Affordable Housing Part I: Affordable How?

It’s been roughly a year since I wrote about two Nova Scotia housing reports, one by the Nova Scotia Affordable Housing Commission, the other by the Housing for All Working Group of the Canadian Centre for Policy Alternatives (CCPA), NS Office, and after a flurry of “affordable housing” announcements from not one but two governments, I decided to try and take stock of what’s been accomplished since then but I got completely sidetracked by this CBC article from December 2021 recounting the challenges the Affordable Housing Association of Nova Scotia (AHANS) faced after buying four lots for $4 from the Halifax Regional Municipality (HRM) with the intention of building a 44-unit townhouse development in Dartmouth.

Reporter Elizabeth McMillan wrote that the $12 million project had stalled:

…as the association faced the same problem that many other non-profits have encountered. Despite having the land and some government money, AHANS struggled to convince a financial institution to provide the millions in loans needed to get shovels in the ground.

I flashed back immediately to New Dawn CEO Erika Shea’s November 2021 presentation to CBRM council, during which she told councilors that receiving land for a nominal sum makes little difference to a group trying to build affordable housing because land costs are “largely only important at the margin.” Capital costs are the “defining factor in the ability to develop and maintain affordable housing.”

As McMillan explains:

Non-profit organizations, co-operatives and private developers must go through a sometimes arduous process to try to secure funding, at a time when many cities, including Halifax, face a crisis of low rental vacancies.

We’re not going to worry about the private developers who can “draw on equity from other properties” when seeking financing. We’re going to focus on non-profits who, writes McMillan, “must still go through the same process to secure loans as any other company looking to build residential units.”

(For more on this, see this March 2022 article in which Marc Lee, a senior economist with the Canadian Centre for Policy Alternatives, explains how the National Housing Strategy is benefiting private developers more than non-profits.)

At this point in her article, McMillan brings in Jody Comeau, vice-president of commercial financing with First National Financial, “a private lending institution that specializes in mortgages for multi-unit residential buildings in Canada,” and may I just say, did him no favors with the accompanying “Why is this man smiling?” photo:

Comeau says:

I would say for everybody, it’s hard. Even when you have experience and you have the knowledge and the backing, it is very challenging…The formula really is no secret. It’s an easy one. As costs continue to rise, it means the only way to get value good enough to support the cost for the lending institution to be OK with being a part of a project like that, it simply means that rents have to rise with it.

Which means giving a non-profit some free land and a bit of funding and sending them out into the free market to secure the bulk of the money they need to build affordable housing (having warned them their application will be judged on their ability to “assemble resources quickly and effectively to deliver the project on time”) is an ineffective way of building affordable housing.

AHANS, which does have experience in the provision of housing, having created about 100 new units in the past two years, was ultimately able to earn the money for a down payment on its project through consulting work and its (second) application for funding from Canada Mortgage and Housing Corporation’s (CMHC) Rapid Housing Initiative (RHI) was successful.

Writing in the Halifax Examiner in March 2022, Zane Woodford noted that CMHC had agreed to contribute $3.7 million toward the construction of 12 “deeply affordable” rental units—meaning, units rented at rents no more than 30% of tenants’ income (the measure of affordable used for RHI projects) in this case for a period of 40 years.

As Jim Graham, executive director of AHANS, told McMillan:

[T]hat’s how you piece things together. It’s hugely challenging and it can… just grind you down.

Both Shea in her presentation to CBRM council and Graham in his CBC interview called on the province for more generous funding of affordable housing. Shea said Housing Nova Scotia needs to increase its contribution per unit of affordable housing from $50,000 to upwards of $100,000 and CMHC needs to increase its non-repayable contribution to projects from 5% to 20%. 

Graham told the CBC:

…it would “fundamentally change the ability of non-profits to deliver” new housing if they could secure debt financing through the provincial government instead of a bank, but that option is not currently available.

“If we were looking at that kind of mortgage financing, where you got a little bit of a lower rate fixed for 15 years, from a non-profit perspective, that’s huge,” he said.

McMillan quotes Municipal Affairs and Housing spokesperson Krista Higdon saying that such a program “is being considered by the province.”

I’ve heard nothing about such a possibility in the past six months so can only hope it is still “being considered.”

 

Cheap land

The biggest news, in relation to housing, came on May 31, when Minister of Municipal Affairs and Housing John Lohr announced they had identified 37 sites from the provincial land inventory that “could be used to build housing, including affordable housing, for thousands of Nova Scotians.”

Note that “could.”

As Zane Woodford reported for the Halifax Examiner, there was “no specific affordability requirement” attached to the first 37 sites and:

The affordability of the rest of the sites is to-be-determined. Lohr said there’s no specific goal, or percentage of sites to be used for affordable housing. He said the government will use the Canada Mortgage and Housing Corporation definition of affordability — 80% of market rents in the area — but some could be less expensive.

In terms of actually increasing the province’s supply of affordable housing, then, this fails on four counts:

1. Land is the least valuable contribution the province can make to an affordable housing project (see above).
2. There is no guarantee any of this property will be developed.
3. Even if a property is developed, there is no guarantee the development will include affordable housing.
4. Even if the development includes units priced at “80% of market rents,” that doesn’t guarantee the units will be “affordable.”

The province, which has been accepting proposals for site No. 10 on King Street in Dartmouth since earlier this year, made another five sites available for proposals on May 31 and continues its “due diligence” on the remaining 31. For what it’s worth, none of these initial five sites is in the CBRM; in fact, the province has so far identified only three sites on Cape Breton Island, all of them in Sydney:

 

Defining ‘affordable’

I’ve considered two definitions of “affordable” so far, the first being 80% of average market rent which is not a good definition.

Jill Grant, emeritus professor in Dalhousie’s Department of Planning, told SaltWire’s Sheldon MacLeod during a June 1 conversation that any measure of affordability tied to the market value “is always going to be problematic” and just “perpetuates the problem.”

That echoes what Cape Breton University’s Dr. Catherine Leviten-Reid told me earlier this year, when I asked her about the meaning of “affordable.” She pointed me to a critique of the federal government’s National Housing Strategy which explains its two main funding streams use problematic definitions of affordability (for example

Really, it’s the housing being developed under the Rapid Housing Initiative that is responding to the needs of those who need deeply affordable housing, given how it defines affordability.

As noted above, RHI projects use the 30% of gross income definition of affordable, which Grant said is a “more reasonable” measure (and as I’ve noted before in these pages, is the measure to which both CMHC and Housing Nova Scotia pay lip service, although they don’t always use it when evaluating projects).

Basically, all the “good news” affordable housing stories I’ve run across in researching this piece are RHI projects and that’s not just a Nova Scotia thing—Marc Lee, the CCPA economist I mentioned earlier, noted in his March analysis that as of last fall, most of the money the feds had put into housing had taken the form of loans:

Only $363 million from the [National Housing Strategy] represented new federal investment (grants and contributions) in the construction of new dedicated affordable housing, up to Sept 2021. And 39% of this is the Rapid Housing Initiative (RHI), which was only announced in Fall 2020 and was not part of the original NHS.

In addition to AHANS’ Dartmouth project, RHI funding is behind Adsum Women and Children’s 24-unit “Sunflower Court” project and the Nova Scotia Co-operative Council’s 36-unit conversion of the Tara Inn in New Glasgow.

Called Coady’s Place after Father Moses Coady of the Antigonish Movement, the New Glasgow project, according to the CBC’s Michael Gorman:

…is receiving support from all three levels of government. The province is putting in $3 million, there’s $2 million coming from Ottawa and the Town of New Glasgow is providing a 20-year property tax exemption.

The units are modest—basically bedsits—but seem bright and clean and were certainly in demand: as of May, 122 people had applied for the 36 places. The one unit that was already occupied gives you a good sense of the tenants it will serve: a 92-year-old woman who’d been advised to move after a break-in at her home, but who had three cats and a fixed income and could not find a place to live.

Diane Kelderman, president and CEO of the Nova Scotia Co-operative Council, told Gorman they found buying and renovating an existing property for affordable housing was more efficient than building (although they nevertheless have plans to build additional units near Coady’s Place) and that she believed the cooperative model was the best one for affordable housing because “the focus is not on the bottom line.”

It’s about the mission and the vision. It’s about building a sense of community. It’s taking care of people.

 

SCAR

But I want to consider a third measure of affordability, one devised by the Canadian Centre for Economic Analysis (CANCEA) and that “takes affordability one step further, as explained by Christopher Cheung in this 2017 article for The Tyee. It’s called the Shelter Consumption Affordability Ratio or SCAR, and it adds the regional cost of household essentials like utilities and child care.

As CANCEA explains:

Affordability is more accurately measured as a ratio of all necessary shelter costs to actual income available after all taxes and other necessities. There is an overdue need to fully reflect all necessary shelter costs (actual and imputed rent, taxes, services, transportation) and the actual income available after other payments are made for taxes, food, clothing and private health expenses. Our new measure of affordability contrasts with other indices as it shows a sharply rising trend over the past decade.

The center, which created the SCAR measure in 2015, found that Canada as a whole had a SCAR of 38% “which means the typical household spends 38 per cent of its income on housing and transportation after spending on other necessities.”

But Nova Scotia? Nova Scotia had a SCAR of 46%, the highest in Canada.

So when the province announces it will give private sector developers $6.4 million to build “about 200” new “affordable” rental units which will rent at 80% of average market value, possibly for a limited period of time (Nova Scotia Housing sets a minimum of just 15 years), feel free to question whether those units will truly be affordable.

(Honestly, feel free to question anything said by a government that states, matter-of-factly, in its “Solutions for Housing and Homelessness” plan that this province will “double its population by 2060.”)

When the province announces it will give municipalities the power to enact “inclusionary” by-laws requiring developers to create a certain percentage of “affordable” units in their developments, feel free to push your municipality to adopt a more expansive definition of “affordability” than “80% of market value” and to insist the requirement to maintain affordable units not expire.

And when anyone tells you the private sector will solve the affordable housing crisis, remember that it is focused not on housing people but on making money. As Professor Grant told Sheldon MacLeod, “It’s going to have to be a government-led initiative.”

Grant also said that she would “like to see the government doing more for cooperative housing programs and non-profit societies. They need support to operate in this current context.”

And, in fact, the government did have something to say recently about assistance to non-profits, but I’m going to tackle that in Part II of this piece.