It was Monday morning as I began writing this and I had just heard Damian MacInnis explaining to the CBC’s Steve Sutherland how his “social enterprise” — Rural Cape Breton Enterprises — is going to build affordable housing on Cape Breton Island. (Its Facebook page specifies “low to medium income rental units.”)
Damian MacInnis (Source: LinkedIn)
His plan involves accessing government money through his non-profit social enterprise, then “leveraging” that money to attract private investors, who will receive an agreed upon portion of the rents as the return on their investment.
As I interpret it, that means his company will help private investors access government funding they would not otherwise be entitled to.
MacInnis’ argument is that COVID-19 has driven building costs up so much, it is not profitable for private developers to build affordable housing without an assist from government.
But I am going to stop him right there because affordable housing has never been sufficiently profitable to encourage private developers to build it. That’s why our affordable housing crisis pre-dates the pandemic.
I could end this discussion here, but I can’t resist poking a few more holes in MacInnis’ case.
RHI
In his world, it’s apparently not possible for government to simply build affordable housing, or partner with actual non-profits to build affordable housing.
But the federal government is doing this as we speak through its Rapid Housing Initiative (RHI), part of its 10-year, National Housing Strategy. (Which is not to say the federal government has a great record on social housing, as we’ll discuss in a moment.)
Last October, the RHI offered funding for affordable housing via two streams: the first $500 million went to “major” cities, including Halifax, which received $8.7 million and directed it to three non-profits — the Mi’kmaq Native Friendship Centre, Adsum Women and Children, and the North End Community Health Association.
The second $500 million “projects” stream was open to “provinces, territories, municipalities, Indigenous governing bodies and organizations, and non-profit organizations.” We’koqma’q First Nation in Cape Breton has accessed funding through this stream. (CBRM CAO Marie Walsh told me that the CBRM did not apply for funding under this program, nor was it approached by any local non-profits looking for assistance in applying. This seems like a lost opportunity to me, but one that is beyond the scope of this article to explore.)
You’ll notice that for-profit companies were very obviously excluded from this program, which doesn’t mean they won’t benefit from it. Take the case of Adsum Women and Children. The non-profit secured $4 million in funding from the RHI to build “Sunflower Court,” a 25-unit affordable housing development in Lakeside. As Adsum explains on its website, it has assembled:
…a team of local architects, designers, contractors and construction professionals including Passive Design Solutions, Cobequid Consulting and DORA Construction to bring its vision to life.
But the key is this: the private companies will not end up with an ownership stake in this development, they will not milk it for profit over the coming years. As Adsum’s Sheri Lecker told me:
The contractors mentioned, and others, are providing services and construction, they are not investors in the project.
Adsum for Women & Children is the owner. Rents will be used to maintain the housing which will be truly affordable, as in rents geared to income (30% of household income). Rent for a 3 bedroom, therefore, may be as low as $357/mo (30% of the standard household rate for a family of 3+ on income assistance).
MacInnis’s company, it appears to me, will seek to access this type of government support (not RHI specifically, of course, because the deadline for applications has passed) in the guise of a “non-profit” then turn around and bring in private investors, basically allowing them to benefit from government contributions they are expressly barred from receiving. Contributions MacInnis told Sutherland might include municipalities providing “services” and/or 99-year leases on public land.
P3
These ideas are always presented as happy collaborations between governments and investors who all want the same thing, but in this case (as in most) governments and businesses don’t want the same thing at all.
Governments (presumably) want to ensure their citizens have roofs over their heads. Investors want to make money. When it comes to the provision of affordable housing, they are really at cross purposes.
Under MacInnis’ proposal, as noted above, a private investor would get a share of the rent from the affordable housing units, the exact percentage to be “negotiated,” but you can be sure that share will be a) significant; b) protected against any and all eventualities.
Instead of government simply building housing units and using the rents to cover maintenance and operating costs (as Adsum intends to do), a good chunk of the rent will go to the investors, who have been guaranteed a certain return on their investment. So the rent must be high enough to ensure the private investors’ profits — which is exactly what happens in the regular housing market and is the reason people can’t find affordable housing.
In this situation, the only option for ensuring rents stay affordable while the investors make their profits would be for the government to provide more funding, meaning it will very likely end up spending more on the project than if it had simply gone it alone in the first place.
That, dear readers, is the magic of public-private partnerships.
Western CB
MacInnis spoke particularly about the situation in Western Cape Breton where our “world class” golf courses are wreaking havoc with the local housing market. People who work in the community during the tourist season can’t afford to live there because local landlords find it more profitable to rent to tourists on platforms like Airbnb. People looking for year-round accommodations are out of luck because landlords don’t want year-round tenants cutting into their tourist season action.
The problem here seems to be rather different from the general, island-wide problem of a lack of affordable housing in that, the Inverness market is so skewed, even people with decent incomes are priced out of it. MacInnis noted to Sutherland that two of the people on the Rural Cape Breton Enterprises board had trouble finding accommodation when they arrived in the area.
But surely this represents a classic opportunity for a private developer, unaided by government, to provide “medium-income” housing?
Gratuitous shot of Cabot Trail. (Photo by Eric Van Lochem, CC BY-SA 4.0, via Wikimedia Commons)
Instead, MacInnis, who has apparently benefited from this problem he’s now seeking to solve (he is president of Celtic Keys Property Management, a company that handles “management of rental and seasonal properties along Western Cape Breton”), suggested to Sutherland that one way Rural Cape Breton Enterprises could improve the housing situation in Western Cape Breton would be by allowing locals to “downgrade” (I am 99% sure he meant to say “downsize” but he said “downgrade”) from their older family homes into affordable housing units. Rural Cape Breton Enterprises would then take ownership of the home and “put a family” in it.
Let’s do a little thought experiment based on this, shall we?
Say we’re Rural Cape Breton Enterprises and we’ve built our affordable housing units in Western Cape Breton with both public and private money. A local resident jumped at the chance to “downgrade” their older family home in return for subsidized rent in one of the new units.
As a result, we now own a family home in Western Cape Breton.
Do we:
a) Rent this house to a young, local family at a reasonable rate;
b) Sell this house to a young, local family at a reasonable price;
c) Make a small fortune renting this house to tourists.
If the private investor we are working with has anything to say about this, I promise you, we will be choosing Option C.
Although why anyone would trade their “old family home” for a subsidized housing unit rather than simply selling it on a hot real estate market is beyond me.
Government MIA
The Social Enterprise Alliance defines social enterprises as:
Organizations that address a basic unmet need or solve a social or environmental problem through a market-driven approach.
But when a “basic” need goes “unmet” in a society, it represents a failure of government. And Canada generally — and the province of Nova Scotia in particular — has really dropped the ball when it comes to what the real estate experts term “non-market housing.”
Neil Lovitt, the man behind the blog at TurnerDrake&Partners, a Halifax-based real estate broker, devoted an extra-long entry to explaining the province’s housing crisis on Tuesday and this is what he had to say about “non-market” — meaning public or subsidized or social — housing in this province:
Canada as a whole has not engaged much in the production of social housing, especially since the late 80s and early 90s as the federal government unwound their previous decades of involvement. Yet, even by these low standards Nova Scotia has the dubious distinction of being the second worst province in terms of adding to its stock of non-market housing since 1990.
Lovitt used 2019 data from a Canada Mortgage and Housing Corporation survey which found that since 1990, Nova Scotia has constructed 910 units of social and affordable housing, representing just 7% of the province’s stock of such units. (The province with the very worst record, though, is New Brunswick, which has built 13 units since 1990.) Lovitt writes:
Barely more than 7% of Nova Scotia’s non-market inventory has been built since the 90s, and I would wager the proportion for more recent decades is closer [to] 0%. Over this same timeframe, all housing completions tracked by CMHC totaled nearly 98,000 units, meaning only 0.93% (910 units) of what we’ve built has gone towards increasing our non-market inventory.
Lovitt says this state of affairs is “at least somewhat understandable” because Nova Scotia has been able to “coast along without too much trouble thanks to stagnant population growth and the ability of NOAH to take considerable pressure off the waitlists of non-market options.”
NOAH is not the biblical gentleman with the Ark (sometimes known as the “father of the cruise industry”). NOAH stands for “Naturally Occurring Affordable Housing,” housing that is affordable:
…mostly because it is less desirable relative to other options in the market, and this is principally a function of when it was built. Buildings go down in relative value over time, or depreciate in valuation parlance, because they go out of style, they get rundown and tired, they lack design features and amenities that more recent buildings have, they are more likely to suffer pest nuisances…
This part of the housing inventory is critical for those employed in entry-level positions or lower-income industries.
I think in layman’s terms NOAH is often synonymous with “dump.”
In a hot real estate market, these properties are suddenly worth fixing up, which leads, as Lovitt explains, to the “renoviction” stories we’re hearing more of, particularly in Halifax. It also reduces the stock of these affordable (if rundown and pest-ridden) units.
In addition to which, Lovitt notes, income inequality in this province is becoming so stark that those in the bottom 40% often struggle to afford even the dwindling stock of “NOAH.” He blames this on the gap between incomes in this lower 40%, which have risen about 0.26% per year in the past decade, and “the operating expenses of the buildings they occupy (property taxes, utilities, construction materials, insurance premiums, contractor and trade labour, etc)” which are “growing at a much higher rate.”
(Note the component left out of that list — profit.)
Lovitt’s conclusions are pretty solid, though:
Ultimately, the spectrum of the population that the housing market serves is getting narrower, and a big part of that issue (especially the “crisis” part) is due to stagnant household finances and stagnant social supports as inequality in our society grows.
And:
If there was one thing the Province could do without having to wait for their Affordable Housing Commission to tell them, actually increasing the inventory of social housing would be it!
MacInnis’ plan would target this already narrowing spectrum of the population served by the housing market rather than the growing spectrum of people left out of it.
Leadership
MacInnis named the people who serve as the executive and management team of Rural Cape Breton Enterprises (a company not listed in the Nova Scotia Joint Stocks Registry as of February 24) and I think its instructive to consider who they all are:
President:
Abraham Somavarapha served as business manager for the Port of Sydney from January 2016 to December 2017, and is now a finance advisor with the Co-operators in Halifax as well as a “B.Comm PFP® CITP®”
Vice President:
Laura Langille is a project manager with Paul Davis Canada, the restoration and construction company. Langille is based in Halifax.
Secretary/Treasurer
Jill Gardiner is the coordinator of evaluation and learning at United Way Cape Breton and is, for reasons that puzzle me, based in Halifax, according to LinkedIn.
Management Team
Damian MacInnis is principal consultant at Colindale Business Solutions, Port Hood; president Celtic Keys Property Management; former vice president of Celtic Air Services; and former economic development officer with the Cape Breton Partnership.
Elizabeth Barry is a real-estate consultant whose LinkedIn profile says she is also director of multi-residential with DORA Construction’s Somerled Properties division, the company that bought the old train station at 75 Dodd Street in November 2020 and proposes to build apartments that do not seem to be designated as “affordable.” (The sale has actually taken place, I verified it with the Land Registry at a cost of only $11.04.)
MacInnis said Barry has experience with affordable housing, but he didn’t elaborate on this and I couldn’t find anything that fit the description in her work CV.
Johannes Dombrowski is president of Kempt Road Consulting Inc., MacInnis said has worked with “a land development company” in the past. He is based in Cleveland, NS.
Corey Sigvaldason is a BC native who now lives in Inverness. He describes himself as: “The World Expert on High Performance Experts and Founder of HOP®” and his expertise in affordable housing, according to what MacInnis told Sutherland, is that he moved to Inverness and had trouble finding affordable housing.
With the exception of Gardiner, all these bios scream “enterprise” much more than they scream “social.”
But I’m biased, because I don’t understand the need for a “social enterprise” where a government agency or a traditional non-profit or a good, old-fashioned cooperative would do.
The profit motive got us into this mess, so it’s almost touchingly naïve to believe the profit motive will get us out. Rather, this unmet, basic need for affordable housing is a job for government and if you read Lovitt’s blog entry (and I highly recommend you do) you’ll see it’s a job government seemed actually willing to do in the 1970s.
But it’s not just a question of government spending — it’s an investment with what the CMHC calls a “social return,” and I’m going to end with the organization’s framework for calculating SROI (social return on investment) for affordable housing:
