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A sign advertising an apartment building for rent in Ottawa on April 13, 2022.Spencer Colby/The Globe and Mail

The federal government has yet to tighten affordability rules under a program that provides billions of dollars in low-cost loans to developers to create rental housing, despite changes that were announced more than a year ago.

In the 2022 federal budget, released in April of that year, the government said it would “target a goal” that at least 40 per cent of units created through the Rental Construction Financing Initiative (RCFI) would be leased at below-market rates. This was a significant departure from existing rules.

RCFI is a major plank of Ottawa’s National Housing Strategy, which includes various programs to improve Canada’s housing stock. More than $25-billion has been allocated to RCFI, aimed at creating roughly 71,000 rental units by 2027-28. The program, which is run by Canada Mortgage and Housing Corp. (CMHC), was launched in 2017.

Under RCFI, housing developers can secure low-cost loans, and in return, they have to fulfill several criteria, which include renting at least 20 per cent of a project’s units at what the government considers affordable rates.

But some housing advocates say that “affordable” units are frequently leased at bloated rates, owing to how those rents are calculated.

Facing that criticism, the government said in the 2022 budget that it would overhaul RCFI to make it “more ambitious” and to create rental housing that was “more affordable.” Those changes have not been implemented. And CMHC is continuing to enter loan agreements with developers under the original criteria.

“Those discussions and design decisions are still ongoing,” said Romy Bowers, president and chief executive officer of CMHC. “When the government makes a decision about that, we’ll implement” the changes.

The office of Ahmed Hussen, federal Minister of Housing and Diversity and Inclusion, did not respond to a request for comment.

The development industry tends to speak favourably of RCFI. Collectively, more than 200 projects across the country have received funding. Wesgroup Properties, a developer in Vancouver, has tapped the program for four projects in its home province. The financing terms convinced Wesgroup to build more rentals than it otherwise would have.

“We think the program’s great from the perspective of just being able to level out the playing field on doing a rental project versus doing a condo project,” said Brad Jones, senior vice-president of development.

As of the end of 2022, RCFI had supported the completion of around 6,700 rental units, while roughly 21,200 units were under construction. As well, projects that total 11,700 units had received loan commitments from CMHC.

However, the program has also generated a fair share of criticism. Relatively few projects are publicly announced, and the locations of most builds are not disclosed, including the home province. (CMHC has cited the “privacy concerns” of developers for not revealing more about these builds.)

Another point of contention is affordability. Under the existing rules, at least 20 per cent of units in an RCFI-funded project cannot be rented for more than 30 per cent of median family income in the area. This calculation includes homeowners, who typically earn more than renters. And it applies to all unit sizes.

Affordable-housing advocates say this formula can lead to excessive rental rates. For instance, an RCFI-funded project in downtown Winnipeg was able to charge $1,756 a month for a bachelor unit – well above market rates, according to a report published last year by Blueprint, a non-profit.

The proposed changes would drastically reduce rents. A greater proportion (40 per cent) of a project’s units would need to be leased at no more than 80 per cent of average market rates in the community.

However, developers say the proposed changes would threaten the financial viability of RCFI projects. Home builders are already dealing with a sharp increase in borrowing rates, along with elevated costs of construction and a shortage of labour, Mr. Jones said. “To then add on the affordability requirements really breaks the model,” he said.

Steve Pomeroy, head of the housing policy research firm Focus Consulting Inc., said it was a “knee-jerk reaction” from the government to propose adjusting the affordability requirements. If Ottawa wants to significantly increase the supply of homes, he said, then it shouldn’t create more barriers to construction.

“Making it a pure supply program, without any affordability criteria, would be a logical thing for them to do.”

Last year, CMHC published a report that said Canada needed to build 3.5 million more homes than projected by 2030 to bring affordability back to levels seen in the early 2000s. So far, the situation is not trending in the right direction. Housing starts have dropped this year as higher interest rates weigh on construction activity.

As those rates were increasing last year, CMHC was entering fewer loan agreements under RCFI with developers. However, Ms. Bowers said that deal flow is picking up this year.

“I do have to say recently, the volumes have improved again,” she said. “There’s been some uptick. But we don’t have any concerns. We still have a pretty strong pipeline” of projects.

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