James Sawler: Affordable housing is crucial infrastructure and should be financed publicly

KJIPUKTUK (Halifax) – On May 31, the Nova Scotia Affordable Housing Commission (NSAHC) released its Report to the Minister of Housing and Infrastructure. The report examines the state of affordable housing in Nova Scotia, with a series of recommendations. Frankly, the analysis is thin. Although affordable housing has been much studied worldwide, the NSAHC makes almost no reference to any independent academic work. Furthermore, there is no case study on successful best practices in other jurisdictions (such as Vienna, Singapore, or Stockholm). 

Nevertheless, the report contains important observations and recommendations. Most significant is the recognition that housing is a human right. The NSAHC acknowledges that the right to adequate housing is a key component of the 1948 Universal Declaration of Human Rights and the 1966 International Covenant on Economic, Social and Cultural Rights, both of which Canada is a signatory.

Human rights are not simple aspirations; they obligate societies and their governments to ensure their provision. Despite this obligation, access to affordable housing in Nova Scotia is abysmal; according to the Canadian Mortgage Corporation and Housing, in 2016, 28.1% of renter households in Nova Scotia were in core housing need, typically defined as spending over 30% of their pre-tax income on rent and utilities. This means well over 30,000 renter households lack affordable housing. 

While the NSAHC recognizes the dire state of Nova Scotia’s affordable housing, it recommends financial investments of a paltry $25 million. In fairness, these proposed investments are intended to induce a “quick start” for immediate action. Unfortunately, while the Commission calls on the provincial government to invest in building more affordable homes, it fails to discuss the extent of the financial investment required. Thousands of affordable homes need to be built, requiring a minimum investment of hundreds of millions of dollars to fulfill our responsibility to provide all Nova Scotians with their human right to affordable housing.

What should be the nature of this investment? The NSAHC provides direction (though likely unintentionally) when it writes, “… public policies should reflect that housing is a key sector for economic growth, on par with roads, schools, and hospitals.” Without actually using the word, the Commission is describing infrastructure. Infrastructure consists of structures and systems which facilitate and enhance the functioning of society, including our economy. Affordable housing is essential for building community bonds, maintaining physical and mental health, and creating a stable environment for child development, and thus, like our hospitals and schools, benefits the economy by providing the foundation for a thriving, productive workforce. Thus, affordable housing is crucial infrastructure, and since its benefits accrue not just to individual households but across our entire society (bestowing what economists call positive externalities), like most infrastructure, it should be financed publicly. 

Fortunately, interest rates remain at near-historic lows. Thus, the cost for our governments to finance affordable housing is considerably lower than the return generated by its investment. It is the ideal time to build.

Expanding the stock of affordable housing will take time. Limited availability of land, equipment, and tradespeople will cause delays. In the meantime, as the NSAHC concedes, “The gap between incomes and market rent is growing,” and with extremely low vacancy rates, rents will likely continue to rise. Yet, despite the failure of the market to deliver affordable housing, the NSAHC refuses to consider rent control, stating concern that such action would distort the market (Given the strong representation of developers and property managers among the Committee members, this angst is hardly surprising). 

However, the housing market is already distorted. As moving is costly, and many families have a strong preference to remain in their homes and communities, landlords often have an advantage over tenants and potential competitors. Furthermore, property managers typically have market information not available to their tenants. Finally, in some neighbourhoods, there is an absence of competition among residential property firms. These real-world deviations from the simplistic competitive model provide landlords with leverage over their tenants, enabling them to raise rents above what would be predicted by a well-functioning competitive market. Under such conditions, rent control can be designed to keep rents affordable while enabling developers to recover their costs.

The typical argument against rent control is that, under competitive conditions, it can reduce the long-run incentive to build new units. However, if governments commit to the construction of social housing, concern over whether private developers expand their supply is moot. To provide housing security for low income Nova Scotians, some form of rent control should remain in place, at least until the supply of public housing has expanded sufficiently to make private rental housing affordable.

The Nova Scotia affordable-housing market is too complex and in need of reform to address all  relevant issues in this short essay. Policies need to be implemented to protect neighbourhoods from gentrification, provide equal access to affordable housing for marginalized groups, ensure rental homes are safe and liveable, regulate short-term rentals, and protect tenants from unscrupulous landlords. Some of these issues are alluded to in the NSAHC’s report; however, a much more detailed, tenant-focused analysis can be found in the recently-released study, “Keys to a Housing Secure Future for All”, produced by the Housing for All Working Group and published here by the Canadian Centre for Policy Alternatives.   

Housing is a human right; as such our society and governments have an obligation to ensure all Nova Scotians have access to an affordable, liveable home. Since housing is also important infrastructure, public investment is the most appropriate way to ensure we meet our obligation. 

Let’s get busy building.

James Sawler is an Economics Professor at Mount Saint Vincent University

See also: Making housing a human right: Report issues 100 recommendations for a housing-secure Nova Scotia