Issue:
In late September, CMHC announced a new Rapid Housing Initiative to create 3,000 spaces for homeless persons. This funds new modular construction and acquisition-conversion of non-residential property; but it does not encompass acquisition of existing moderate rent properties, many of which are at risk due to financialization or redevelopment. As an example in Ottawa it is possible that the city will spend $32 million under RHI to add 100 spaces while they lose almost 200 existing rooming house spaces.
That’s an expenditure of $32 Million with an outcome of an increase of 100 homeless persons! This raises a critical questions of how we are measuring the impacts on homeless and affordable housing investment and how we are designing these investment programs.
Context:
Over the past 2 years concerns have risen about an ongoing process of erosion of the existing moderate rent stock. In the five years 2011-2016 the number of rental units in Canada renting below $750 per month and thus affordable to households with annual incomes below $30,000, has declined by 322,000. It is extremely likely that since 2016 and pre COVID, this erosion persisted, and more affordable units were lost.
This erosion (loss of 322,000 units under $750) is caused by two situations: municipal intensification policies; and the issue of financialization – capital funds and Real Estate Investment Trusts (REITs) purchasing these properties.
First, many cities are advocating for intensification, which inevitably and inadvertently tends to place pressure on the older inner city areas where much of the older 1960-70’s moderate rent stock exists. Consequently low density apartments are demolished and replaced with unaffordable condo and luxury rentals.
The universe of CMHC tracked purpose built rentals provides empirical evidence of this absolute loss. Adding new purpose built completions from 2001 (total of 376,000 new units) to the 2001 universe, the total universe should be 2.216 million: however the universe is 116,000 fewer.
So 116,000 purpose built units that existed in 2001 have been demolished. This accounts for just over one third of the total loss 2011-16.
The other two-thirds of the decline still exist, but rents have moved higher, now well above the $750 benchmark. The increase in rents is driven by market pressures, but abetted by the practice of capital funds and Real Estate Investment Trusts that target :”under performing properties” and strategically reposition these to generate higher rental incomes and yield to their fund investors.
Much of this repositioning involves strategies to displace existing tenants and subsequently take advantage of vacancy decontrol regulations that allow rents in vacated units to more to market (versus the lower rents preserved under occupancy and application of a more modest rent index guideline).
And notably, CMHC aids and abets the process of financialization by offering its insured mortgage products to assist these capital funds and REITs to secure the financing required to facilitate their acquisition programs. It is necessary to advocate to CMHC to cease these enabling activities.
This erosion massively negates all efforts of the National Housing Strategy to reduce renter need and homelessness – between 2011-16 for every new affordable unit created 15 existing affordable (under $750/month) were lost.
Recognizing this serious issue, a number of national associations, including the Federation of Canadian Municipalities (FCM), Canadian Housing and Renewal Association (CHRA), Canadian Alliance to End Homelessness CAEH), the Canadian Federation of Apartment Associations (CFAA) and the Canadian Housing Policy Roundtable (CHPR) alongside other organizations and provincial associations have advocated for refinements or addition to the National Housing Strategy to fund and finance non-profit providers to purchase existing affordable properties. In many cases the rents are below the median market rent, a benchmark that new supply programs seek to achieve, but require very large subsidy to do so.
Preserving these existing relatively affordable units, at a fraction of the cost per unit, is critical to slow the growth in housing need, and to have any hope of reducing renter need and homelessness.
In late September the federal government announced a new Rapid Housing Initiative (RHI), to create up to 3,000 new spaces for homeless persons displaced by COVID and as an addition to the $55 Billion National Housing Strategy. Initial expectations were that this new $1 Billion funding program was a modest response to advocacy for an acquisition funding program.
Subsequently once the RHI program eligibility and funding guidelines were released in October, it became apparent that this was more narrowly focused on creating new spaces for displaced homeless persons, many in temporary accommodations or encampments. Funding is allocated only to construct new modular housing projects (which can be assembled quite quickly) or to convert non-residential space into permanent supportive housing. CMHC officials have confirmed that the initiative is not designed to enable non-profit acquisition of modest rent properties.
In Ottawa an opportunity to acquire a portfolio of properties containing just under 200 units has been identified as an acquisition target. If purchased privately, there is a risk that units will be lost (properties converted to regular rental or demolished for redevelopment – sale of 100 units by same vendor last year resulted in all existing tenants being evicted).
The RHI allocated $32million to the City of Ottawa with a target to produce 100 new spaces for homeless persons, but this RHI funding cannot be used to acquire this “at risk” portfolio.
In the event that no other source of funding can be found to acquire and preserve the 200 rooming house units, these 200 low rent (albeit not great quality) rooms could be lost. So Ottawa may spend $32 million to create 100 new “rapidly housing spaces, but the count of homeless could still increase by 100 (100 current homeless housed but 200 currently housed become homeless).
That’s an expenditure of $32 Million with an outcome of an increase of 100 homeless persons! This raises a critical question of how we are measuring the impacts on homeless and affordable housing investment
An option would be to take one-third of this RHI allocation in Ottawa to assist in the purchase and preservation of the existing units, leaving $20 million to create perhaps 65 new homes (a total outcome of 265 versus a loss of 100).
If CMHC is unable to refine and add this type of flexibility to the RHI to facilitate such emergency acquisition, it should immediately create the separate targeted acquisition program that a broad array of national and provicial associations have advocated for over the past year. Such a program would include a modest grant element toward acquisition down payment together with access to the low rate financing CMHC is able to offer via the NHS and being used in the NHCF and RCFI programs).