InterAmerica Development Bank Adding to Rental Supply: Review of International Rental and Social Housing Policies and Programs IDB International Symposium Mexico City, July 12-13, 2016 STEVE POMEROY FOCUS CONSULTING INC. & CARLETON UNIVERSITY CENTRE FOR URBAN RESEARCH AND EDUCATION (CURE), OTTAWA, CANADA Steve Pomeroy www.focus-consult.com

Steve Pomeroy Focus Consulting Inc. Outline Some context Comparative trends in rental housing Overview of recent research examining rental programs and policies across six countries Steve Pomeroy Focus Consulting Inc. Steve Pomeroy www.focus-consult.com

Steve Pomeroy Focus Consulting Inc. Context “A well-operating private rental sector is now seen as a necessity for post industrial economies worldwide as households have become less ‘traditional’, mobility and migration have grown and the labour market increasingly requires a flexible workforce” {Scanlon and Whitehead 2010} Steve Pomeroy Focus Consulting Inc.

Concept of Housing as a System Three main parts of the Housing system Ownership Traditional detached/attached homes Condominiums (owned apts) Private Rental Sector Social Rented Sector Distribution in Canada

Canada residential construction dominated by ownership (freehold and condominium) Focus Consulting Inc 2016

Rental Housing Production

Rental Policies in Canada Social Rental Series of public funded supply programs 1949 through 1994 – loans to cover 100% cost plus ongoing operating subsidy to support operations while keeping rents low (30% income) Some small Housing Allowance programs at provincial level (sub-national) All federal funded funding ended 1994 (until 2001) Since 2001 modest scale capital grant program to facilitate production of “affordable rental” – but no more ongoing subsidy Focus Consulting Inc 2016

Rental Policies in Canada Market Rental Mortgage insurance to cover rental loans from 1964 Series of public funded stimulus programs mainly 1974 through 1985 Favourable tax treatment of rental investment until 1993 (and temporary tax initiative 1974-81) No incentives of stimulus policies since 1985 Some new initiatives (low rate finance) now under consideration Focus Consulting Inc 2016

International Experience Focus Consulting Inc 2016

Rental includes private and social Definition of “social” not necessarily consistent Steve Pomeroy Focus Consulting Inc.

Political-Economy Influences Explanations for the formation of distinct welfare states and housing systems respectively Esping-Andersen’s ‘The Three Worlds of Welfare Capitalism’ Kemeny’s classification of dualist/unitary housing markets These influences are reflected in the relative scale and form of each countries private and social rental sectors Focus Consulting Inc 2016

Trend in OECD Rental Sector (Post war-1990’s) Steve Pomeroy Focus Consulting Inc.

Trend in OECD Rental Sector 1990’s to 2012 (private only) Steve Pomeroy Focus Consulting Inc.

Trend in OECD Rental Sector 1990’s to 2012 Steve Pomeroy Focus Consulting Inc.

Trend in OECD Rental Sector 1990’s to 2012 (private only) Steve Pomeroy Focus Consulting Inc.

Trend in OECD Rental Sector 1990’s to 2012 (private only) All countries have well established long term regulatory and legal frameworks Why did many decline, some remain stable some increase? Were these trends underpinned by regulatory reform or where they due to other factors? Steve Pomeroy Focus Consulting Inc.

How has regulation changed Australia, Canada, US have tended toward deregulation (varies by sub-national) Steve Pomeroy Focus Consulting Inc. Source: Univ Cambridge 2012

Steve Pomeroy Focus Consulting Inc. Forms of regulation Enacted via formal legislation either at national or sub-national level Initial rent setting (market, administrative, comparables including influence of social) Rent increases (market based, inflation indexed, administrative) Minimum length of lease (and post lease treatment), fixed vs. indefinite; The landlord’s ability to repossess the property during the lease; The landlord’s ability to sell the property or transfer it to another tenure (during lease period); and The landlord’s ability to enforce the lease if contract is broken Generally higher levels of restriction on rent setting and landlord options create disincentive, but lessen tenant security of tenure Steve Pomeroy Focus Consulting Inc.

Why has rental declined? Decline in most countries (except UK and US) Combination of reasons, but primary cause is a strong policy favouritism for homeownership combined with favourable market conditions (lending augmented by increasing income/affluence) and consumer preference for ownership Other factors are: Demographics – renters typically young or old Planning and zoning regulation Tax policy – treatment of rental income Access to Financing (especially for rental development) Attraction of alternate property/other investment (condo, equity markets) Steve Pomeroy Focus Consulting Inc.

Summary (legal and regulatory) Regulation matters - But alone it is insufficient Balance (landlord vs. tenant) and stability (vs. frequent revision) are critical External factors exert strong independent influence, so must treat housing as a system and monitor interactions between sectors and policies that impact other (social/ownership) sector (e.g. favourable lending and tax treatment of owners) May need to augment sound regulatory framework with incentives and stimulus (Public policy initiatives and funding) Steve Pomeroy Focus Consulting Inc.

Recent comparative research on social and private programs and incentives Review of recent (post 2008 GFC) policies to support/stimulate either social or private rental Six countries: Australia, England, Germany Ireland, NZ, US Focus Consulting Inc 2016

Recent comparative research on social and private programs and incentives Key findings Very minimal supply response to persisting affordability issues. Some new supply – but not targeted to low income and very modest in scale Trend is toward person/household subsidies, in various forms of housing allowance. (Separation of supply and affordability assistance) Expanding practice of asset renewal, redevelopment and leverage. Focus Consulting Inc 2016

Recent comparative research on social and private programs and incentives Key findings Evolution in form of investors (North America) from large scale “purpose built” to small scale investors Blurring of the lines between social and private Emergence of “hybrid” organizations and forms of provision – mixing public objectives and market discipline Focus Consulting Inc 2016

Recent comparative research on social and private programs and incentives Typology of five types of approach: A. Direct measures Initiative to encourage or facilitate market rent supply Initiative to encourage or facilitate affordable supply Mechanisms to support asset rationalization and leverage B. Indirect measures Tax, regulatory (or loan) mechanisms Demand based revenue subsidy (to support leverage of private finance) Focus Consulting Inc 2016

Policies and Programs Reviewed A. Initiatives to encourage or facilitate market rent supply (no conditions on rents or tenant eligibility) A1. Western Australia Affordable Housing Strategy: A2. England: Build to Rent Fund B. Initiatives to encourage or facilitate affordable rental supply (explicit affordable targeting conditions) B1. Australia: National Rental Affordability Scheme (NRAS) B2, Australia Social Housing Initiative (SHI) B3. England: Affordable Homes Programme (AHP) B4. Ireland: Capital Subsidy Program B5. Ireland: Social Housing Strategy 2020 B6. New Zealand: Social Housing Reform B7. US Low Income Housing Tax Credit (LIHTC) Focus Consulting Inc 2016

Policies and programs C. Mechanisms to support asset rationalization and leverage C1. England: Redevelopment Schemes/Estate Regeneration Programme C.2 United States: Rental Assistance Demonstration (RAD) C.3 United States: HopeVI/Choice Neighborhoods Program D. Indirect measures - Tax, regulatory (or loan) mechanisms D1. Australian tax policy to encourage rental investment D2 Germany: Rental system incentives Focus Consulting Inc 2016

Policies and programs D. Indirect measures - Tax, regulatory (or loan) mechanisms D1. Australian tax policy to encourage rental investment D2 Germany: Rental system incentives E. Indirect measures - Demand based revenue subsidy (to support leverage of private finance) E1. Germany: Rental Accommodation Allowance (Wohngeld) E2. Ireland: Rental Assistance E3. New Zealand Income Related Rent Subsidy (IRRS) E4. Australia: Commonwealth Rent Assistance (CRA) E5. US: Section 8 Housing Choice Vouchers Focus Consulting Inc 2016

Case of South Africa Post apartheid efforts to create a private and social market Purposeful approach to building a strong community based Non-Profit sector Strategic use of social housing investment in redevelop zones (labour market support) Limited number of strong competent “social housing institutions” (SHI) (40 @ 5,000 each) Currently 30,000 homes; aspire to 200,000 by 2030 Funding model designed to enable sector self sufficiency (currently being recalibrated) Focus Consulting Inc 2016

Key Lessons and Insights If primary policy objective is quantity, use supply incentives (financing, tax or subsidy) Caution required with affordability criteria (which can undermine supply objective) Demand-based subsidies less effective in stimulating supply (need existing rental stock) But demand-based (rental allowance) can help to manage affordability issues and can create a form of revenue guarantee to enable financing Steve Pomeroy Focus Consulting Inc.

Key Lessons and Insights Critical to invest in building a competent professional community based sector to deliver and operate social housing(capacity building investment, e.g. South Africa) Need a sustainable funding model that nurtures increasing self reliance for reinvestment Need organizational scale Steve Pomeroy Focus Consulting Inc.

Thank you! Additional background reports available at www.focus-consult.com Focus Consulting Inc 2016