Affordable Housing Programs - Your Next Successful Investment in 2023

As housing prices rise—particularly in major urban areas like Toronto and Vancouver—affordable housing is more important than ever. While most real estate investors focus on investments guaranteed to turn larger profits, affordable rental housing can be a smart strategy. The Canadian government offers programs and subsidies to make the proposition more attractive, and it’s an excellent way to give back to the community. After all, everyone needs safe, clean housing, especially when they’re struggling financially.

While investing in and developing affordable housing isn’t for everyone, it could be the key to your next investment success story. Here’s what you need to know before you take the plunge.

If you would like to learn more about investing in affordable housing programs and how it can become a reliable investment niche for you, click the link below for a free strategy call to discover how you can finance these properties.

What qualifies as affordable housing?

According to the Canadian Observatory on Homelessness, affordable housing is defined as costing less than 30 percent of the household’s pre-tax income each month. If you pay more than 30 percent, you’re considered in the core housing need category, and those who spend more than 50 percent are considered in severe housing need. Over 27 percent of Canadian households are in the core housing category, and nearly 11 percent more are in the severe need category. That’s nearly 40 percent of Canada’s households. As you can see, affordable housing is needed across the nation.

To qualify as affordable housing, the Canada Mortgage and Housing Corporation requires that an affordable home is large enough for the occupants and doesn’t require any major repairs. Additionally, be sure not to mix up affordable housing and social housing: social housing is subsidized by the government, but affordable housing can be provided by private, public and non-profit organizations. It includes everything “from temporary emergency shelters through transition housing, supportive housing, subsidized housing, market rental housing or market homeownership.” In other words, all social housing is affordable housing, but affordable housing is a much larger category.

Who needs affordable rental housing?

Everyone needs affordable housing, but there are several groups of people who are more likely to be in need. Seniors and people with disabilities, students (especially returning students) and people in rehabilitation or re-entry programs often struggle to find housing that fits into their more modest budgets.

Depending on the type of housing, it should be designed with appropriate levels of security and accessibility—for example, senior housing should take mobility issues into account, and have security that can handle patients suffering from dementia and similar conditions.

Often, people who need affordable rental housing qualify for government assistance, while the government provides a subsidy for owners that provide a certain amount of affordable rental housing in their buildings. This varies from province to province, so make sure that you understand your local programs before moving forward.

Affordability affects profitability and marketability

Despite tax credits and other incentives, you’ll need to consider your investment carefully. Affordability affects your building’s profitability and marketability—but if you are part of a good government program and have other real estate investments in your portfolio, it can be a smart choice.

To determine whether you can invest in affordable rental housing, first, determine its profitability. For rent, all you need to do is calculate 30 percent of the median income in the area. This will be the maximum gross income per unit.

Next, evaluate the property’s operating expenses. This includes (but is not limited to):

  • Maintenance costs, both interior and groundskeeping
  • Administrative costs, such as municipal fees
  • Repair and renovations
  • Accessibility costs
  • Marketing and advertising costs

Once you’ve added these up, you can compare the costs to the expected per-unit gross income. Remember, income – expenses = gross profit. Is it feasible to offer affordable units, particularly if they’re below market rate? If not, will government incentives and subsidies offset your expenses? Studies have been conducted to source alternative funding for affordable and social housing—you may find unique options to help fund your development.

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Government subsidies and incentives

Speaking of funding and offsetting costs, affordable housing has been in the news more than ever these days, thanks to the effects of COVID-19 on the market. The Canadian government recently announced the Rapid Housing Initiative, which is investing $1 billion to create up to 3,000 new affordable housing units across the nation. There are many pre-determined municipalities in need, but other municipalities and non-profit organizations can apply for funds as well.

Other organizations, like the CMHC, also offer incentives and seed funding for affordable housing developers. They include interest-free loans and non-repayable contributions. The CMHC also provides a guide to developing affordable housing, from a development checklist to an overview of the entire process. It’s a comprehensive way to begin your research, and determine whether affordable housing could be a good investment.

Additional considerations

Although affordable housing can be an investment success story, it’s also a socially conscious way to give back to your community. Not only are you providing one of the most basic needs for low-income Canadians, but providing job opportunities to contractors, property managers, groundskeepers and maintenance staff, real estate agents, mortgage brokers and more. (In fact, you might want to note this in your applications for funding, incentives and your marketing materials.) Working on affordable housing can be great for your real estate investment brand, and projects the image of a company who cares.

However, you must perform enough market analysis to determine whether affordable housing is affordable for you. Make sure that you focus on areas that will command enough rent to pay the bills, first and foremost. All the goodwill in the world won’t help if you’re losing money on the investment.

Affordable rental housing might not be right for every real estate investor, but when the conditions are right, it can be a way to give back to the community and turn a profit.

Now that you know the answer to 'what is affordable housing,' it is time to act. Click the link below to learn how you can finance your next affordable rental investment today with a free strategy call.

Could Affordable Housing Be Your Next Investing Success Story? With Scott Dillingham