The country has a looming housing problem that is going to require action from all levels of government, according to a new report from the Federation of Canadian Municipalities.

The study says the long, steady decline in federal subsidies for social housing has left provinces, territories and municipalities struggling against market forces that are making it increasingly difficult for low- and modest-income renters.

"With 850,000 lower-rent units lost in the last decade, our rental sector is ill prepared for any downturn in the housing market," Brad Woodside, the president of the FCM, says in the introduction to the study.

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"One in five renters pays more than 50 per cent of their income on housing."

The report notes that existing social housing stock was created under a partnership involving all orders of government, but as Ottawa unilaterally opts out of renewal agreements, cash-strapped provinces and cities are unable to properly maintain the properties.

Housing price increases that have far outstripped earnings and the switch to higher priced condominium rentals have also made it more difficult for many people to get a foothold.

While a third of households in Canada rent, just 11 per cent of housing starts since 1996 have been built as rental units.

"The time has come for a course correction within Canada's housing system," says the study written by Steve Pomeroy, a research associate at Carleton University's Centre for Urban Research and Education.

While the federal government still spends $1.7 billion annually on housing, federal funding as a share of the country's economy as measured by GDP has fallen 40 per cent since 1989.

Insecure housing brings with it costs that rebound throughout the labour market and the economy, says the study.

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The study proposes federal tax credits be used to stimulate the construction of new affordable rental units; that Ottawa commit to maintain and make permanent its current level of funding; and that a national strategy on homelessness and affordable housing be made permanent.