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Bridge Beat

Apr 17, 2015

The State of Social and Affordable Housing: Life Begins on the Other Side of Despair

Comments to the Northern Ontario Service Deliverers Association

April 16, 2015

 John Fox

 Thank you for the opportunity to speak with you today. Where ever you sit in the housing ecosystem, DSSAB, Service Manage, Local Housing Corporation – where ever – you are facing a financial crisis in housing. When I am engaged in housing, it is often to flesh out some new idea intended to meet those challenges. And some of those ideas, or a combination, may help us, and so I am happy to share some of these with you.

I titled my presentation “Life begins on the other side of Despair”, because I think there are solutions, but to get there, we have to get past the despair of focussing on the one-two punch that created the current financial crunch.

 First, the entire sector is worrying with the imminent end of operating agreement and this conversation, as you well know, is the dominant one across Ontario. It impacts almost everyone from private not-for-profits to co-ops to Local Housing Corporations. I know many housing providers are working out just how impacted they will be and looking at ways to address that, such as changing their proportion of market units and anything else they can do to generate revenue. This exacerbates the challenge of meeting demand, since staying viable at all will force some providers to lower the number of units they are making available at affordable rates.

Second large chunks of the sector face a staggering backlog – particularly service managers and LHCs that took on former provincial housing stock, and had to take it on “as is where is”, without any capital reserve. As a result, they were underfunded relative to their asset base from the day they took over. Because it’s the biggest, Toronto Community Housing (TCH) is the most vocal about this. Two weeks ago, TCH’s CEO spoke to the Toronto Board of Trade putting the backlog at over $2B and pointed out that they will eventually be forced to simply close some housing – something like 7500 units in the next 5 years or so. (You can find the report on TCH’s website)

 

None of this should be a surprise or new. Operating Agreements have been set to expire since the day they were signed, there has been a repair backlog since the day the download happened, and buildings need maintenance from the moment of completion. Basically, we have known what 2015 was going to look like since the download in 2001.

That is a pretty brutal place to be. It would be easy and tempting for us to throw our hands up, relish the unfairness of it all and despair. After all, it’s not our fault that we are here, but the burden of trying to find a way forward is ours to bear. Ok. Not fair. But Life begins on the other side of despair. So the question is no longer how did we get here, but how do we move forward with the objective of providing safe and secure social and affordable housing opportunities.

Here are some of the responses to this challenge that we are seeing:

 

  1. Request more Money. The obvious answer to a funding problem is … more funding. Toronto Community Housing recently published a report setting out a business case for investing in housing. Leaving aside any moral imperative to provide housing, they ask whether it makes economic sense to do so. The argument is about avoided costs – if you have housing, you avoid trips to the hospital, to shelters and so on, and you have a better tax base. Since that avoided cost is greater than the cost of fixing housing, we should fix housing. It’s a useful read as you look to measure the impact of housing in your own communities and persuade senior levels of government that they ought to feel invested as well.

     

    But, it’s important to understand that fixing the backlog is not an end game. There is little point in fixing the backlog that if the portfolio you are left with remains unsustainable. So a request to fix the backlog should be accompanied by a go forward strategy that does not put housing on the same path underfunding that it is on today.

     

  2. Lever more Money – The next most obvious answer to a funding problem is to lever more money – that is borrow against assets and invest that money in infrastructure today. The prototype is TCH’s bond issues for Regent Park. And we know NOSDA has looked at following suit. There is a unique opportunity here because NOSDA as a collection of service managers may be able to gather sufficient assets and income streams and use a bond to lower its cost of borrowing and borrow longer term money than would otherwise be available.

     

    You had a presentation on this last year. At that time, there was a question as to whether DSSABs could do that kind of borrowing. That is a question that our firm, along with two other law firms including Weiler Maloney here in Thunder Bay, had a chance to look at. We came to the opinion that it is possible for a DSSAB to do this. Our opinion tells the whole story with our reservations and explanations, but, for our purposes, let us say that is an approach that NOSDA is right to continue exploring.

     

    Of course, the thing about borrowed money has to be paid back, and so has to be captured as part of an overall plan for housing. In fact, the DSSAB Act contains a provision which appears to require matching of revenues and expenses (See Section 9 of the DSSAB Act). So, not to overstate the obvious, you have to be able to pay it back when it’s due!

     

  3. Development – Development in this context usually means turning land into money for repairs or to create a reserve. In its simplest form, a housing provider with excess land sells it to raise money. In a more complex form, the housing provider either partners with the private sector or develops the land itself in order to reap the benefits of increased value associated with development. Last year in Sault Ste Marie, I had a session on this topic – how to contract with a private sector interest to develop land and I am happy to chat about that after.

     

     

    Development can mean other things as well. Such as using the opportunity to increase the type of affordable stock – by creating affordable ownership, for example.

     

    Here is the thing about development though – it’s not a part time job. It is a skilled process that requires knowledge and experience and an ability to connect the dots from architecture through to construction and delivery. Absent that, you may find yourself building your architect’s third year university fantasy housing project and getting used to the words “cost over-run”.

     

    Some service managers are thinking big in this regard – Last year we worked with the City of London to develop a proposal for a Housing Development Corporation. Part of the rationale for doing that is related to building development expertise to take advantage of redevelopment opportunities within the City. So that is one service manager that is looking to development to help it stabilize its portfolio.

     

  4. Governance – There is a tendency in the sector to accept the current structural components pretty much as is. The Co-ops have certain housing, private not for profits have other housing, and Local Housing Corporations run another set of housing. There is rarely movement of units among these forms of governance, with the exception of projects in difficulty sometimes being absorbed by local housing corporations, making them bigger but usually more vulnerable financially.

     

    As a result, we rarely look at the structural issues that are driving the cost structures that make it difficult to make ends meet. Let’s put it another way: Is the size of our backlog – and the cost to operate housing - related in part to how we govern it? If yes, then a change may yield savings in the Sector.

     

    We need to reconsider, for example, whether a housing site that is, or could, be self-sufficient should remain within a larger structure or be spun out to a private not-for-profit, with service managers assuming a regulatory rather a direct (or indirect through an LHC) ownership role. Such a course of action requires entrepreneurialism from the not for profit and a willingness to relinquish control from the service manager or local housing corporation.

     

    Moving sustainable assets out naturally means the most challenging sites will remain with the service managers, but the total need for funding will decline and the service manager and LHC can focus on building up the remaining assets before spinning them out.

     

    Let me be clear, I do not know the best allocation for governing housing and I suspect the optimal allocation among LHCs, not for profits and Co-ops will vary from place to place. My main point here is that all of these options have to be on the table.

     

  5. Finally – There is always room for a nifty new idea. We may yet find some imaginative solutions. I know of a couple. One is Trillium Housing which is trying to build a private investment fund to support second mortgages so that affordable ownership can be a part of new construction. A second one is one I am involved in. Last year at the Ontario Not for Profit Housing Association Conference, Christine Pacini and Norm Tasevski and I presented an idea we call the Resilient Communities Fund. The idea is to allow affordable units to be created through condominium investment, and fund the rental subsidy by taking a slice of different real estate transactions that already exist in real estate industry. I don’t need to go into detail here (you can see our presentation on the Robins Appleby Website). These are both privately generated entrepreneurial ideas which help housing, for which the principles have put money and time at risk, and through which they may make money. My point is this: that we should not confine ourselves to what exists today in considering how to change our world and cool ideas can come from anywhere, and its ok to make money while doing so.

So I return to the premise of this presentation – there is life for the Housing Sector after End of Operating Agreements, but that life is going to be different and to make it work, we will have to be willing to challenge all existing assumptions and find and encourage new approaches and ways to make Housing happen.

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