Anatomy of An Affordable Housing Project

Monday’s special CBRM council session on affordable housing was so full of information that I find myself forced to choose one part to write about today, for fear of overwhelming you with facts and figures.

It started with a presentation by Paul LaFleche, the deputy minister of Municipal Affairs and Housing, with help from assistant deputy minister Mark Peck. LaFleche threw out a lot of information, including the fact that he bought his Halifax house for $140,000 and it’s now worth $550,000, to which I can only say, mazel tov, but did we really need to hear that during a discussion of affordable housing and homelessness?

He showed slides like this one, which he called:

…a very detailed chart with lots of numbers, tiny numbers, these are the types of charts I like to bring to Treasury Board to get approval on something where they can’t read the numbers and I can flash it up quickly and say, “Do you vote yes or no?”

Which is kind of a perverse joke to crack to municipal councilors as you’re flashing numbers they can’t read in front of them but, okay:

NS Gov't Affordable Housing Presentation (Slide)


(The “click-to-enlarge” feature on my website has not been working properly lately, so if you are having trouble reading that chart, you can view it here. And yes, I recognize the hypocrisy in presenting you with a chart you can’t read in this context.)

LaFleche defined “affordable” housing as housing that is in good repair, suitable in size and costs no more than 30% of a household’s pre-tax or gross income. Earlier that same day, though, his department had announced funding worth $6.4 million for three, private sector “affordable housing” projects in which rents would be “at least 20% below market value,” an entirely different definition. The explanation for this became clear during a presentation by Erika Shea, CEO of New Dawn Enterprises, who said that in their funding criteria for affordable housing projects, both Housing Nova Scotia and the Canada Mortgage and Housing Corporation define affordable as “80% of average market rents.” Why both organizations would tout the 30% of gross income definition publicly (see CMHC’s website) while actually enforcing a less stringent definition is an open question.

As you can see from the extent of the siren red section under “singles,” the shortage of affordable housing in the province is particularly acute for single-person households.

LaFleche also provided some helpful stats on housing in CBRM:

CBRM Housing Stats

But rather than focusing on LaFleche’s presentation, I’m going to focus on Shea’s, because I found it really eye-opening in terms of the obstacles faced by non-profits looking to build affordable housing.


2-Bedroom Rental

When it comes to affordable housing, New Dawn knows whereof it speaks, having been a non-profit provider of community housing — a mix of market and affordable units — for 40 years.

Shea’s notion of “affordable housing” is more expansive than “20% below market rate.” She said the goal is to ensure “all Nova Scotians can find a home that’s right for them at a price they can afford in a healthy, vibrant community that offers the services, supports and opportunities they need.”

She then walked council through the economics of building a two-bedroom rental unit.

Excluding mortgage/capital costs, she said, typical operating costs are $4,200 per year, including “wages for maintenance staff, property taxes, repairs, insurance, snow removal and utilities.”

To be affordable, she said the unit would have to rent for $700 per month or $8,000 per year. Consulting LaFleche’s chart, you’ll see this would mean affordable for singles in the fifth decile and up and households in the lowest decile.

(If you’re wondering what happens to singles in the first to third deciles, the answer should be public housing — although if they’re not seniors, as we’ve discussed in these pages before — finding public housing is nearly impossible. Public housing was not officially part of Monday’s discussion, although LaFleche promised responsibility for it would not be downloaded to the municipality — this after dismissing it as “a very small amount of the market.” That would be because the feds stopped building it in the ’90s and the province didn’t pick up the slack, as I discussed here. But I digress…)

If you need a 30-year mortgage to develop/build a two-bedroom unit — and Shea put the cost of such construction between $200,000 and $250,000 — the annual cost of the mortgage is approximately $9,500, based on 2.5% interest. At that point, your total annual operating costs are $13,700 while your revenues remain $8,000.

Land costs, she said, are “largely only important at the margin.” Capital costs are the “defining factor in the ability to develop and maintain affordable housing.”

This is important, because providing cheap or free land is one of the few ways a cash-strapped municipality like CBRM could assist in funding such a project. During the discussion that followed Monday’s presentations by Shea, Fred Deveaux of Cape Breton Community Housing and Dr. Catherine Leviten-Reid, the CBU prof who has spearheaded much of the housing research in the CBRM, Shea said New Dawn has been given lots of land — it’s the cost of building on it that is the constraint.

Which brings us to the actual project under consideration: the conversion of the Seton School in Sydney Mines.


Dignified living

According to Shea’s slideshow, the Seton development is to be a mixed-income, “dignified,” environmentally sustainable, 20-unit (10 affordable, 10 market) project featuring “thoughtful” housing and site design, internet as a “shared and necessary utility,” and “on-site services and amenities.”

The former school currently houses a food bank and a gymnasium, both of which will be retained (and playground equipment added), but while they had initially thought to renovate classrooms into living units, Shea said they realized the finished product would still be very “institutional.” So instead, the plan is to demolish the unused portions of the school and construct new housing.

The capital costs will include internet infrastructure and solar panels and tenants will pay one, all-inclusive, rent including heat, lights, water and internet.

Artist's Sketch: Seton School Project, Sydney Mines, CB, Canada



Costs vs Revenue

According to Shea’s presentation, the projected cost of the housing only (which will entail a 45-year mortgage) is $4.6 million. (Fun fact: Stephen McNeil, in one of his last acts as premier, gave $5 million to a women-led venture capital fund for literally no good reason. Shea, obviously, didn’t draw this comparison, but having been thinking about government betting on venture capital all week, I can’t help but feel that $5 million is not going to produce something better than 10 dignified, environmentally sustainable and affordable housing units. But again, I digress…)


Seton School Capital Costs


Tapping all sources of non-repayable contributions — including Housing NS, the Federation of Canadian Municipalities, Efficiency Nova Scotia and CMHC — Shea says New Dawn can expect to raise $1.4 million, or 30%, of total project costs. The rest must be borrowed from CMHC and servicing that debt will be the single-highest annual  operating expense — $153,000 — associated with the development.

Total annual operating costs for the units will be $306,500 while the revenue they’ll produce (if 10 are made affordable) will be $273,496, leaving a $33,004 deficit. This calculation was made using the “80% of Average Market Rents” definition of affordable. If the 30% of gross income definition is used, it would result in a $104,752 annual deficit for the Seton project.

On the other hand, if all 20 units were rented at market rates, the result would be a $33,700 annual surplus.

Seton School Project (Costs and Revenues)


And that, in a nutshell, is why for-profit developers will never, left to their own devices, build affordable housing.



During the discussion that followed the presentations, Shea raised the issue of CMHC’s criteria for affordable housing, noting that the corporation wants such developments to be within 1.5 km of a public school, an increasingly difficult demand to meet in CBRM, where so many schools have closed.

LaFleche (who didn’t stick around for the other presentations) had earlier spoken about a related problem, the deficiencies in CMHC’s data about communities like CBRM — a subject I explored back in September. Briefly, the corporation collects detailed information about census metropolitan areas (CMAs), like Halifax, but much less detailed information about smaller areas, like CBRM. Most glaringly, it collects no information about what is called the secondary rental market here, meaning “rentals in buildings with fewer than three units.” But the secondary market accounts for 43% of the CBRM rental market, so CMHC’s data are skewed. In October 2020, for example, the corporation reported that Sydney had a vacancy rate for 2-bedroom apartments of 8.4%, which contradicted what literally everyone else — CBRM staff, affordable housing providers, residents, researchers and housing advocates — were observing.

The problem with this is that affordable housing projects can be vetoed by CMHC if its data shows there is no need for them. So CMHC data needs improvement (CBRM council has written the federal minister and deputy minister of Social Development Canada asking that CMHC reassess its data and consult more closely with local experts to ensure its numbers accurately reflect the situation on the ground.)

But that’s not the only area where there is room for improvement.

Shea ended her presentation saying that Housing Nova Scotia needs to increase its contribution per unit of affordable housing from $50,000 to upwards of $100,00 and CMHC needs to increase its non-repayable contribution to projects from 5% to 20%.

She also threw cold water on some of the fixes LaFleche had proposed — saying, as noted earlier, that land contributions are an “insufficient incentive,” as is “waiving building fee/permits” (which account for just 0.2% of building costs). “Inclusionary zoning,” which I will have to write about in more detail at another time, but which the province has introduced to give municipalities the ability to offer incentives to private sector developers, is “an important part of the puzzle,” according to Shea, but it’s efficacy in solving the affordable housing problem will be a function of how much private sector, multi-unit development is happening in the community already.

The bottom line, she said, is that incentives that appeal to governments because they don’t cost them anything are usually not effective incentives. Solving this problem is going to require money.