This executive summary lays out highlights from the report Acquisition and Preservation of Affordable Rental Housing, written by Max Bell School Master of Public Policy students as part of the 2022 Policy Lab.
Access the summary and presentation below, and read their full report here.
This report has been prepared for the Canada Mortgage and Housing Corporation as part of a capstone project for the Max Bell School of Public Policy at McGill University. CMHC tasked the Policy Lab team with providing recommendations to the federal government to promote acquisition and preservation of affordable housing in the long term. The focus of this report is the specific role of non-profit housing providers in supporting acquisition and preservation of affordable rental housing in Canada. This report does not focus on new construction or land acquisition.
Securing an affordable home in Canada is becoming increasingly difficult. While Canada has experienced a population boom since 2015, it is losing existing affordable rental units at a rate of 15 for every one new affordable unit built. Data suggests renter households are over three times more likely to experience core housing need than homeowners. Today, 40 percent of Canadian renter households spend more than 30 percent of their income on rent while one in every five renters spends more than 50 percent of their income on housing costs. While addressing the supply of housing is paramount, strategic initiatives to acquire and preserve existing affordable rental stock are required to ensure that they are not lost to the private market.
The Canada Mortgage and Housing Corporation (CMHC) oversees a variety of affordable housing programs, but none are particularly targeted toward acquisition and only a few fund the preservation of affordable housing. Non-profit housing providers (NPHPs), the second-largest provider of affordable rental housing in Canada, are well-positioned to address some of the challenges of the current housing crisis given the degree of affordable housing they provide and their social mission. NPHPs, however, face several barriers and challenges, specifically in acquiring and preserving existing affordable rental stock. While NPHPs will not solve all the problems of affordable housing, they are essential actors in addressing many aspects of the housing crisis. They can fill the housing gap between what the private sector cannot do and what governments do not have the ability to do on their own.
Canada’s housing policy landscape includes all three orders of government – federal, provincial/ territorial, and municipal. Each province and territory has its own legislative and regulatory framework. The federal government partners with the provincial and territorial governments on housing through bilateral agreements and social housing agreements. As of 2017, the 10-year federal National Housing Strategy (NHS) is intended to support three overarching outcomes - build new affordable housing and renew the existing affordable housing stock; provide technical assistance, tools, and resources to build capacity in the community housing sector; and provide funds to support local organizations and support research, capacity-building, and excellence and innovation in housing research. Since then, the initial commitments have been expanded and currently, an ambitious plan of more than $70 billion aims to ensure that all Canadians have access to affordable housing that meets their needs. The federal government has recently recognized the need to prioritize the acquisition and preservation of affordable housing and to increase collaboration with NPHPs to address the challenge of housing in Canada.
Across the country, NPHPs and their partners are currently undertaking creative and innovative solutions to the housing needs within their localities. Individuals working in the affordable housing space noted, however, that NPHPs face barriers in applying for and receiving NHS funds through CMHC, with smaller NPHPs especially being disadvantaged due to the competitive and demanding process. These experiences were most common in the National Co-investment Housing Fund given the lengthy applications and requirements, with only a few NPHPs having the necessary experience and knowledge. There are also capacity gaps within the sector; although these gaps are acknowledged by NPHPs themselves, few are able to adequately address these barriers given limited resources, high staff turnover, and competing priorities. There are also barriers to accessing high-quality, reliable data, which is also an issue for various levels of government in understanding the activities of NPHPs. Barriers related to government jurisdiction, especially at the municipal level, were also identified as challenges in the work of NPHPs. Finally, there appears to be a lack of confidence among the Canadian public in leaders of nonprofits more broadly, including NPHPs. This, coupled with the stigma that NPHPs can face in their activities due to the communities they serve, can present barriers to preserving and acquiring the stock of affordable housing.
International case studies
To take on the challenge of providing more and better housing services, governments frequently collaborate with and support NPHPs in capacity building. Organizations such as the National Housing Federation and Chartered Institute of Housing in the United Kingdom together provide capacity building programs to NPHPs. The housing sector in the UK is distinguished by the presence of a strong regulator which ensures high standards of governance and transparency, and also the long history of significant government investment in social housing. The Australian National Housing Finance and Investment Corporation (NHFIC), meanwhile, offers sector-wide capacity development grants via a Capacity Building Program to registered NPHPs in one of four priority areas. In Denmark, Boligselskabernes Landsforening (BL) is a cooperative social housing association that engages in annual training
of tenants and personnel in tenant democracy, management and administration of social housing policy, housing administration, and elected representatives’ rights and competencies. They also assist member organizations in interpreting rules around administration audits, budgets and accounts, and rental rules among other areas.
Other countries also offer examples of how to successfully coordinate support for NPHPs between orders of government. Austria delivers on its housing mandate through a well-developed collaborative housing model where NPHPs and the federal, state, and municipal governments implement a range of policies. The governance and financial model underlying Denmark’s direct and indirect support for private non-profit housing offers lessons for boosting affordable housing provision without creating a burden on public finances. To meet its affordable housing challenge, France implemented policies at multiple levels of government as part of a shared strategy and focused on four approaches to produce additional, permanently affordable units.
Finally, Canada’s peers offer lessons on how to finance NPHP’s acquisition and preservation activities. The United States Low-Income Housing Tax Credit (LIHTC) applies to new construction, acquisition and renovation of existing units, and refinancing for existing affordable units. State housing agencies award the credit to developers and housing providers through competitive bids, and the developers in turn sell the credits to investors. This way, developers can access capital upfront quickly while investors benefit in claiming the tax credit over the course of ten years, as long as the underlying project remains affordable. The US also has examples of using revolving funds for affordable housing. After an initial, one-time funding infusion, usually from the government, revolving funds will achieve a self-sustaining level of “float” where drawdowns for loans to NPHPs are offset by loan repayments and the accrual of interest. NPHPs in Denmark also take advantage of revolving funds, over the long term. After 40 years of paying off mortgages and subsidies, income stays in the non-profit system and becomes part of a revolving fund that is accessible sector-wide. Australia in contrast uses social bonds, issued by a bond aggregator at the NHFIC, which is ultimately backed by the Australian government. Social bonds, by definition, can only go to socially beneficial purposes. In this case, bond proceeds allow the NHFIC to provide long-term, low-interest loans to NPHPs. These savings can then be put toward acquiring and preserving affordable housing units.
Capacity building of NPHPs
Several potential methods were considered to deliver a formalized, long-term training program to NPHPs. Options considered included capacity building grants, requiring an increase in and further specification of the Sector Transformation Fund, and the creation of a new centre under CMHC to be solely responsible for capacity building. However, given various considerations, these options were not selected as final recommendations.
This report recommends a re-balancing of the Community Housing Transformation Centre (CHTC) through an amendment of the existing agreement between CHTC and CMHC. The re-balancing would require CHTC to undertake direct training and expert service delivery as a greater portion of their activities. To initiate this transition, new trainings and services would be focused specifically on acquisition and preservation. Provision of these services would support NPHPs in growing their professional capacity, making them stronger actors in the affordable housing space and ultimately becoming more self-sustaining in the long run. Providing such services under the CHTC would build upon its established foundation, while also drawing upon existing training programs and the expertise of NPHPs across the country. It would be necessary to consider the resources required to develop these trainings and services and the possible demand from NPHPs, as this may influence the degree of services offered. Gaining buy-in from the CHTC, the provinces, and NPHPs will be key aspects in ensuring the feasibility of this recommendation.
This report also recommends the development of a national registry for NPHPs to be housed within CMHC. Under this system, NPHPs would register and would be asked to provide information on their assets, activities, and other information on a periodic basis. The registry would help in filling a significant data gap that currently exists in Canada on the activities of NPHPs, especially in the number of affordable units under NPHP management. This data would be accessible to all levels of government and NPHPs themselves to assist in better understanding and developing more effective policies. The registry would be used to identify buildings that are at risk of being lost to the private market to provide other NPHPs with the opportunity to acquire the units. In the future, it could also be used as a mechanism for evaluating NPHPs, and for providing favourable access to government funding. It would be prudent to ensure there is no duplication of data collection efforts by establishing partnerships with provinces and other entities. The buy-in of NPHPs would be essential to the success of the program as well as the ongoing resource needs of CMHC.
Greater government support for NPHPs
Municipalities play a direct role in partnering with the NPHPs in providing and steering affordable housing outcomes. While both NPHPs and private developers face the same municipal regulatory compliance challenges, the impacts are more acute for NPHPs, given their limited ability to access additional capital and equity to invest in projects. Several options were considered, including expansion of the Housing Accelerator Fund to include acquisition and preservation of current housing stock and encouraging the replication of Montréal’s right of first refusal by-law.
However, given constitutional considerations, this report recommends that the federal government launch a pilot project exempting NPHPs in approved municipalities from all property taxes for the duration of the program by issuing an equivalent tax rebate. NPHPs in preselected municipalities would receive rebates from the federal government for a period of five to ten years. If subsequent evaluation finds the pilot program to be effective, the provincial and municipal governments would be encouraged to continue the program by offsetting the revenue loss through alternative means. The federal government could also negotiate with the provincial governments to share costs as is currently being done under the bilateral agreement framework. A property tax rebate is likely to reduce the operating costs of the NPHPs and free up their funds for acquisition, improving their financial sustainability in the long run. A rebate would be administratively easy and practically feasible; however, this recommendation would have financial implications for the federal government, runs the risk of provincial pushback, and could require expenditure cuts in other critical areas of public interest.
Funding models for acquisition and preservation
Reprogramming existing NHS funding that CMHC already has experience managing would likely be the simplest approach to funding NPHPs. CMHC knows where this money is and can request that Cabinet or Parliament reallocate these funds. Adopting the LIHTC is also appealing because it maps well onto Canada’s federal system of government and harnesses private capital for the public benefit. But ultimately, the best support for NPHPs would be sustained funding for acquisition and preservation, making social bonds and/or a revolving fund the best options.
Social bonds can provide NPHPs with a reliable, continuous, and dedicated source of funding that improves sector capacity and enables the sector to preserve and acquire affordable housing. Social bonds, like the LIHTC, also provide a way to bring private investment into the provision of affordable housing, with risk minimized by a government guarantee on the bonds. A revolving fund meanwhile would likely only require a one-time federal expenditure rather than many payments over a longer period of time.
The recommendations in this report would be executed through an action plan that includes consultations with NPHPs to better understand their needs. Evaluation of existing programs would also be conducted to explore the possibility of resource reallocation or alternative sources of funding. Establishing an institutional framework and seeking due approvals would be critical to operationalizing the recommendations. A monitoring and evaluation framework would be created and institutionalized to assess the effectiveness of the recommended interventions. This framework would include constant feedback from the NPHPs. Since the success of the recommendations would also depend on the awareness of the new programs among NPHPs, a communications plan would be developed and implemented to make NPHPs across the country aware of the new program, with special attention to visibility and the accessibility of the program to smaller NPHPs.
Federal support for NPHP acquisition and preservation will help to supplement supply-side initiatives within the NHS by ensuring that the existing affordable housing stock is protected. NPHPs will continue to play a pivotal role in the affordable housing space now and into the future. These recommendations will help in preventing the exacerbation of the current housing crisis through a systems-level approach.
Download the full version of this report here.
This Policy Lab was presented by our MPPs on July 11, 2022. Watch the video below:
About the authors:
MPP Class of 2022
MPP Class of 2022
MPP Class of 2022
MPP Class of 2022
MPP Class of 2022