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Beat the REITs? Or join them?

June 24, 2020

In April, I posed the question, “Can we beat the REITs at their own game?” Today we know the answer could be YES – but only if CMHC and municipalities are ready to step up. 

Here’s the background: according to the brilliant housing researcher Steve Pomeroy, Canada lost 322,600 affordable homes between 2011 and 2016. During the same period, only 20,000 affordable homes were built. That means for every affordable home built, Canada lost 15. Some were demolished to make way for higher-priced condominiums. But most disappeared simply because landlords raised the rents above the $750/month maximum that renter households with incomes below $30,000 – including 27.5% of Toronto renters – can afford.

We can’t build our way out of this crisis. CMHC’s National Housing Strategy promises a maximum 150,000 new affordable homes over ten years – fewer than half those lost in five years. But we can act now to preserve the affordable housing we still have, by taking at-risk properties out of the market and into community ownership through non-profit organizations, co-ops and land trusts. 

Learning from past successes

A non-profit Acquisitions Strategy is not a new idea. In Toronto alone, tenants and co-op activists converted 4,500 privately owned rental units into co-op homes. I worked for one of those co-ops. Starting in 1976, Innstead Co-op bought up over 50 houses, duplexes and triplexes in east Toronto, using a process that illustrates in microcosm what we need now.  

CMHC “pre-qualified” Innstead to purchase up to 20 new units each year. Innstead had a real estate agent constantly scouting for properties on its behalf. As soon as a suitable house came on the market, the co-op’s Co-ordinator and Renovations Manager inspected the house, assessed the building condition, developed a scope of work and determined what we could offer. If the project “pencilled,” we made an offer the next day with a 3-week condition on obtaining financing. 

The day after our offer was accepted, we sent our 4-page application form – simply our corporate information, a capital and operating budget, our proposed rents and our list of proposed renovations – to CMHC’s Toronto office. Within two days, CMHC would send a building inspector and appraiser to inspect the property. Within three weeks we would receive CMHC approval for both funding and loan guarantees. Innstead would waive the conditions, and the house was theirs. Renovations began as soon as Innstead had the keys, and the future of the home’s affordability was secured forever. Today, Innstead’s bachelor apartments rent for $647/month and three bedroom houses rent for $1,541/month.

What would we need to make this happen today? 

The Canadian Network of Community Land Trust’s webinar, Beat the REITs, has the answer. 

First, we need a CMHC acquisitions fund. Steve Pomeroy is already on the case. He is proposing CMHC supplement the National Housing Strategy’s Co-Investment Fund – which funds only new construction and non-profit renovations – with an Acquisitions Fund that would enable non-profit, co-op and land trust organizations to purchase at-risk rental buildings when they come on the market. 

Second, we need expedited approvals. CMHC no longer has a Toronto office. But might it be possible for the City of Toronto could step into that role? The City pioneered a Small Sites Acquisition Pilot Program that had many of the same features Innstead enjoyed. Non-profit organizations were pre-qualified, in this case through an RFP process. And in 2019, Parkdale’s Neighbourhood Land Trust was able to tap $1.5 Million in City funds, combined with the land trust’s own equity, Federal/Provincial funding and a conventional mortgage, to purchase and renovate a large at-risk rooming house. 

Alternatively, the Ottawa Community Foundation has contemplated a revolving fund to enable non-profit organization to tie down properties quickly, and then repay the Foundation once they had CMHC approval.

There may also be the potential to identify acquisition sites before they come to market. In the heyday of co-op acquisitions, for example, it was often tenants who first signaled that their building might be on the verge of sale and who organized to take control of their own buildings. 

Third, the non-profit and co-op sector needs the capacity to participate in the market. Like Innstead, we need specialists who can scan the market for opportunities, evaluate building condition and financial viability, submit a credible submission and take on the responsibilities of owning and operating the building. 

Unlike Innstead, however, we will be pursuing far more complicated buildings and competing with buyers in a red-hot market. Some Toronto non-profit housing providers are already collaborating to strengthen their collective development capacity. We may also need to cultivate a development consultant who becomes the acquisitions specialist, or deliberately assemble the combination of resources we need from many parties. 

Ready for something truly audacious?

CMHC has set itself a “big hairy audacious goal: by 2030, everyone in Canada will have a home they can afford and that meets their needs.” By that measure, building-by building purchases will be, in the words of a participant in the Beat the REITs webinar “fighting a nuclear war with a slingshot.” Their proposal: take up CMHC’s call for audacity by buying a REIT! – and then put the REIT’s expertise and assets to work for the community-based sector. 

Keeping at-risk properties affordable forever

An acquisition strategy would bring so many benefits to Toronto. It would:

  • enable low-income tenants to stay where they are, stabilizing neighbourhoods, and preserving a diversity of incomes and tenures in gentrifying districts 
  • preserve and extend the legacy of public investment. Many of the buildings at risk of financialization were created through federal grants and tax incentives totalling $4 Billion Canada-wide. Bringing these units into the community domain extends the value of these considerable public investments
  • be faster and surer than new builds. A recent study of nine Toronto supportive housing proposals found seven required Official Plan and Zoning By-law amendments, and two required minor variances. Only two of the nine went forward. One non-profit owner purchased a property using their own reserves in 2015, yet five years later their new building is only now under construction.

Seizing the moment 

Based on the best information we have, during the Covid crisis 10 to 15% of Ontario renters have not been able to pay their rent. Some will be able to bounce back once they return to work. But many others may find that their old job, and perhaps their entire line of work, has evaporated. 

That’s bad news for tenants who risk losing their homes once the Ontario Government lifts its eviction ban. It’s also bad news for small landlords who needed those rents to stay afloat. And it will be very bad news for Toronto if these at-risk buildings are bought up by REITs and other financialized players whose business model entails squeezing low-income tenants with extra charges, or hustling them out the door and raising the rents to whatever the market will bear.

At its June 15th meeting, Toronto City Council’s Planning & Housing Committee directed the Housing Secretariat and City Planning Division to convene a working group with non-profits, co-ops and land trusts to develop a strategy to acquire properties for affordable housing.

This is not a moment to miss!


5 Comments leave one →
  1. Ceta Ramkhalawansingh permalink
    June 24, 2020 10:24 am

    Great post.  Yes, the moment must be seized.  Ceta

  2. Susan Fletcher permalink
    June 24, 2020 11:28 am

    Now do we nominate Joy for the working group?

    • Susan Fletcher permalink
      June 24, 2020 11:29 am

      That’s How, but now works too!

  3. June 25, 2020 7:03 pm

    Great points as always Joy! You’re so right that we too often miss the forest for the trees — focusing on increasing the supply of affordable housing a few hundred units at a time, while the speculators clear cut the forest around us. Steve Pomeroy’s research has forced us to reckon with the devastating amount we’ve lost in the past decade. We can’t unsee these numbers.

    But I just wanted to stress that the numbers are even worse than the figures you use, which I’ve seen repeated in quite a few articles over the past few weeks.

    You repeat the numbers Pomeroy uses in a recent blog post (which are also quoted by the Globe and Mail and CBC), writing that Canada lost 322,600 affordable homes 2011-2016. But looking back a whole decade (2006-2016), we’ve actually lost just over 800,000 affordable rental units. (see:

    Worse still, these 800,000 units were all deeply affordable. Renting for under $750/month, they were affordable to residents earning less than $30,000/year. In contrast, only a portion of the new “affordable” units that the National Housing Strategy (NHS) promises to build will be deeply affordable. Many of them will be unaffordable for the hundreds of thousands of low income renters being squeezed out of their homes.

    But just how many affordable units will really be built over the coming decade to replace the 800k already lost, and the many more we will likely lose in the decade to come? Again, the situation is likely to be far worse than the numbers you quote suggest.

    You repeat the Liberal’s promise that the NHS will build 150,000 new affordable units over the coming decade. You do so to make the important point that, even if this best case example comes to pass, the NHS would “replace fewer than half the units lost in five years”.

    Again, for the sake of highlighting how dire the situation is, I want to stress that nothing close to this best case scenario will come to pass, so long as the NHS proceeds as planned.

    If we add up all the Federal promises to support new construction of affordable housing from 2016/17 to 2027/28, the best case scenario is that we end up with 92,600 new units. (Of course, this doesn’t include the Provincial initiatives that go beyond cost-matching Federal funds, though historically these have been relatively much smaller. See footnote below).

    So, in total, if Canada repeats the 2006-2016 trend — losing 800,000 units of deeply affordable housing between 2017 and 2027 — and, if the NHS follows through on its promise — building 92,600 affordable units — then for every 8.6 deeply affordable units lost, the Federal government would support the construction of 1 affordable unit. Eegad.

    Of course, these 92,600 Federally supported units don’t account for every affordable housing unit that will be created over the course of 2018-2028. In addition, we need to add the affordable units funded unilaterally by Provinces (often in conjunction with municipalities, foundations, non-profits, etc.); Provincial funding initiatives that go above and beyond the amount agreed to through bilateral Provincial/Federal cost-matching agreements.

    The number of affordable units produced through such arrangements have historically been relatively smaller. For example, between 2011 and 2016, unilateral provincial initiatives (mainly in BC and Quebec) provided funding for an average of just over 2,100 units annually (Pomeroy, May, 2020: If we take the liberty of estimating that this average number of affordable units produced without any Federal funding will persist between 2017 to 2027, then we can estimate that a total of 113,600 units of affordable housing will be built in Canada over this period.

    So, in total, if Canada repeats the 2006-2016 trend — losing 800,000 units of deeply affordable housing between 2017 and 2027 — and a total of 113,600 units of affordable housing are built over this period, then for every 7 deeply affordable rental units lost, 1 affordable rental unit will be built.

    Worse still, a significant proportion of these affordable units may never actually get built. As discussed below, the Parliamentary Budget Office (June, 2019) is skeptical that the output targets of all of a number of the NHS initiatives will be reached, deeming some of them “aspirational”.

    Furthermore, 20% of the affordable units promised by the NHS will actually only be moderately affordable (affordable to middle income tenants), and their affordability period will be allowed to cut off after 20 years.

    All this goes to strongly reaffirm your assertion that we can’t just build our way out of this crisis. But also to remind us that, in so far as we also need to keep adding new supply of affordable housing, the NHS is posing a pretty ineffectual way of doing so.

    We can do better on both fronts, preserving and expanding access to housing affordable to those hundreds of thousand of low income Candians whose right to adequate housing is being progressively kicked out from under them.

    Footnote 1:
    The Parliamentary Budget Officer (PBO) has recently (June, 2019) painstakingly summed all the Federal funding promises and output targets for its various affordable housing initiatives between 2016/17 to 2027/28. Below a back-of-the-napkin overview of these targets:

    Many of the 92,600 new “affordable” units the Federal government is promising to fund between 2017/18 and 2027/28, are going to be build inside developments that include market rental units. Below is a list of the number of total units to be offered funding through each initiative, and an explanation of how many of these units will be “affordable”, and how deeply affordable each fund is requiring the affordable units to be:
    — 60,000 rental units will be built by the National Housing Co-Investment Fund (of which 17,400 = new affordable units and 2,000 shelters beds)
    — 42,000 units under RCIF (none of them affordable to low or middle income tenants)
    — 4,000 units under the Affordable Rental Housing Innovation Fund (likely, all of which = new affordable units)
    — 4,000 units under the Federal Lands Initiative (of which 1,200 = new affordable units)
    — 18,500 units under the Housing Partnership Framework (through transfers to Province’s and Territories) (all of which = new affordable units)
    — 1,500 units under Northern Funding (all of which = new affordable units)
    — 50,000 units under the Canada Community Housing Initiative and Housing Partnership Framework (through transfers to, and cost-matching by, Provinces and Territories), (all of which = new affordable units) Provinces and territories will develop and publicly release action plans that align with the NHS every 3 years to put their planned actions into context and to establish targets. Provinces and territories will also provide a progress report to CMHC every six months that will include progress towards realizing the targets and outcomes set out in the NHS.)

    Footnote 2:
    The PBO cast a fair bit of skepticism on the Liberals’ promise that all of the 68,400 units of social housing (18,500 + 50,000) promised to be delivered through through the Housing Partnership Frameworks (bi-laterally agreed to in principle by Provinces and Territories with the Federal government April, 2018), would actually be constructed. Their realization depends on the gumption and cost-sharing of the Provinces and Territories, all of which (except Quebec) have now signed Housing Partnership Frameworks and are either writing or (in the case of BC, Ontario, New Brunswick, and Novia Scotia) have just published, Action Plans, describing the actual planned output and depth of affordable units over the coming three years. (see: Indeed, of all the NHS housing output targets that the PBO reviews, the only one they explicitly deem “(aspirational)” is the plan to build 50,000 of these 68,000 community housing units as part of the “Canada Community Housing Initiative” and “Provincial/Territorial Priority Funding” programs. So, more than half of the promised affordable units are TBD.

    Footnote 3:
    As to the ~22,000 “affordable” unit to be delivered through direct funding of new construction. The NHS established four funds to support “new construction” of affordable housing over the coming decade: the “Rental Construction Financing Initiative” ($13.75B); National Housing Co-Investment Fund ($13.36B); “Housing Supply Challenge” ($550M); “Affordable Housing Innovation Fund” ($200M) (note that only ~60% of NHCIF = for funding new construction; and see Figure 3-4 in Collectively, these funds are currently committed to providing loans and to a much smaller extent capital funding to support the construction of 106,000 units of rental housing, of which 18,000 must be moderately affordable (offered at 80% of median rent) for 20 years, 8,400 most be just below market rents (“30% of median total income for all families in the area”) for just 10 years, and 4,000 must be “affordable” (without any clear definition or duration required). The National Housing Co-Investment Fund (NHCIF) — can offer loans and capital funding to rental developments in which at least 30% of the units rent at moderately affordable rates (80% of median rent). The Rental Construction Financing Initiative (RCFI) — can offer loans to rental developments in which at least 20% of the rental units are priced slightly below the market rate (for example, 160%AMR instead of 170%AMR).

    Of course, some of the housing providers who receive funding from these funds will be social housing providers, which ensure levels of affordability that surpass requirements. But there is no guarantee that will be the case, as was recently put in stark relief by the Honest Ed’s development, where RCFI funding was awarded to create a few hundred “affordable” units that started at over $2,000/month!

    Through these Funds for “directly supporting new construction”, $24 billion in loans (and to a lesser extent) grants are being offered by the Federal government to developers of buildings in which moderately affordable units will only make up 20-30% of the units, with the remaining units rented for as much as can be had.

    If the Liberals can find $24B to fund the development of buildings which predominantly serve high income Canadians, they can most certainly find 10’s of Billions to fund non-profit and coop acquisition of the fast diminishing stock of rental units serving low income Canadians!


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