Why scattereds matter

When City Council’s Executive Committee approved the sale of 22 houses owned by Toronto Community Housing today, I wasn’t surprised. I knew that TCHC had planned the sale of those houses for years – part of a Real Estate Asset Investment Strategy designed to reinvest funds in other TCHC communities.

Does that mean TCHC should briskly sell off the rest of its scattered unit portfolio? Absolutely not! Properly managed, scattered units can be the gift that keeps on giving. Here’s why.

Houses are cheap

Just because a home is big doesn’t mean it’s an unaffordable luxury. In fact, most TCHC houses were bought at 1970’s prices, with public dollars that have long been paid.

I’m not privy to the operating budget for TCHC’s scattered unit stock. But here’s an example from a house bought by Innstead Co-op in 1976,  around the same time, in the same neighbourhood, and with the same funding program, as many of TCHC’s scattered units.

This five-bedroom house has a 50 year mortgage held by Canada Mortgage and Housing Corporation.

The total capital cost back in 1976? $55,000 including renovations, interest during renovation, taxes and all other capital costs.

The total life-time capital subsidy, from 1976 right through to the mortgage expiry in 2026? $5,500 – a one-time federal capital grant set at 10% of the total capital cost. These public costs are done.

Now it’s time to reap the benefits

Houses stretch rent supplements. Some of TCHC’s houses are rented at market rates. But most receive a rent supplement that bridges the gap between the full cost of the unit and what a low-income family can afford. The City of Toronto can move rent supplements around its social housing stock, or shift it to private landlords. What it cannot do is reduce the number of units it subsidizes. So it gets the best value when it subsidizes units that are already cheap.

Let’s go back to Innstead’s big house with the pip-squeak mortgage. The monthly operating costs for this five-bedroom house are $1304. The average monthly rent for two-bedroom apartment in Toronto’s private market rents for $1395. We don’t need to choose between saving money and giving a low-income family the space it needs. Scattered unit houses allow us to do both.

They are versatile. For many Canadians, houses are the ideal home. They offer extras that apartments cannot: basements and attics for storage, backyards for play space, vegetable gardens or quiet relaxation.

They also make it easy to respond to changing needs. Back in 1976, the Innstead house was home to four unrelated adults and a teenager. It evolved into a safe and nurturing first home for youth moving to Toronto from small-town Ontario. When communal living went out of fashion, it became home to a large family.

These changes were instant and free. Compare that to knocking out the walls of apartment units, or building new units, to respond to Toronto’s changing demographics.

They foster mixed-income neighbourhoods.  Just over half of TCHC’s scattered units are in Wards 30 and 32, bought when these were working class neighbourhoods. Today, Leslieville is the new hot spot, and Riverdale and Beaches property values continue to climb. That means these houses have become the only affordable housing in these wards – a bulwark against the segregation described in David Hulchanski’s Three Cities research.

Eating your cake and having it

TCHC’s houses are appreciating in value. TCHC may be preserving downtown affordable housing. But, like all other property owners, it is also reaping the benefits of rising property values. With over half its houses in real estate districts E1 and E2 — among the hottest in the GTA —  it’s in TCHC’s financial interest to ride the wave and hang onto its stock.

This increase in value helps leverage other funds.  Some people think the only way to realize the value of property is to sell it or mortgage it.  But that’s not true.  TCHC can attract private investors to support Regent Park revitalization or other exciting projects  because its properties yield a secure revenue stream: rents and rent supplements.

That revenue stream, and investor confidence, is eroded whenever TCHC sells a property. Sell a handful of houses? Probably not a problem. Sell off all the houses, and hint at other sales to come? Say good-bye to investor confidence!

The bonus: houses that just might be subsidizing your pension plan. Let’s look again at Innstead’s 50 year mortgage with CMHC. That mortgage is being repaid at an interest rate of 8% — a rate fixed for the entire 50-year term.

An 8% interest rate was a good deal for social housing back in 1976. Now it’s a good deal for CMHC and the people who invested in CMHC mortgages – pension plans chief among them. So if your pension plan rode the recession without a blip, thank a TCHC tenant. For all you know, their rent payments are paying for your retirement.

The real issue is management

TCHC would be the first to admit they have not managed their scattered unit housing stock well.  Many of the houses have been allowed to deteriorate – some so badly they are now uninhabitable.

It’s easy to see why. Houses represent less than 1% of TCHC’s stock. They don’t fit well with TCHC’s management or purchasing system. Staff are not trained in their upkeep. And vacancies have been filled without regard for the tenants’ capacity to maintain their yard or do minor repairs.

But just because TCHC hasn’t managed these houses well, it doesn’t mean it can’t be done.

How can we make the most of the opportunities these houses offer? That’s the topic of next week’s entry.

In the meantime, let’s hear your suggestions. If you were TCHC, how would you realize the full potential of your scattered units?