NOTEBOOK: What does “affordable housing” mean?

Aussi disponible en français …

 “Affordable housing” is a term that gets used in a lot of different ways.

There’s a generally-accepted guideline that housing is affordable when all housing costs (rent/mortgage, plus utilities and property taxes) make up a maximum of 30% of before-tax household income. You shouldn’t spend more than 30% on housing so that you still have enough money for income taxes, food, clothing, transportation, and other daily needs.

In this post we’ll crunch some numbers to estimate what kind of salary you need to afford a rental in Ottawa these days, and what elected officials mean when we talk about “building more affordable housing”.

---

1. What does it cost to rent today in Ottawa and Stittsville?

 A good source of data is Rentals.ca which publishes a monthly Rent Report based on a survey of average rents from listings on its web site. It’s a good reflection of current market rents: in other words, what are landlords asking for when a unit becomes vacant? For February 2024, the average rent for a 1-bedroom in Ottawa was $2,040 (up 6.2% year-over-year) and for 2-bedrooms was $2,500 (up 10.6% year-over-year).

 

 

How do rents in Stittsville compare to the city-wide rates? There’s not a lot of data about apartments rentals in Stittsville because the number of units is so small. However, there are a lot of people who rent single homes and townhomes in our community. Looking at active listings on Rentals.ca in Stittsville on the first week of March, there was a 3-bedroom townhome renting for $2,550 and a 4-bedroom for $3,195 – typical of the rental prices we’re seeing lately.

 

 

The Canadian Mortgage and Housing Corporation (CMHC) also publishes a yearly Rental Market Report with data about purpose-built rentals. City-wide in 2023 in Ottawa, purpose-built rental for an average 2-bedroom apartment was $1,698, up 4% from the previous year. They also track Stittsville as part of a much larger area including all of western Ottawa and surrounding rural areas. Average rent in this zone was $2,370 in 2023.

 

---

 

2. Affordability and non-profit housing

When councillors and elected officials talk about “building more affordable housing,” usually we’re referring to something more specific: non-profit housing.

What is non-profit housing? From HART (Housing Assessment Resource Tools): “Housing that is owned and operated by community-based, non-profit societies or local governments and regional districts. Their mandate is to provide safe, secure, affordable accommodation to households with low to moderate incomes. Most non-profit housing societies receive some form of financial assistance from government to enable them to offer affordable rents.”

Some other words that you might have heard used to describe non-profit housing include “community housing”, “public housing”, “social housing”, or less often, “low-income housing”.

In Ottawa, examples of non-profit housing providers include Ottawa Community Housing (OCH), Nepean Housing, Centretown Citizens Ottawa Corporation (CCOC), Goulbourn Non-Profit Housing Corporation, etc. (Worth watching: Video about the difference between non-profit versus for-profit housing.)

There were 12,500 people on the waiting list for affordable housing (i.e., non-profit housing) in Ottawa at the end of 2023.

Ottawa’s Official Plan further breaks this down into two categories:

• Market affordable: “A dwelling unit for which a household at or below the 60th percentile of household income pays 30 per cent or less of its gross income towards shelter costs…”
• Core affordable: “A dwelling unit for which a household generally at the 30th percentile of household income pays 30 per cent or less of its gross income towards shelter costs…”

To translate that into actual rental rates and incomes, we look at household incomes from the most recent Census (2021), and divide them up into ten different income levels, or “Deciles”.  If your household income is in Decile 1, you’re among the lowest 10% of income earners. If your household income is in Decile 10, you’re among the 10% of highest income earners.

Here are the average household incomes for renters by decile, along with what’s considered affordable at each level.

 

 

So any rent at or below $2,028 is considered “market affordable” to families at the 60th percentile.  And any rent at or below $1,008 is “core affordable to a family at the 30th percentile.  Non-profit housing rents are usually targeted to be affordable to one or both of these income levels.

Think about that for a moment: a family making $81,103 per year would qualify for “market affordable housing” because they’re in the lowest 60% of earners. And the only affordable apartments for this family in Ottawa would be bachelors or 1-bedrooms – anything larger would be out of reach.

***

Another data point: Median renter income in Ottawa is considerably lower than median homeowner income in Ottawa. Here’s the most recent Canadian Census data:

 

Putting all these numbers together, here’s a chart that shows average monthly rents in Ottawa and Stittsville, against what a household earning the median rental income can afford.

This is what we mean when we talk about an affordability crisis. If renting a bachelor apartment requires an annual income of more than $64,000, it’s no wonder there are so many people struggling to find a suitable place to live. Many renters end up paying far more than 30% of their income on housing and they’re cutting corners elsewhere on things like food, prescriptions, or clothing.

 

---

3. For many, renting is more affordable than owning a home

Informally, I’ve often heard people define any rental apartment as affordable, simply because the monthly cost of a typical home in Ottawa is even more out of reach for many residents.

In Stittsville, the average single home sold for $936,276 in 2023, up nearly 60% from $586,479 in 2019. The average townhome sold for $606,163 in 2023, up about 53% from $395,846 in 2019. The average home price in Stittsville is higher than the Ottawa average: city-wide, the average single home sold for $825,532 in 2023 and the average townhome sold for $536,915. (Source: Ottawa Real Estate Board)

Based on those numbers, what would a typical mortgage cost for a new home buyer in Stittsville, and what household income would you need to afford it?

 

 

***

Now let’s compare the monthly cost of owning a home versus renting a home in Stittsville.

*Income required so that housing costs (not including utilities) do not exceed 30% of before-tax household income.
**Includes mortgage plus estimated property taxes.

House prices are soaring far faster than household incomes are rising. There’s a great chart making the rounds on social media showing the rise of home prices as compared to increases in income in Canada. (Spoiler: it’s nearly off the charts.)

Another recent Canadian analysis shows that at current income levels and interest rates, house prices would need to decline by 38% in Ottawa to restore affordability. Alternatively, incomes would have to rise 30% to restore that balance. (Go ask your boss for a 30% raise and let us know how that goes.)

 

---

4. Wrap up

Every month, more and more people in our community from all ages and incomes experience the housing crisis. Older adults, first-time home buyers, single parents, new Canadians. It’s getting harder and harder to find an affordable place to live. Many families are spending more than the recommended 30% of before-tax income on housing, and we’re seeing the effects in a number of ways, for example higher food bank usage and growing household debt.

Ottawa’s vacancy rate was at 2.1% in 2023, the same rate as in 2022 and down from 3.5% in 2021. The vacancy rate in western Ottawa (including Kanata and Stittsville) eased slightly from 0.4% in 2022 to 1.4% in 2023. More than 3,500 new rental units were completed across Ottawa in 2023, but record migration to Ontario continues to put pressure on the rental market. (Source: CTV Ottawa / CMHC) That supply crunch is pushing rental prices up and up.

City council is focused on getting more homes built, including:

• Non-profit housing for residents with lower household income. The Federal Government recently announced $176.3-million for the City of Ottawa for housing, with 90% of that earmarked for non-profit organizations to build market-affordable and core-affordable housing. That’s on top of the record $30-million that City Council earmarked in the 2024 budget for new affordable homes.
• Private sector housing. Investments in non-profit housing won’t be enough to address the lack of rental supply that we need to re-balance affordability for everyone. That’s why we’re enacting new policies and processes to encourage construction of more purpose-built rentals and new homes. (See also: Why are there so many applications for apartments in Stittsville these days?)

Is there anything you’d like to know about affordable housing or housing issues in general? Please contact me with your questions and feedback.