Asset-Based Welfare

Asset-based welfare is a neoliberal alternative to the welfare state. In this system, individuals rather than governments are expected to bear the burden of spending on health care, education, and housing. This transition in Canada’s welfare approach occurred in the mid-1990s and resulted in reductions to housing supports, restricting them primarily to those in extreme need. At the same time, it strengthened the role of homeownership as a cornerstone of Canadian society.

Advocates for asset-based welfare presume that increasing entrepreneurial prowess throughout society increases general well-being. Individuals are thus expected to accumulate assets, such as savings, investments, or property, which can serve as a financial safety net in times of need (thereby shifting the problem of risk from the state to individuals). On this view, real estate, as an achievable asset for large swaths of the middle class, is the investment par excellence. Asset-based welfare relies on incentivizing or facilitating homeownership through polices such as providing tax breaks for homeowners or offering programs to help individuals save for a down payment on a house.

Homeownership is an enticing idea to many and Canadians eagerly bought in to the idea of the “ownership society.” Between 1996 and 2021, the number of homeowning households in Canada increased by 45 percent, from 6.9 to 9.9 million. Today, homeowners represent approximately 66.5 percent of all households in Canada, though in most provinces this share has surpassed 70 percent.

For this reason, taking any action that brings house prices closer to what the average Canadian can afford has been characterized as political suicide, and market-based solutions are portrayed as the only way forward. When governments put forward new proposals to improve affordability, “it’s often like tinkering around the edges at best, without fundamentally changing what’s going on,” says Danielle Kerrigan, a graduate researcher with the Urban Politics and Governments research group at McGill University.

A Snake Eating Its Own Tail

Although widespread access to homeownership is supposed to reduce the need for social supports by fostering wealth redistribution and providing lifelong security, recent evidence suggests otherwise. In Canada, the rise of homeownership is exacerbating wealth inequality. Last year, TD Bank released a study that shows wealth disparities between homeowners and renters in Canada are growing — the wealth of homeowners is 6.3 times higher than that of renters.

The reason why homeownership appeared to have equalizing effects for a few decades was the existence of steady employment, reasonable wages, and low interest rates, but times have changed. As work becomes more precarious and the income needed to afford a place to live rises well above median wages, Canada’s homeownership rate is declining for the first time in five decades.

Since 2015, the price-to-income ratio in Canada has increased faster than in other G7 countries, reaching a record high in 2022 — and household debt has grown accordingly. This doesn’t only affect the capacity of renters to enter the market, it also impacts homeowners carrying a mortgage.

The rise of interest rates has prompted many Canadians to become landlords through the use of “mortgage helpers,” typically in the form of garden and basement suites they can rent out to those priced out of homeownership. But this is no win-win situation. As access to homeownership becomes increasingly limited, wealth continues to concentrate in a few pockets. “Wages don’t buy houses. Houses buy houses,” says Ricardo Tranjan, author of The Tenant Class and senior researcher at CCPA. The relatively low-risk nature of investing in residential real estate, accessible to those who can afford to enter the market, is made possible by tenants who have no choice but to bear the burden of the cost.

In this context, “renting as a tenure becomes worse and worse the more everyone relies on equity to fully participate in [society],” Kerrigan says, adding that “homeowners are in this weird position where they rely on housing for social reproduction, but also have a strong need for the value of their property to continue to go up.”

“Their futures rely on investing on these assets that are often acting against their actual material interests to have a house they can afford that’s of decent quality,” she adds. “It’s this weird system, like a snake eating itself.”

Housing Speculators

The reluctance to take swift political action on housing, despite the substantial number of homeowners, is puzzling. It may be the case that there are larger interests at play. “When politicians and governments decide to make use of their authority, they displease some people,” Tranjan says, noting that “there are winners and losers to government intervention.”

When 96 percent of all housing is provided by the private market, curbing price growth wouldn’t just affect homeowners; it would also jeopardize the sustainability of an entire industry. This includes realtors, developers, banks, and pension funds. Recent research estimates that a third of all homes in Canada are owned by individual or institutional investors, and financial firms alone own approximately 20 percent of Canada’s rental housing stock.

The prominence of financialized landlords matters because they tend to have more resources and influence than the typical homeowner. In November last year, a consortium of real estate investment trusts launched an initiative to lobby against tenant protections. Members of this group have participated in housing affordability task forces whose recommendations reinforce the belief that governments have no role in housing, consequently strengthening the grip landlords have over the private rental market — and on a majority of Canada’s renters.

According to a report Kerrigan coauthored, the outcomes of evicted tenants who manage to find a spot in nonmarket housing tend to be better than of those who end up in a corporate rental. Despite this, Canada’s road map for housing affordability, the National Housing Strategy, has focused its programs on increasing market supply. But in a financialized private market, this approach has failed to deliver. Since the strategy’s implementation, 114,000 new units have been created, but critics suggest that few of these units are within reach of low- and moderate-income Canadians.

The Need for Nonmarket Housing

The financialization of Canada’s housing stock represents just one among many consequences of the federal government’s retreat from social housing in the 1990s. This shift has resulted in a growing reliance on the housing market within the welfare system, whether through homeownership or pension funds. Notably, last year, a government pension fund was found to be a shareholder in a financialized rental building jacking rents above Ontario’s guideline.

As the housing crisis takes over the country, Canadians need a new way forward. “We know the solutions we need; we’ve known them for a while,” Kerrigan says. “And if you look at places that have the best housing outcomes, they have huge percentages of nonmarket and social housing, and extensive regulation of the private rental market.”

After World War II, Canadians found themselves in a similar position — and then again in the early ’80s. During both periods, access to housing was limited, and in both periods the federal government took an active role in supporting the production of low-cost housing, including social, nonprofit and cooperative housing. Between 1946 and 1993, the federal government provided substantial funding and direct loans to build social, nonprofit and cooperative housing, as well as market rentals. This effort resulted in the creation of about half a million homes or a quarter of all housing built in Canada over four decades, and it housed half of the country’s low-income population.

“When there was some access to nonmarket housing, it really helped keep down the pressure on the private rental market, or homeownership,” Kerrigan says. “Access was never great, but there was at least a better chance that you were going to be able to access nonmarket housing.”

Thirty years of underfunding, however, have made building nonmarket housing in Canada more difficult than ever. “Right now, the sector has many restrains,” Thomas says. “If you’re a nonprofit applying for funding through the National Housing Strategy, your restrictions are much more stringent on the level of affordability and the number of units that have to be affordable than it is for any of the private sector developers — they would never sign those agreements that we as co-ops and nonprofits have to sign.”

This situation has resulted in decreased competition, as low-cost alternatives aren’t a real option for most tenants. “[Competition] acts as a price dampener,” Thomas says, noting that the current housing system relies on the illusion of choice, which excludes nonmarket housing. “If they’re only selling one product, of course there’s going to be a demand for that product.”

During the heyday of nonmarket housing, construction was enabled by direct mortgage financing from the CMHC, rather than from private lenders insured by the CMHC, as is the case today. “Basically, the only people that can get money to build new housing are people that have a lot of profit,” says Thomas. “And the reason they have a lot of profit is because they charge more rent than most people can afford.”

To change the country’s housing system, Canadians have to organize — and some are already doing it, by forming tenant unions. “People have to continue advocating for better housing options, and options that work for them,” Thomas says. “It’s really time that we question the housing paradigm that we’re in as Canadians. And really ask whether this is the kind of housing system that we want.”