A report by the Canadian Housing and Mortgage Corporation (CHMC) revealed that the cost to rent for new tenants has skyrocketed by 18 per cent. The report explains the cause of this rental crisis as a combination of increased demand as people are pushed out of the housing market and lagging supply of rental properties. High demand and low supply equal increased prices; this is economics 101. However, there is a missing element in this basic equation: profit. The fluctuations in supply and demand do not explain the underlying cause for the long-existing housing crisis nor does it provide a way out.
Rising mortgage rate fuels rental demand
Over the past year, Bank of Canada has raised interest rates from practically zero to 4.25 per cent. The subsequent increase in mortgage rates has left thousands of Canadians with variable mortgages paying upwards of an additional $1,000 each month. As a result, many are abandoning their homes while others aren’t even bothering to consider home ownership. The Office of the Superintendent of Bankruptcy reported that November 2022 saw the highest number of Canadian insolvencies since the beginning of the pandemic. Banks have responded by restricting mortgage qualifications, only making home ownership more impossible. Today, the home ownership rate has dropped to a decade low of 66.5 per cent.
All this has created a surge in demand for rental units. While home ownership has dropped, the number of households renting has increased by 21 per cent. The increase in demand has pushed up the cost of renting by 18 per cent across Canada for new tenants and for rental properties where there has been a change in tenants. Atlantic Canada saw the fastest annual rate of increases in rental costs with a combined 31.8 per cent spike across Nova Scotia, Newfoundland and Labrador, New Brunswick, and P.E.I. Someone looking for an apartment in Toronto can expect rent prices 29 per cent higher than last year. A report by Rentals.ca and Urbanation, revealed that the average one bedroom in Toronto now costs $2,532 monthly. Vancouver still tops the charts. Average rents have gone up by 24 per cent and a one bedroom now costs $2,633 per month. The rise in interest rates, instead of reducing inflation, has instead fueled rent inflation.
The CHMC report concluded with this grim prediction: “We’re already projecting a slight recession next year. Employment growth will come down, people will reduce their consumption of goods and services, leading to a slowdown in the overall Canadian economy”. Rising interest rates alongside increased unemployment would mean millions of Canadians defaulting on their mortgage payments. Meanwhile, as rent consumes almost 80 per cent of household income, the chance of saving enough to consider buying a home is slim to none. The pressure of increased demand is only set to intensify.
Is there really a supply issue?
The CMHC report predicts the impact of increased demand will be magnified by the lagging supply of rental units. They state that to meet the current demand, an additional 3.5 million units are needed. However, the discussion on supply is misleading. There may be a lack of housing under the label of “rental units” but is there a lack of actual housing? A 2016 report from Statistics Canada (Stat Can) reported 65,000 condos remained empty in Toronto. At the same time, condo construction has consistently been on the rise with almost 90,000 condo units being built in Toronto in 2021. Another Statistics Canada report from 2021 showed that there were an estimated 1.3 million empty homes across Canada. This number is most likely much higher now as people have to abandon their homes with mortgages becoming unsustainable. There is clearly housing that could potentially be used to meet social demand and need. The issue of supply is fundamentally an issue of access. To understand the root of this problem, we need to understand how housing is run under capitalism.
Housing under capitalism
Housing is a commodity under capitalism but it is unlike other commodities. This is related to the dual nature of rent. One part of the rent is based on the actual labour time required for construction and maintenance. It is a very small aspect of the overall price of housing. The other, much larger, part of the price is what Marx called “ground rent”. Ground rent is essentially the tribute landlords demand for use of “their” land. Their claim to the land is not related to any productive role or development of the land; instead, ground rent is obtained due to the monopoly landlords maintain. Marx explained that “in order to sell a thing, nothing more is required than its capacity to be monopolized and alienated”. By monopolizing a necessary good, landlords can demand rent above and beyond its real value. For instance, normally, if someone attempted to resell an old, worn out good, they would have to accept a lower price given the reduced value of the product. The very opposite occurs with housing. The same home built a decade ago is sold today at a 40 per cent marked up price for example. Monopolization allows landlords to demand exorbitant rents because the working class is left with no alternative but to pay for this vital need.
Ten corporate landlords dominate the rental market in Canada. One of the biggest is Starlight Investments, which owns 73,000 residential units with a total value of $25 billion in assets. The top 10 landlords reported record profits last year at the same time as tenants made a record number of quality complaints. ACORN Toronto conducted a survey of renters and found 95 per cent were living in conditions that violate the city’s property standards bylaw. 83 per cent had seen a cockroach in their apartment and almost 70 per cent of renters said they had difficulty getting repairs done. Some 53 per cent reported a lack of heating in their building. Due to their monopoly, landlords have little need to even maintain a decent state of housing. Rather than going towards any productive use, the bulk of rent is parasitically taken as profit by the landlord.
Current solutions fail to address the underlying crisis
The CHMC report has inspired a renewed call for increasing housing supply. Aled ab Iorwerth, Canada Mortgage and Housing Corporation’s deputy chief economist stated: “We need the government to speed up the approval process for getting building and zoning permits. We need changes in the private sector to improve construction technology so we can build faster and at a lower cost.” However, under the control of the landlords, housing is an investment opportunity to make profit. Social need is not a consideration. If landlords are incentivized to build, would they choose to build affordable housing? Instead, there is a lot more money to be made from building and speculating on luxury condos. Or, it may even be more profitable to not build at all. By restricting supply even further, landlords can create artificial scarcity, which increases the demand for their land. As the value of the land goes up and so does the cost of rent.
Ontario NDP MPPs are proposing a “Rent Stabilization Act: Pay What the Last Tenant Paid” with the aim to make it illegal for landlords to raise the rent on new tenants beyond the legal limit. Firstly, this “pay what the last tenant paid” is not at all a demand for affordable housing. Existing tenants face rent hikes of almost six per cent on average. The Landlord Tenant Board has seen a 40 per cent increase in landlord applications for above guideline rent increases (AGI) for existing tenants. With the high inflation and a rising cost of living, these rental increases are completely unaffordable. To pay what a previous tenant paid is basically asking to maintain the status quo, which is anything but a stable situation for millions of working class Canadians. This proposed Act by the NDP hardly scratches the surface of the severe housing crisis.
At the same time, there is a real crisis of evictions. As demand for cheaper housing has gone up, landlords have taken advantage of the situation by evicting existing tenants and charging new tenants far higher rent. In fact, between 2014-2020, the Landlord Tenant Board In Ontario saw a 100 per cent increase in landlord applications to evict tenants for reasons other than failing to pay rent. There is also a growing number of cases of renovictions, where landlords kick out tenants by making (often superficial) renovations, and using them as an excuse to increase rent beyond what the old tenant can afford. This is a scandalous manipulation of the desperate need for housing by landlords. However, can this phenomenon be simply legislated away?
Landlords responded to this act and other similar rent control measures by threatening capital flight. As one landlord put it: “where there is not going to be any profit margin at all, what’s the motivation to keep the rental stock in Ontario?”. While housing is monopolized by landlords, they will do as they please. The fact is that we cannot control what we do not own.
Fight for public housing
The need to solve the housing crisis is more urgent than ever before. Thousands of Canadian families are at risk of defaulting on their mortgages and losing their homes. Rent inflation, alongside the rising cost of all other necessities, is pushing millions of people into poverty. This is seen most clearly with the rise in homelessness. If housing is left in the hands of the landlords to gain profit, these problems will only worsen.
The immediate task is for the working class to expropriate the landlords and remove housing from the anarchy of the market. It is only by taking housing into public hands that it can be rationally planned for the needs of the majority of society. By expropriating the landlords, ground rent can be eliminated so that housing costs only reflect the minimum for building and maintenance. This could massively reduce rent to a tiny fraction of the current cost and would immediately raise people out of poverty and debt. Under the democratic control of the working class, we can unite all available housing into a nationalized housing plan. Such a plan could ensure good quality housing for everyone.
The fight for public housing must be linked to a broader fight for democratic control and planning over the commanding heights of the economy. Only then could the wealth in society be used to build good quality housing as well as fund other necessities such as education and healthcare. The fight to end the housing crisis is a fight for socialism.