Introduction
(Visual: A bird’s-eye view of a row of houses. The camera cuts to an aerial view of a busy city street intersection. The camera cuts to a tall building. The camera cuts to an aerial view of a city at dawn with a skyscraper under construction.)
(The screen cuts to a white and purple background with the following text on screen: Ask an expert)
[00:06] Joelle Hamilton, Communications & Marketing, CMHC: Everyone’s talking about how to improve housing affordability these days.
(Visual: A view of a 4-storey apartment building under construction. The camera cuts to the interior of an apartment, still under construction.)
[00:10] We’ve all heard that increasing housing supply is crucial to achieving affordability.
(The woman speaking, Joelle Hamilton, appears on camera, seated, in an office setting. On the left side of the screen, the following text appears: “Joelle Hamilton, Communications & Marketing, CMHC”)
[00:15] Building new homes not only increases the number of homes in the market, it also leads to a process called “filtering.”
[00:22] In this episode of CMHC’s Ask an Expert, we’ll discuss this concept in depth and explore how it can provide more affordable housing in Canada.
What is filtering?
(The screen cuts to a purple background with the following text in white: “What is Filtering? fiI-ter-ing: the process by which housing comes to serve different residents.”)
[00:34] Joelle: Let’s start with the basics. What exactly is “filtering”?
(The camera cuts to the next speaker, Aled ab Iorwerth. He is seated, in an office setting. On the left side of the screen, the following text appears: “Aled ab Iorwerth, Deputy Chief Economist, CMHC”)
[00:39] Aled ab Iorwerth, Deputy Chief Economist, CMHC: Filtering is the process by which, when we build new housing that's more expensive, it's higher-income households that generally move into that housing, but it frees up less expensive housing for other households to move into.
(The screen cuts to a white background. In blue, an icon of a house and the text “New Housing” appears. This icon and text move to the right of the screen and, in the space created to the left, the text “Higher-income household moves into new housing” appears, with an arrow underneath pointing to the icon of the house, which is to the right. Everything moves to the right, and a new icon, that of a small apartment building, appears in the space created to the left, with text that reads “Vacated Housing #1.” Everything again moves to the right. In the space created to the left, the text “Middle-income household moves into vacated housing” appears, with an arrow pointing to the small apartment building to the right. Everything once again moves to the right, and a new icon, that of a large apartment building, appears in the space created to the left, with text that reads “Vacated Housing #2.” Everything moves to the right a final time. In the space created to the left, the text “Lower-income household moves into vacated housing” appears, with an arrow underneath pointing to the large apartment building to the right. A title appears at the top of the screen that reads “New Housing Creates Vacancy Chain.”)
(The screen cuts to a bird’s-eye view of a suburban street with 2-storey houses and cars. The camera cuts to a family walking on a sidewalk: a woman pushing a toddler in a stroller next to a man holding the hand of a little girl. Everyone is smiling. The camera cuts to another family of 4 walking down the street with their dog, holding hands, also smiling.
[00:56] Aled: And, with enough more supply, this leads to much more affordability as people move through the housing system. This is why it's really important to look at the housing system overall and to look at the dynamic effects on more housing supply over time.
How does filtering help provide more affordable housing?
(The screen cuts to a purple background with the following text in white: “How Does Filtering Help Provide More Affordable Housing?”)
[01:14] Joelle: CMHC’s new research and international studies show that filtering does provide more affordable housing.
(The screen cuts to a bird’s-eye view of rows of houses. It then cuts to a view of a city at sunset, and, finally, to an aerial view of a city at dawn with a skyscraper under construction.)
[01:22] Aled: Sustained increases in housing supply over many years lead to this overall improvement in affordability.
(The camera cuts to Aled ab Iorwerth.)
[01:29] However, all of the research that we've seen does demonstrate that filtering helps affordability. The data are available in Scandinavian countries, Finland and Sweden, to track people as they move through the housing system. And all of those studies have demonstrated that more housing supply leads to greater affordability over time.
[The screen cuts to a white background with a light-grey map of Europe that has Finland highlighted in purple. In the upper left-hand corner of the screen, there’s the following text: “60% are from lower-income families”]
[01:50] Joelle: Finnish research shows that, when a new home is built, 60% of the people who move into homes that become available next are from lower-income families.
[01:59] This means that building new homes helps many families with less money find a place to live.
(Camera cuts to a pan through the wood framing of a house under construction. The camera then cuts to 2 construction workers looking at a building plan. The camera cuts to 4 construction workers lifting and putting in place the wood frame of a wall. The camera cuts to an aerial view of construction workers at the top of a building under construction. The camera cuts to a pan of the workers on the roof of the building, seen from above.)
[02:06] Aled: New construction, it does cost a lot of money. Materials, labour, land – it's all very expensive. This is why increased housing supply in the first instance will help lower the price across the market system of housing and over time improve rental availability.
Depreciation and affordability
(The screen cuts to a purple background with the following text in white: “Depreciation and Affordability”)
[02:29] Joelle: A key aspect of filtering is how buildings age and depreciate as they get older.
(The screen cuts to a suburban street seen from above.)
(The camera cuts to Bob Dugan. He is seated, in an office setting. On the left side of the screen, the following text appears: “Bob Dugan, Chief Economist, CMHC”)
[02:37] Bob Dugan, Chief Economist, CMHC: Depreciation plays a critical role in the filtering process. As buildings age, their rents and their value tends to decrease.
(The screen cuts to a white background. On the background appears a graph with a horizontal x-axis titled “Building Age – Years” and a vertical y-axis titled “Percent Difference in Rent.” The line drops rapidly from 0% to close to 20% on the y-axis as it moves from 0 to 20 years on the x-axis, and then stabilizes, somewhat, near that level as it runs all the way to 100 years on the x-axis.)
[02:44] Our research shows that rents decrease 5% after the first 4 years relative to a new building.
[02:51] After 20 years, the rent decrease relative to a new building is more like 20% in inflation-adjusted terms.
(Camera cuts back to Bob Dugan.)
[02:58] So, in other words, older buildings are more affordable for lower-income households than newer buildings.
Balanced approach to housing
(The screen cuts to a purple background with the following text in white: “Balanced Approach to Housing”)
[03:03] Joelle: When discussing housing strategies, some believe that focusing on either low-cost or high-cost housing is the right approach.
(Camera cuts to Joelle Hamilton.)
[03:12] But, based on our research, that’s not the case.
(Camera cuts to Aled ab Iorwerth.)
[03:15] Aled: We need to increase housing supply for everybody. Filtering, increased market supply of housing will help the vast majority of Canadians, but we also need policies to help those at the low end of the income distribution.
Criticism and research on filtering
(The screen cuts to a purple background with the following text in white: “Criticism and Research on Filtering”)
[03:31] Joelle: It's true that filtering doesn’t work overnight, but studies from the U.S. show that the filtering effect can be felt within 2 to 5 years.
(Camera cuts to Joelle Hamilton.)
[03:39] These studies also show that every 100 new units built in above-median-income neighbourhoods creates 70 vacancies in below-median-income neighbourhoods.
(Camera cuts to Aled ab Iorwerth.)
[03:51] Aled: So, there's a lot of criticisms of filtering: it takes too long, it doesn't work, there's no evidence and other policies need to be followed.
(Camera cuts to a shot of a house under construction in a wooded area. The camera cuts to a construction worker guiding pipes hanging from a crane. The camera cuts to a family walking toward a townhouse and holding boxes. The camera cuts to a view from inside a house looking at the door. The door opens and a small boy comes running in. His parents follow behind, holding boxes. The camera cuts to a young girl resting on her dad’s chest, laughing.)
[04:01] There is a grain of truth in all of these. Filtering does take a long time. This is why we need a sustained increase in housing supply over many years, if not even over many decades. It has taken us a couple of decades to get into the current predicament. It will take time to get us out of it, and the process of filtering will help to achieve affordability.
(Camera cuts to Joelle Hamilton.)
[04:24] Joelle: A U.S. study found that every year a building ages, its real value decreases by 0.3%, and rents decrease by 0.7%. It also found that a unit’s new tenants tend to be less affluent and have incomes 3% lower than those of the previous tenants, while, for owner-occupied homes, there's a 0.5% income decrease at turnover.
(Camera cuts to a man and a woman in a living room, surrounded by boxes, putting boxes on the floor. The camera cuts to a family of 2 parents and 3 children in their living room next to a cardboard box. The camera cuts to a small child, seen from behind, on his bicycle, riding on a path next to a 10-storey apartment building. The camera cuts to a man and a woman walking, holding the hand of a young child between them. The camera cuts to a small boy seen from the side, riding his bicycle.)
[04:48] This means that, over time, newer units eventually become the more affordable housing of tomorrow.
Criticism 3 – Focus on Social Affordable Housing
[04:55] Aled: We need complementary policies to help those that are living in social and affordable housing. Nor can we rely only on social and affordable housing, because, yes, that's an important tool to help low-income Canadians, but it will not address the needs of the vast majority of Canadians that are living in market housing, whether for homeownership or for rental.
Government policies to accelerate filtering
(The screen cuts to a purple background with the following text in white: “Government Policies to Accelerate Filtering”)
[05:20] Joelle: We've talked about the importance of new housing and filtering, but what role can the government play?
(Camera cuts to Bob Dugan.)
[05:27] Bob: Government policies can support filtering by ensuring a sustained high level of housing supply. To achieve this, coordination at different levels of government is essential, and government policy should encourage a balanced mix of housing supply across the continuum.
Key takeaways and conclusion
(Camera cuts to Joelle Hamilton.)
[05:43] Joelle: Housing isn't just about building homes;
(Camera cuts to a young girl and a man looking at a book together in a library. The camera cuts to a view of 2 children seen from the front, riding their bicycles on a path in a field. The camera cuts to a bird’s-eye view of a large coastal city. The camera cuts to a ferry moving toward the shore. The camera cuts to a pan of an aerial view of a suburban neighborhood with houses, trees and swimming pools. The camera cuts to a man in a t-shirt and hard hat writing on a surface. The camera cuts to a coastal neighbourhood at sunset.)
[05:46] it's about how people move and live in different types of homes throughout their lives. We need to look at the entire system and increase the supply of all types of housing, especially mid-cost housing, to make it more affordable for everyone.
[06:02] We need a coordinated approach involving different types of housing and continuous new construction to achieve long-term affordability.
(The screen cuts to a white background with the following text in purple: “Subscribe on YouTube”. The screen flashes, and the background becomes purple, and the text, white.)
[06:12] Make sure to subscribe to our YouTube channel to get the latest videos from our new Ask an Expert series.
(The background flashes back to white, and the CMHC chevron symbol appears, in purple, then becomes red and turns into the full CMHC logo before moving to the right. In the space created to the left, the Canada Wordmark appears, next to the CMHC logo.
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