What is Affordable Housing?
Politicians use this term like they are ordering fries at McDonalds.
“We need more affordable housing!”
The question is, what does that term mean?
If the renter can’t afford to rent the unit then it is “unaffordable”. The issue is how do we build rental products that people can afford? The difficult issue is everyone has a different opinion of what is needed for housing.
Many stories refer to the governments of the past subsidising developers to build rental apartments. This was done as a way to encourage the developers to build a product that in their mind was not profitable. In any business if it is not profitable then how does the government expect people and businesses to build and operate apartment buildings.
The emergence of the condominium in the market allowed developers to build a product that was profitable for the developer, and unaffordable for the renter. The downside to this is the condo is a product the developers keep improving and trying to make better than the last one, which naturally increases the cost of the product. All levels of government have permitted the development of condo buildings due to the development fees they are charging over the development of purpose built rental buildings. How has this led to unaffordable housing?.
The main difference to condo owners renting out their properties to purpose built rental properties is the market is always fluctuating. When the condo market increases in price, owners sell the properties to take profits. That is great for the owners, but it puts pressure on the rental market as many rental properties leave the market, reducing the supply when there is a high demand and that naturally increases costs. When purpose built rental properties are built they never leave the market keeping a stable number of properties in the rental market. This means the governments should be requiring purpose built rental each year to offset the condo development market. Developers won’t like this as it would reduce their profits and they may choose to stop building, which then increases the cost of purchasing a house.
In recent years governments have approved the development of rental buildings to increase the rental stock, which is a good move. The problem with the newer developments is that they look like “condo buildings”. They have insuite laundry, marble counters, high end appliances, fitness and recreation rooms. This is all great but that is not what the market needs. That is the same market as the condo market, which tenants are advising is unaffordable.
Let’s compare this to the auto market. Car manufacturers are always pushing the higher end of their lineup and reducing the entry level cars in the market. This increases the cost of the products being sold. Now imagine if car dealers were not allowed to sell used cars. The only car you can buy is brand new, the cost of the cars would be increased further. This is what has happened in housing, there were no used cars for sale for too long and now the industry is trying to bring in more used cars to help the market, except they are only bringing in cars that are two or three years old and are only the best models. This would not reduce the cost of buying a car.
Governments need to push developers to build a certain product that the market needs for purpose built rental housing. When left to their own devices the developers will build the higher end product which allows them the greatest return on investment, I don’t blame them for that everyone else would do the same. Maybe what needs to happen is each year the government contracts to the private sector to build a specific purpose built rental product and then it is managed by a third party. Every five or ten years the government sells these products to the free market using the funds from the sale to build more products. These products need to be entry level type products. No fitness rooms, shared laundry etc. Like an entry level vehicle.
Allowing the developers to dictate what they want to build will only result in unaffordable housing.
Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
