 $77,500 $72,700 $76,300 $76,800 $78,200 $41,500 $35,700 $36,900 $35,000 $36, Owners Tenants Source: Statistics Canada, Income Statistics Division, Survey of Labour and Income Dynamics, Custom Tabulation where s HOME

26 As Table 3 shows, both owner and tenant households experienced fluctuations in income over this period, but by 2008 owners had recovered and surpassed the 1990 income level, whereas tenant median income remained $5,500 below the 1990 level. Table 3: Median Total Income (Before Taxes), Owner and Tenant Households, Ontario, (Constant 2008 Dollars) Year All Households Owner Households Tenant Households 1990 $63,700 $77,500 $41, $59,400 $74,300 $38, $60,400 $73,300 $38, $56,700 $71,900 $33, $57,700 $72,300 $34, $57,900 $72,700 $35, $56,700 $73,000 $32, $56,400 $72,100 $32, $59,000 $72,800 $33, $61,300 $75,100 $36, $62,400 $76,300 $36, $62,800 $76,100 $37, $62,600 $78,300 $37, $63,000 $77,200 $35, $62,600 $76,800 $32, $63,600 $76,800 $35, $63,600 $76,900 $35, $64,100 $77,900 $35, $64,100 $78,200 $36,000 Part of the explanation for the decrease in tenants incomes is that some tenants with higher incomes were able to move into the homeownership market. As well, many tenants are younger singles, recent immigrants or those living on some form of income maintenance and, therefore, have lower incomes relative to other groups. A major factor also includes the decrease in social assistance rates by 21.6% in 1995 in Ontario and slow increases in minimum wages. Given the greater income levels of owner households and the role home ownership plays in the build-up of assets, it is not surprising that the household net worth of tenants is less than that of owners. Using data from the Statistics Canada Survey of Financial Security, CMHC calculated that the median net worth of renters decreased by 5.1% from 1999 to 2005 after accounting for inflation, while the median net worth of owners increased by 27.4%. In 1999, homeowner households were 18 times wealthier than tenant households; by 2005, homeowners were 24 times wealthier than tenants. 43 Source: Statistics Canada, Income Statistics Division, Survey of Labour and Income Dynamics, Custom Tabulation 26

27 3.2 TENANTS INCOMES FALLING BEHIND RENTS Between 1990 and 2008, average rents in Ontario for one- and two-bedroom apartments in private rental units increased by twice the increase in median tenant incomes and well above the overall rate of inflation (CPI). Tenants lost ground during this period, as their median income increased by 26.3%, well below the rate of inflation at 44.0% and the average rent increase of 61.4% for one-bedroom apartments and 54.9% for two-bedroom (Figure 5). Over time, tenants are falling further behind and paying more and more of their income on rent. If we compared changes in average rents and incomes of tenants in the lower quintiles, the results would be even more dramatic. Fig 5: Percentage Change in Average Rents, Tenant Household Incomes and Inflation, Ontario, % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 61.4% 54.9% Inflation 44.0% 26.3% 1 Bedroom Avg Rent 2 Bedroom Avg Rent Median Tenant Incomes Source: Median Tenant Incomes from SLID; Consumer Price Index from Statistics Canada and average rents from CMHC Ontario Market Analysis Branch; calculations by Linda Lapointe, Lapointe Consulting. Percentage change in average rents based on data collected for all structures (new and existing structures) in the Rental Market Survey. where s HOME

28 3.3 MANY ONTARIO TENANTS STILL IN CORE NEED CMHC has been using core housing need as a measure of housing need for many years. A household is in core need if its housing does not meet one or more standards of adequacy, suitability and affordability, and it would have to spend 30% or more of its before-tax income to pay the median rent of alternative local market housing that meets all three standards. Adequate housing does not need major repairs; suitable housing has sufficient bedrooms to accommodate the household size according to the National Occupancy Standard; and affordable housing means that housing costs are less than 30% of before-tax household income. As Table 4 shows, a third of Ontario tenant households in urban areas (32.3%, or 383,690 households) lived in core housing need in 2007, based on estimates derived from 2007 SLID data. 44 Most tenants in core housing need fall in the lowest income quintile, with household incomes up to $30,325. While 41% of Ontario tenant households were in the lowest income quintile in 2007, 81% of Core Housing Need A household is in core need if its housing does not meet one or more standards of adequacy, suitability and affordability, and it would have to spend 30% or more of its before-tax income to pay the median rent of alternative local market housing that meets all three standards. all tenant households in core need were in this category. According to CMHC analyses of 2006 census data (using 2005 incomes), tenant households most likely to be in core housing need included female lone parents, seniors living alone, recent immigrants, households receiving government transfers as their major source of income, and Aboriginal households ONE FIFTH OF TENANTS SPEND 50% OF INCOME ON RENT Many tenants are paying an exorbitant amount of their income on rent. In 2005, 261,000 or a fifth of all households living in rental housing in Ontario were paying 50% of their income on rent. Paying such a high proportion of income on rent means that these households may have to forego other necessities including food, and are considered at risk of homelessness. Almost a quarter of lone parent families (24%) representing 43,100 families were paying 50% or more of their income on rent. The highest incidence was among single persons of whom 142,300 persons (26%) were paying 50% or more of their income on rent

29 Table 4: Median Shelter to Income Ratio, Median Income, Median Shelter Cost and Core Housing Need by Canada-wide Income Quintile, Ontario Tenant Households in Urban Centres, 2007 Income quintile Lowest Moderate Middle Upper Income range Up to $30,325 $30,326 to $49,483 $49,484 to $72,898 $72,899 to $110,104 Median STIR (shelter to income ratio)(%) Median income ($) Median shelter cost ($) Core housing need incidence (%) Distribution of all tenant households in urban centres (%) Distribution of urban tenant households in CHN (%) ,606 7, % 40.9% 80.7% ,478 10, % 25.5% 18.6% ,526 11,100 F 17.4% F ,115 12, % 11.8% 0.0% Highest $110, ,480 16, % 4.4% 0.0% All N/A ,865 9, % 100.0% 100.0% Source: CMHC (SLID-based housing indicators and data, custom tabulation) Note: Income quintiles are calculated at the national, all-household level, and thus the distribution for Ontario households does not equal 20% in each quintile. Data for median STIR, income and shelter cost are for all tenants in urban centres. The core housing need universe excludes farm households, households with negative incomes and households with shelter cost-to-income ratios that are greater than 100%. Urban households are households that are in Census Metropolitan Areas or Census Agglomerations. F: Too unreliable to be published. Table 5: Incidence of Low Income (Low Income Cut Off, After Tax), Persons in low income All persons Persons in economic families (2+ persons) Persons under 18 years in two-parent families a 5.9 a 8.3 a Persons under 18 years in female lone-parent families a Unattached individuals Unattached individuals under Unattached individuals, elderly persons Unattached individuals, elderly males 18.0 a 14.4 a 16 a 14.4 a 8.8 a 12.0 a 12.5 a 11.0 a 7.0 a 9.1 a Unattached individuals, elderly females a a 9.2 a a Source: Statistics Canada (CANSIM table , last updated on: ; coverage: 1976 to 2009) Note: a Use with caution where s HOME

30 3.5 PERSONS IN LOW INCOME In 2009, 10.1% of persons in Ontario were living below the low income cut off (LICO) after taxes, up from 9.3% in 2008 (Table 5). 47 Not surprisingly, there is a clear demographic overlap between those more likely to be in low income and those more likely to rent: The incidence of low income for unattached individuals is almost four times that for persons living in economic families with two or more persons: 28.5% compared to 7.4%. Unattached individuals below age 65 are more likely to be in low income (35.5%) than elderly unattached individuals (11.2%). At 20.6%, the after tax low income rate for children living in female-led lone parent families is more than double that of children in two-parent families (8.3%). While still unacceptable, the decreasing incidence of low-income children in female lone-parent families provides support for the effectiveness of increased child benefits delivered through the tax system. 3.6 WAITING LISTS FOR ASSISTED HOUSING At the beginning of 2011, there were 152,077 households on waiting lists for financially assisted housing across Ontario, according to the ONPHA Survey. The wait list total across the province grew by 10,442 households (7.4%) between 2010 and Since 2009, the list has increased by 17.7%, up 22,824 households from 129,253. Given that many residents do not apply for assisted housing because of the long wait time, these numbers may significantly underestimate the need for affordable housing. At the beginning of 2011, there were 152,077 households on waiting lists for financially assisted housing across Ontario. 30

31 3.7 ENERGY COSTS ADD TO SHELTER BURDEN In Ontario, energy costs have shown the highest level of inflation of all consumer items. In February 2011, the CPI for energy costs was 145 (with 2002 = 100). Thus, energy costs have increased 45% since 2002 in Ontario. Between February 2010 and February 2011, energy costs in Ontario increased by 12.2%. 48 One reason for this increase, though not the only one, is that electricity and natural gas costs are now subject to the harmonized sales tax (HST). While energy costs include oil, gas and electricity that are not just used for domestic purposes, (e.g., are used for transportation and manufacturing), the overall increase in energy costs will certainly have an impact on heating and electricity costs for tenants, especially low-income tenants. It is almost certain that, in the foreseeable future, energy costs for rental housing will continue to increase. Looking at electricity alone, the Provincial government indicated that electric bills are projected to rise 3.5% per annum over the next 20 years, but 7.9% per year over the next five years because of the need for large investments in infrastructure. 49 The provincial government is committed to taking 10% off electricity bills for households over the next five years. In addition, some tenants may be eligible for an Ontario Energy and Property Tax Credit. Currently, the costs for utilities such as water, the energy used for space and water heating, and electricity is included in most rents. In 2008, the Low-Income Energy Network (LIEN) estimated that just under a quarter of tenants were paying separately for utilities. 50 However, in cases where tenants pay separately for utilities, lower income tenants will find it financially challenging to pay for their rent and the increasing utility bills. The Ontario government has set out new rules (effective January 1, 2011) that landlords must follow for the suite metering of electricity service in apartment buildings. This means landlords can shift the responsibility for paying in-suite electricity use (other than electricity for space heating) to tenants directly. Low-income tenants are eligible to apply for emergency energy assistance such as the provinciallyfunded Emergency Energy Fund which varies in its criteria by municipality, and the LEAP (Low-Income Energy Assistance Program) Emergency Financial Assistance (into which the Winter Warmth Fund will be folded). These programs help low-income households pay for electricity and natural gas bill arrears to prevent disconnection of service, but they are reactive, that is, the program is there only after a household has experienced an emergency, such as facing losing their hydro or heat. The Low-Income Energy Network is advocating for a proactive, environmentally sustainable approach to reducing energy consumption and costs for lowincome consumers in Ontario, including tenants who already face housing affordability problems and find it increasingly difficult to pay for rent, basic energy needs and other necessities. Lower income tenants will find it financially challenging to pay for their rent and the increasing utility bills. where s HOME

32 3.8 FOOD BANK USE INCREASES Many people who cannot afford their rent often end up turning to food banks. People must pay their rent or they lose their housing, but they can cut back on food, even if this is bad for their health in both the short and long-term. Given the income statistics examined in this report, it is not surprising that the majority of food bank users are tenants, with 64% living in market rental housing and 27% living in social housing. Only 4% of food bank users own their own homes. In its 2010 Ontario Hunger Report, the Ontario Association of Food Banks noted that the number of people turning to food banks rose by 28% since the recession began in 2008, and that 402,000 residents were turning to food banks each month. 51 This is a sharp increase from 374,000 in In 2010, 3.1% of Ontario s population was using food banks up from 2.4% in Almost half (45%) of Ontario food bank users depend on social assistance which is not surprising given the inadequacy of social assistance levels. The highest users of food banks in Ontario are single adults (38%) and lone parent families (30%) while twoparent families account for 22%. More Ontario seniors are turning to food banks in 2010 compared to 2009 and younger adults years of age represent an increasing share of food bank users. Most shocking is that children and youth under 18 account for 37% (149,000) of the population served by food banks in 2010 although this is down from 40% in People who turn to food banks have average household incomes well below the Low Income Cut- Off (LICO) and spend 65% of their income on shelter. Those who turn to food banks face not only rising rents but also rising food prices (food prices increased by more than 30% since 2000). Many of those using food banks cannot afford to adequately heat their homes. People who turn to food banks have average household incomes well below the Low Income Cut-Off and spend 65% of their income on shelter. 32

33 4 RENTAL HOUSING SUPPLY 4.1 ONTARIO VACANCY RATES DECLINE Between 2009 and 2010, the overall vacancy rate for apartments in private rental buildings with 3+ units in Ontario declined considerably from 3.5% in 2009 to 2.9%. 54 Vacancy rates declined for all bedroom types, with the strongest drop being for bachelor units. In October, 2010, there were an estimated 624,000 apartment units in the private rental stock with 3+ rental units. CMHC now surveys only purpose-built privately owned apartment buildings which account for most of the purpose-built rental stock in Ontario. CMHC no longer surveys the nonprofit, co-operative and former public housing buildings. As CMHC has noted in its Ontario Rental Market Report for the fall of 2010, the major factors pushing vacancy rates downward included: declining first time home buyer demand in the second half of 2010 as potential home buyers held back in anticipation of higher mortgage rates; a declining pool of potential first time buyers; improving economic factors; stronger immigration levels; and less competition from the higher priced condominium market, especially in the Greater Toronto Area. Fig 6: Vacancy Rates, Ontario Privately Initiated Buildings with 3+ Units, 2009 and % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 5.0% 3.4% 3.5% 3.5% 3.0% 2.9% 2.9% 2.9% 2.7% 2.4% Bach 1 bdrm 2 bdrm 3+ bdrm Total Source: CMHC Rental Market Report, Ontario Highlights, Fall 2010 where s HOME

34 4.1.1 VACANCY RATES DECLINED IN 13 OF 22 MARKET AREAS In 2010, 10 of the 22 markets examined could be considered to have a tight rental market (3% vacancy rate or less), compared to 7 markets in The larger rental markets of the City of Toronto, Peel Region, Durham Region and the Kitchener CMA all fell below the 3% threshold in In tighter rental markets, tenants have less choice in the market place and rent increases tend to be greater when tenants move out. In 2010 the tightest markets were: Kingston CMA (1.0%) Ottawa CMA (1.6%) Timmins CA (1.7%) Peel Region (1.8%) York Region (1.8%) North Bay (2.1%) Thunder Bay (2.2.%) Toronto (City) (2.2%) Table 6: Vacancy Rates for Apartments in Privately Initiated Buildings with 3+ Units, Ontario and Selected Markets, Ontario and Local Markets Ontario Barrie CMA Cornwall CA Durham Region Guelph CMA Hamilton CMA Kingston CMA Kitchener CMA London CMA Muskoka North Bay CA Ottawa CMA Owen Sound CA Peel Region Peterborough CMA Sarnia CA St. Catharines Niagara CMA Sudbury CMA Thunder Bay CMA Timmins CA Toronto (City) Windsor CMA York Region Source: Data obtained from CMHC s Ontario Market Analysis Branch Note: means the vacancy rate decreased from Fall 2009 to Fall 2010; means the vacancy rate increased; and means there was no change. Change

35 4.1.2 INDIVIDUAL MARKET VACANCY RATE TRENDS In the following sections, we provide a brief description of changes in the vacancy rates in each of the 22 markets shown in Table 6. Much of this analysis was based on the Rental Market Reports prepared by CMHC for various market areas where available. CMHC s Housing Outlook reports were also consulted. Greater Toronto Area In the City of Toronto the vacancy rate declined substantially from 3.1% in 2009 to 2.2% in As in many markets across Ontario, many first time buyers purchased in 2009 and the earlier part of 2010 so that the pool of first time home buyers was diminished in the latter part of The highest drop took place in bachelor apartments where the vacancy rate fell 5% to 2.3% - a unit type that has had historically high vacancy rates in many municipalities, including Toronto. Two possible explanations are that the high level of unemployment amongst youth has resulted in a high demand for post-secondary education and a strong demand for bachelor units. As well, as rents increase more households may now be reconsidering bachelors as an affordable rental unit. The high level of immigration into the Greater Toronto Area has also been a factor in increased rental demand. According to CMHC, immigration was up 20% for the first half of 2010 compared to 2009 for the Toronto CMA. Based on Statistics Canada data, Toronto receives more than half of recent immigrants to the Greater Toronto Area. 55 The majority of immigrants is in the year age group and initially rent. Although the employment picture improved in Toronto in 2010, the ratio of part-time to full-time employment has increased during the recovery resulting in flattened income growth for many renters. As a result many tenants have continued to stay in rental housing. At the same time, higher rent increases in condominium rentals meant that fewer tenants were moving into such units. The vacancy rate in York Region continued to remain at 1.8% in 2010 the same level as in As shown in Table 6, York Region has had a low vacancy rate since One of the major reasons for the current tight vacancy rate is the relatively low level of rental production in York Region (representing 1% of housing production in the last five year period, ) and high levels of immigration. At the same time, as in many other markets across Ontario, low mortgage rates and fears of future increases resulted in high home ownership purchasing in the earlier part of 2010, but higher house prices reduced demand in the latter part of Durham Region exhibited a major decline in its vacancy rate from 3.6% in 2009 to 2.7% in 2010 as a result of the improving job market combined with a slower outflow of renters into homeownership in the latter part of 2010 and virtually no rental housing production 14 rental units in 4 years. Vacancy rates have been higher in Durham compared to other parts of the Greater Toronto Area because ownership costs are lower than in many other areas. Despite the fact that the Oshawa CMA was hit hard during the recession, house prices for the Oshawa CMA were forecasted by CMHC in its 2010 fall Housing Market Outlook for the Toronto CMA to increase by over 7%. Housing price increases, combined with fears of future increases in mortgage rates, have combined to keep some renters out of homeownership. where s HOME

36 Peel Region also experienced a considerable drop in its vacancy rate from 3.1% to 1.8%. The same factors were at work in Peel Region as in the rest of the Greater Toronto Area strong immigration, a slow-down in ownership rates in the latter part of 2010 and a modest level of rental housing production relative to demand. Other Parts of the Golden Horseshoe and Central Ontario In Barrie the vacancy rate declined from 3.8% in 2009 to 3.4% in As CMHC reported in its Barrie Rental Market Report, despite a growing job market, wages have grown slowly and not returned to pre-recession levels, making renters cautious with respect to purchasing. The improving employment situation also supported stronger rental demand as more young adults were able to move out on their own but could not afford to purchase a home. Rental production has also been low in Barrie over the past 15 years. The vacancy rate in Guelph declined from 4.1% in 2009 to 3.4% in 2010 as a result of rising home prices in 2010 and a declining pool of potential first time homebuyers. Another factor was the increase in international migration to Guelph which according to CMHC, accounted for 40% of the population increase in the past year. As was noted earlier, recent immigrants have a higher likelihood of renting. Finally, there has been virtually no rental construction in Guelph since The vacancy rate in Hamilton declined from 4.1% in 2009 to 3.7% in 2010 as fewer renters moved into the homeownership market. In addition, there was an increase in new residents moving into the Hamilton area (about 2,000 new residents between 2008 and 2009) and more than half of these were aged 25 to 44, many of whom would be looking for rental housing. In Kitchener there was a substantial decline in the vacancy rate from 3.3% in 2009 to 2.6% in In addition to the effects of changes in the homeownership market, there is a strong demand for rental housing from students attending the universities in the Kitchener-Waterloo area. Finally, international immigration had a major role to play in rental demand increasing. According to CMHC, more immigrants come to the Kitchener-Waterloo- Cambridge area (the Kitchener CMA) than to other cities in Ontario other than the Toronto, Ottawa and Hamilton CMAs. Immigration accounted for more than forty-five percent of total population growth in the Kitchener area and new immigrants, even if they are moving into high tech jobs, tend to rent when they first move to Canada. In Muskoka the vacancy rate remained unchanged at 3.9% between 2009 and This soft rental market is primarily the result of slow economic growth and the lack of employment for younger adults. For most of the past 10 years, Owen Sound had a tight rental market; however, in 2009, the vacancy rate hit 4.6% and in October, 2010 it dropped to 3.4%. Interestingly, the biggest drop was for bachelor units which fell from 8.4% to 1.1%. Vacancy rates decreased substantially in Peterborough from 6.0% in 2009 to 4.1% in This decrease is mainly to due to an increase in rental demand as fewer households moved into homeownership after the first part of 2010, an increase in student enrolment and an inflow of temporary workers for major local investment projects such as the Peterborough airport. Youth employment weakened in 2010 and many youth continued to stay with their parents. However, in general the employment situation continues to remain weak with a loss of 2,000 jobs during 2010 and an unemployment rate at 10% in 2010 the highest level in 15 years. In addition, lower 36

37 incomes in the Peterborough area are weakening demand for ownership housing. Southwestern Ontario The vacancy rate in London remained at 5.0% in 2010, unchanged since One of the major factors has been a high level of apartment rental construction over 1,000 rental units in These private rental developments are located in the downtown area and are very popular with empty nesters who are downsizing. Many renters entered the homeownership market in 2009; however higher house prices in 2010 and concerns around rising mortgage rates slowed the movement from rentals to ownership in the second half of Because of slower employment growth, many young adults stayed with or moved back to their parents homes, reducing rental demand. As well, weak manufacturing employment has meant that some renters have been moving away to look for jobs. In Sarnia the vacancy rate rose from 5.0% in 2009 to 5.8% in The vacancy rate increased amongst all unit sizes and reflects the high level of unemployment in the Sarnia-Lambton area (10% in May 2010). 56 In St. Catharines-Niagara the vacancy rate remained at 4.4% in Slow employment growth among the and age groups helped to keep vacancy rates high as these age groups account for much of the rental demand in St. Catharines-Niagara. In 2010, an increase in young people years of age compared to a decline for other age groups below 50 years of age (except for the years of age) has meant more demand for rental apartments from young single adults resulting in a decrease in the vacancy rates for bachelor apartments. The vacancy rate in Windsor declined from 13.0% in October 2009 to 10.9% in Several factors are behind the decrease. International migration reached a four-year high in 2009 and immigrants have a high likelihood of renting when they first move to Canada. After several years of high losses in population due to negative inter-provincial migration in 2010, the number of people moving out of the Province is slowing down. As in most communities across Ontario, Windsor s resale market has stabilized and there was a slowing down of the movement of renters to the ownership market in the latter part of Finally, Windsor s employment picture is improving with employment levels showing an annual gain of two percent, mostly in the transportation and warehousing and construction sectors. Youth unemployment seems to have bottomed out last fall (2009) and employment has been increasing since then resulting in stronger rental demand from this group. Eastern Ontario In Cornwall the vacancy rate declined from 3.8% in 2009 to 3.4% in 2010 representing a continuous decline from 4.4% in As in other municipalities, the stronger rental demand reflects concerns around potentially increasing mortgage rates which have slowed down the movement from the rental to the ownership market. At 1.0% Kingston has the lowest vacancy rate in Ontario, down from 1.3% in Despite the completion of 300 rental units in 2010, supply is not able to keep up with demand. As in many municipalities across Ontario, the prospect of higher interest rates and higher prices meant that many first time home buyers had purchased in the first part of the year and by the fall fewer tenants were making the move to homeownership. International immigration has also played a role in Kingston s tight rental market and immigration has been showing a modest increase in recent years. Finally, part-time employment grew while full-time where s HOME

38 employment declined, increasing demand for rental accommodation. In Ottawa there was a slight increase in the vacancy rate from 1.5% in 2009 to 1.6% in 2010; however, Ottawa has the second lowest vacancy rate in Ontario and has had a tight rental market since As in many other municipalities across Ontario the strong demand for ownership housing in the early part of 2010 and increasing house prices meant that there were fewer first time homebuyers in the market in the latter part of A second factor supporting rental demand is strong immigration with an estimated threequarters of Ottawa s population growth of 8,000 annually being the result of migration, mostly immigrants. The slight upward pressure on vacancy rates was as a result of the popularity of the condominium apartment rental market among young professionals and baby boomers looking for smaller units. Northern Ontario In North Bay the vacancy rate rose from a very tight 1.1% to 2.1% between 2009 and 2010, with rates increasing for all unit sizes. The construction of 79 rental units in 2010 (accounting for 30% of completions in 2010) is a contributing factor to the increase in vacancy rates. However, part of the reason for the ongoing tight rental market in North Bay is that while there have been 188 rental units built over the past 3 years (2008, 2009 and 2010), in the previous 14 years, there were almost no rental units built. Sudbury saw virtually no change in its vacancy rate, which rose from 2.9% in 2009 to 3.0% in For the period , the vacancy rate was very tight, dropping from 1.6% in 2005 to 0.7% in 2008, in part reflecting the lack of rental housing development during this period as well as the growing local economy. Unemployment rates rose in 2009 and into 2010, but the employment situation has been improving in the second and third quarters of Other factors contributing to the increase in the vacancy rate include a shift to homeownership, negative migration (more people moving out than moving in) and high levels of rental housing development in 2009 and Thunder Bay s vacancy rate declined slightly from 2.3% in 2009 to 2.2% in After almost 15 years of higher rates, vacancies decreased to 2.2% in 2008, and have stayed low since. Several factors are responsible for this slight decline. There has been a slight improvement in employment opportunities (a 0.6% increase between 2009 and 2010), including more jobs in the services sector and more opportunities for younger individuals (18-24 years of age). As well, after several years of negative migration, in Thunder Bay experienced positive migration of both international and intra-provincial migrants. Another source of rental demand has been growing enrolment in post-secondary institutions. Finally, there has been almost no rental housing production in recent years. The vacancy rate in Timmins has risen slightly from 1.6% to 1.7%. A major factor in the tight market has been the virtual lack of new rental housing since Part of the reason for the slight increase may be the closing of Xstrata s metallurgical site in 2010 which employed close to 700 people

39 4.2 TRENDS IN RENTAL COSTS RENT INCREASES IN ONTARIO IN LINE WITH INFLATION IN 2010 The overall average rent for private apartments in Ontario in buildings with 3+ units increased by 2.8% between 2009 and 2010, up from $898 to $923, just over the rate of inflation of 2.5%. Bachelors increased from $688 to $708 or 2.9%; one-bedroom apartments increased from $824 to $844 (2.4%); and two-bedroom apartments increased from $955 to $980 (2.6%). The greatest increase was for apartments with 3 or more bedrooms which increased from $1,167 to $1,205 (3.3%). As Table 7 shows, the percentage change in average rent is somewhat lower when looking solely at structures common to the survey in both years, thus removing most of the effect of changes in the composition of the rental universe (e.g. new luxury buildings, demolitions or conversions). Table 7: Average Rents for Apartments in Privately Initiated Buildings with 3+ Units, Ontario, October 2009 and 2010 Unit Size Percentage Change in Average Rent (Fixed Sample) A Bachelor $688 $ % 1 bedroom $824 $ % 2 bedroom $955 $ % 3+ bedroom $1,167 $1, % Total $898 $ % Source: Canada Mortgage and Housing Corporation, Rental Market Report, Ontario Highlights, Fall, 2010 A This estimate of percentage change of average rents (fixed sample) is based on data collected for existing structures that were common to the survey sample in both 2009 and 2010, thus minimizing effects due to changes in the composition of the rental universe (e.g. inclusion of newly built luxury rental buildings). Some composition effects still remain (e.g. rental units renovated/upgraded or changing tenants). where s HOME

40 4.2.2 AVERAGE RENT FOR TWO-BEDROOM APARTMENTS IN SELECTED MARKETS There are four markets across Ontario where average rents for two-bedroom apartments are over $1,000 (Figure 7). Three of these markets are in the GTA and the fourth is Ottawa. The highest rent markets are Toronto at $1,135; Peel Region at $1,088; York Region at $1,068; and Ottawa at $1,048. Source: CMHC Ontario Market Analysis Branch Three markets are in the $900-$999 range: Barrie at $968, Kingston at $935 and Durham Region at $916. In just under half (9) of the markets, average rents for a two-bedroom apartments range from $800 to $899: Peterborough ($890); Guelph ($887); Kitchener ($872); London ($869); Muskoka ($866); Hamilton ($862); Greater Sudbury ($840); St Catharines-Niagara ($817); and North Bay ($816). 40