The Case for Housing Bonds

You would be hard pressed to find a single candidate in this year’s Ontario municipal elections who doesn’t cite affordable housing as one of the leading issues in their campaign. Many identify the lack of housing supply as the primary cause of the affordability crisis and propose that the way out of this massive problem is to simply build more housing. However, few of the proposed solutions actually provide any detail around exactly how or with what money more homes should get built. It’s clear that here in Toronto, we cannot rely on the usual revenue streams, like the municipal land transfer tax, to build more housing. In fact, that revenue stream is starting to dry up given the recent increase in interest rates. As housing prices continue to slide, one of the City’s leading revenue sources is drying up. So, what is a cash strapped, housing deprived city like Toronto to do? Enter: issuing housing bonds.

A bond is a ‘fixed-income’ instrument, issued by an entity, and securitized as a tradeable asset. A form of ‘corporate’ debt, where a fixed interest rate –or coupon –is paid out to debtholders. The idea of the city issuing bonds is not entirely without precedent. First, the City of Toronto already issues bonds like Green Bonds to meet environmental goals, and social bonds to fund basic infrastructure - like Canada’s largest municipal water supply. Secondly, some affordable housing units are funded in part by social bonds issued by the city of Toronto. However, the city does not issue housing specific bonds. Other jurisdictions –like Portland, Oregon —do. In fact, Portland recently issued $211 million (USD) in housing only bonds to build thousands of affordable units. If a city 1/4th the size of Toronto can issue $211 million (USD) in housing bonds, what can Toronto do?

It is the time to put the city’s excellent credit rating to work, re-investing in our city and future. As higher interest rates continue to pressure risky equity markets downwards, investors are seeking safer returns. With coupons on recent bonds issued by the City touching north of 4.5%, surely there are investors hungry for these kinds of safe returns.

According to City of Toronto data, in 2018 the largest bond issuance by the city totalled $300 million. That sum unfortunately will not cut it if Toronto is to seriously tackle our housing affordability crisis. That’s why Toronto will need to issue $600 million if the city hopes to dig itself out of the housing mess we’re in. With that sum of money, Toronto can once again begin to build the affordable housing units people need; that means co-ops, purpose-built rentals, and affordable housing units for sale.

It’s easy for candidates to promise to fight for more housing. Heck, I have. But an honest assessment of the nuts and bolts of housing, or in this case the financing, is more urgently needed here. Pushing our elected officials to address the housing crisis with real solutions means understanding them first.