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Way to use those assets!

March 19, 2013

You don’t often get news like this.

On March 20th, Toronto City Council’s Executive Committee will be asked to approve a deal that will yield an extra $93.5 Million to repair Toronto Community Housing buildings – without selling TCHC houses, without raising rents or property taxes, without senior government bailouts and without cuts to services elsewhere.

How can this be possible?  The City and Infrastructure Ontario have renegotiated the mortgages of 18 TCHC properties. Sixteen of the 18 have been renegotiated for 30-year terms at a fixed rate of 3.91%.  Mortgages on the other two properties, including TCHC’s head offices at 931 Yonge Street, have been renegotiated for a floating 5-year rate of 1.79%.  After discharging the mortgages left on these properties, TCHC will set aside $11.8 M for future repairs on the 18 properties involved, and will be free to allocate $81.7 M for immediate repairs in any TCHC building.

The result: the City will exceed the two-year $120 Million target set by Councillor Bailão’s Working Group’s Putting People First: Transforming Toronto Community Housing.

The upside of downloading?

The potential to refinance may be one of the few benefits of downloading social housing to the municipal level.

Before 2001, most social housing was locked into operating agreements that lasted the length of the mortgage. Housing providers couldn’t simply refinance when they needed money for major repairs, the way private property owners do. Their only recourse was to set aside money every year in a capital reserve pool, and hope it would be enough to keep their buildings in good shape.

It’s a system that has worked for some social housing. But it never really worked for TCHC. They inherited old MTHA buildings that were already in poor shape and with no reserves to speak of, and they never had a prayer of catching up.

Then came 2001 and the Social Housing Reform Act. The big change – the change Toronto grapples with at budget time every year – is that municipalities were given full responsibility for funding social housing.

The less obvious change is that legislation replaced operating agreements — un-coupling housing subsidies and mortgage payments. Before devolution, the federal or provincial governments tied their subsidies to a 35-year mortgage. Subsidies ended with the mortgage.

Today, provincial legislation requires municipalities to subsidize a fixed number of housing units, period. Mortgage periods are irrelevant.  What does matter to the municipalities is keeping subsidy costs down. If that means renegotiating mortgages to keep housing habitable and the rents flowing in – then it’s in the City’s interest to do just that.

An idea whose time has come

The potential for refinancing has been implicit ever since the downloading, but it has taken most of us a while to take in the change.

Which just goes to show that there’s nothing like a deadline for getting action. For TCHC, it was the pressure created by Councillor Bailão’s Working Group that created the momentum to make this deal possible. The Working Group was convinced funds could be raised without selling the 600+ houses TCHC originally planned to sell.  The ingenuity and quick work of City and TCHC staff made it happen.

Now let’s keep up the momentum. There is nothing to stop other municipalities following the lead of Toronto and Ottawa, who raised $17 M in a similar deal on Ottawa Community Housing properties.

And there is nothing to stop TCHC from renegotiating the mortgages of some of its other properties. Many TCHC mortgages are almost paid off, or have only five or so years left on them. As the private sector has always known, if you have cash flow, you can get financing. As long as tenants pay rent, and the City is fulfilling its subsidy obligations, Infrastructure Ontario should be willing to lend them money. And because the repayment periods are being spread over a long 30 years – with today’s low interest rates as a bonus – TCHC can afford to carry these loans without raising rents or needing extra subsidy.

It’s a good deal for Toronto. A good deal for TCHC. And a good deal for tenants. And isn’t that what the Bailão report was all about?

Thanks to Paul Connelly — whose big picture thinking helped “open the window” on the possibilities! 

5 Comments leave one →
  1. Dr. Rosemary Gray-Snelgrove permalink
    March 19, 2013 3:10 pm

    Thank you, Joy, for sharing this ultra-good news about money for building repairs. Finally, some good sense on the City’s part. And a hope for relief for TCHC residents. Can Spring really be coming to the social housing scene? Too early to tell but yours and Paul’s work helps us keep hoping. Rosemary Gray-Snelgrove

  2. Jean Stevenson permalink
    March 19, 2013 3:48 pm

    What a fantastic ‘good news’ story!
    Hope springs eternal and what a concrete reminder that for every problem there is often a viable solution if there is openess to think innovatively and out of the box and a tenacious will to do so.
    Here’s to the power of big picture thinking!

    Jean Stevenson

  3. March 20, 2013 12:43 am

    This is great news, Joy!!!

  4. March 21, 2013 7:31 pm

    A great idea for a time of unprecedented low interest rates and bond yield that can only rise….

  5. March 25, 2013 1:19 pm

    Hurray for ONPHA’s Jon Medow, who courteously emailed me to note an error in this blog. I had reported that municipal service managers had to subsidize a fixed number of units until the Ontario Minister of Housing said otherwise. In fact, the provision for Ministerial approvals was dropped when the Social Housing Reform Act was replaced by the Housing Services Act. Municipalities are required to subsidize a fixed number of units, period. The blog now reflects the correct information.

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