Incentivizing rental housing construction.

BC Premier Eby's plan to incentivize rental housing construction by importing Japanese capital and exporting the profit on this investment to Japan will not build affordable (cost-plus) rental housing. Meanwhile, domestic Canadian capabilities hiding in plain sight can do the same job and build affordable (cost-plus) rental housing to boot. Here is how.

Leaving aside hedge funds and other asset-market players, when a commercial bank makes a loan, it creates a fiction known as fractional reserve money. "Fractional reserve" means that a BOC-mandated "fraction" in excess of the bank's actual capitalization can be loaned out even though this fictional money exists only as a credit on the debtor's side of the banks' ledger and a debit on the bank's.

The BOC has the ability to loan money, too. In fact, the BOC can print money, and the BOC putting an equivalent number of actual dollars into circulation as the fictional dollars a commercial bank creates results in precisely the same amount of inflation. So the BOC can print money out of the blue without borrowing it from anyone, and it can loan it to parties interested in building and operating turn-key rental housing infrastructure, exactly as Mr. Eby's Japanese investor has proposed.

Next, BC Housing is supposed to finance (i.e., loan money that will be paid back in the form of rents) the construction and operation of affordable (cost-plus) housing. The province of BC allocates a certain portion of its budget to fund BC Housing.

Now, suppose that BOC loans the province of BC which loans BC Housing $1 billion at a very low rate of interest, and BC Housing loans that money at that rate of interest to not-for-profit organizations clamoring for funds to build and operate affordable rental housing. All of these transactions are loans, and the loans, assuming this scheme is implemented, are all paid back – and the funds are available to be loaned again and again forever – by tenants in the form of rent, the same way financial predators are paid back now and then some to satisfy their boundless profiteering.

One more piece of the puzzle is that once this chain of rental housing construction credit is established, zero – meaning no more – for-profit rental housing will be approved by anyone at any level of government. This will force sharpies feeding today at the no-brainer housing-rip off trough to invest their gargantuan hoards in producing goods and services that people want and need (with the exception of healthcare and other necessities of life, which should never be used to rip off the public) and the production of which gainfully employs workers.

Similar analysis of financing detached homes and condos is a subject for another day.