The private sector will need to be part of any solution to the housing crisis.

At least, that’s the opinion of Canadian Mortgage and Housing Corporation’s (CMHC) chief economist Aled ab Iorwerth, who released a report Monday concluding that rent subsidies and social housing—while helpful—are not “cure-alls.”

Ab Iorwerth wrote that affordability challenges, while primarily faced by low-income households, are affecting middle-income households too.

“When renters search for better places to rent, they face a sharp rise in rents, if they can even find a place,” he wrote in his report.

That tight market, he worries, forces middle-income earners to then go into more debt than they can afford to purchase housing or move into better housing options. The result of all that is an economy with savings concentrated in housing, and renters with higher incomes staying in affordable housing that could ease the crisis for low-income earners with few options.

The economist called for a “holistic approach to the housing system” that would see governments tackle badly needed low-income housing and the private sector invest in middle-income housing, particularly rentals.

“Given income and population growth, further action is required by all levels of government to facilitate increased housing supply by the private sector,” he wrote.

Luke Mari, an urban planner and a partner at Aryze Developments, agrees that developers like him need to be part of the solution to the housing crisis.

He said there’s almost no Greater Victoria land that comes without a time-intensive and costly rezoning process. And that expensive red tape is one factor that makes developers less likely to consider purpose-built rentals, which don’t supply the same rate of return—particularly if they’re built for affordability.

“How do you make it more affordable when the banks have certain criteria to qualify for loans, which require profit?” he said. “The federal government and BC housing, they all require the building to be solvent, it has to be able to cover debt.

“And so you can't commit to any of the affordability criteria, because you don't know if you're actually going to get the government funding,” he added. “So the greatest thing that municipalities can do to ensure affordability and rental construction financing is to legalize rental housing.”

Victoria’s vacancy rate remained below 2.5% for the last 15 years, according to the Capital Regional District’s 2020 Housing Needs Report, with little development of purpose-built rental units. In 2016 there were enough primary rental units for just 59% of the city’s renters.

Mari agrees that a holistic approach is vital.

“The problem we're in, is we stopped building [rental supply]...and now we're paying for that,” he said. “So yes, we need a huge, huge government investment in non-market housing…but there also needs to be a corresponding increase in broad market supply to work in tandem.”

The Community Social Planning Council, a Victoria-based social research non-profit, released a report this fall revealing a gap of more than 8,000 affordable housing options in the City of Victoria alone.

Executive director Diana Gibson agreed that the cost of land and development, paired with limits on density and zoning, make affordable housing a non-starter for private developers.

“To build units that are affordable… there's going to need to be investment by the public sector, through non-profit, co-op and publicly owned housing,” she said.

But Gibson pointed to another area of opportunity: direct investment from governments in existing rentals.

In 2020, 838 apartment units were sold in Greater Victoria. In 2021, 2,451 units changed hands—at a value of roughly $760 million, according to research from CBRE Canada.  

Those units can be flipped for higher rental profit, or purchasers can simply raise rents as tenants come and go—because there’s no limit on rent increases between tenants.

One part of the solution to that problem, Gibson said, is an acquisition fund to buy up older stock as public housing with stabilized rent. It’s something new premier David Eby mentioned in September, with a plan to commit $500 million in capital support for non-profits, co-ops and Indigenous communities to buy up at-risk rental housing.

Gibson said an acquisition strategy should offer a right of first refusal for non-profit providers to protect existing housing stock. “The local non-profits here in our region have said to me, ‘We are ready to take on…those buildings that are being bought out by private investors,’” she said. “The finances certainly aren't there for non-profit providers to just start buying up or protecting our existing stock alone, they need the government's help.”  

The reality, Gibson said, is that it’s not a zero sum game. Levels of government can facilitate private sector housing without subsidization—through things like changes to zoning laws and reducing or eliminating parking minimums, which add cost by taking up valuable space. (According to 2021 Census data, just over half of Victoria residents commute by car.) And they can also invest directly into purpose-built affordable housing stock and the acquisition of existing supply.

“We can see that deep affordability that's needed,” she said. “And that needs government investment. And unless we do that, we're going to continue to see people leaving our region and employers having a major labour shortage like we do across this region right now.”