Transcript CHRA and a National Affordable Housing Strategy

Keynote Presentation to the Manitoba NonProfit Housing Association Annual Conference
Nov 22nd, 2013
Steve Pomeroy
Focus Consulting Inc. & Carleton University Centre for
Urban Research and Education
Steve Pomeroy Focus
Consulting Inc
End of an Era: Does Social
Housing have a Future?
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• Past decade has been a period of fundamental change in the
housing market and this has important consequences for the
way governments (re) shape housing policy
• What happens in housing markets has impacts and
implications for the affordable-social housing part of the
housing system
• The scheduled termination of substantial federal housing
subsidy similarly has profound implications for social housing
• This creates both challenges and opportunities for social
housing providers and advocates
• Can you envision and reinvent a more sustainable future?
Steve Pomeroy Focus
Consulting Inc
Key Observations
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Consulting Inc
Housing Bubble?
No, because fundamentals support prices
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• Demographics: Natural growth and
migration
• Labour market: number of workers in
labour force
• Income of workers (households)
• Cost to finance: interest rates
• Underwriting: mortgage insurance policy
Steve Pomeroy Focus
Consulting Inc
Fundamentals drive prices
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Consulting Inc
Growing Population- Migrants
Net migrants predominantly families and international
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Since 2000, yr-yr %
change in wages has
exceeded yr-yr change in
pop = growing economy
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Consulting Inc
More people working, earning
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Consulting Inc
Corroborating impacts: income
gains and low interest
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Average earned income of “economic families”
Policy Changes - Amortization
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Consulting Inc
• Federal policy change to increase maximum amortization on
insured loans
• 2006: reduced DP to 0%
• 2008: LTV 75% to 80%; reintroduce min 5% DP
• Maximum LTV on refinancing reduced from 85% to 80%
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Ownership affordability
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Consulting Inc
Amount that average
family income can
borrow at prevailing 5
yr. mortgage rate
Added effect of new
borrowing rules, at 40
yrs increases leverage
by about $40k
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Steve Pomeroy Focus
Consulting Inc
Dramatic improvement in
ownership affordability
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Demand stimulates construction
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Consulting Inc
Emerging condo; strong rental
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Note approx 15% new condo starts are investors = rental
Steve Pomeroy Focus
Consulting Inc
Different pattern in starts
Winnipeg vs. National
• Since 2001, 19% starts are rental; but
renters = 33% all HH
• Starts not significantly impacting total rental
stock = mainly replacement
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Consulting Inc
Homeowner market growth
Census data: No net growth in number renter households
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Migration impacted rental, but
only partly
Rental vacancies
below 2% since
1999, but not as
tight as expected
Steve Pomeroy Focus
Consulting Inc
Key factor in changing
vacancy rate was
migration, not starts
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Steve Pomeroy Focus
Consulting Inc
Migration impacted rental, but
only partly
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Tightening Rental Market
But again, less than
might be expected
Steve Pomeroy Focus
Consulting Inc
Vacancies down,
rents up
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Consulting Inc
Easy access to ownership key factor
releasing pressure from rental market
• Released potential pressure on the rental market
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Will this continue?
• Will place new pressure on rental sector with further
tightening of vacancies and more upward pressure on
rents
• Main variable is how migration trends as we go
forward
• If city economic development wants growth, and
province wants to attract international migrants, need
to manage impacts (invest in housing supply)
Steve Pomeroy Focus
Consulting Inc
• Key policy question is whether this ownership
“release value” will remain in effect
• Suggest it will not
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• Overlooked sectors during ownership
boom
• Will now emerge as critical policy issues
• Minimal growth in rental (mainly
replacement & some 4,000 affordable)
• Serious erosion of lower rent part of rent
stock
• And federal subsidies now starting to
expire
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Consulting Inc
Rental and Affordable Housing
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Steve Pomeroy Focus
Consulting Inc
Rent increases exceed inflation
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Erosion of lower rent units
• Reducing availability of
low rent units impacts
most vulnerable
• What are policy options?
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Consulting Inc
Nominal rent categories,
not adjusted for inflation
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•
•
Federal subsidy
linked to mortgage
amortization: 50 yrs
on PH and early NP;
or 35 years on NP &
Co-op since 1978
To date subsidy expired
on 3,900 units, reducing
federal spending by $14
million;
Next 6 years additional
8,500 units with $21 mill
in subsidy will end
Steve Pomeroy Focus
Consulting Inc
And declining federal subsidies
on existing social housing
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Steve Pomeroy Focus
Consulting Inc
Is the sky falling?
•
•
•
•
Federal subsidy ending, but so are mortgages
Some projects will face a challenge – Province may help
Many will have new opportunities
(more details in separate workshop to follow)
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• As Federal subsidies end & market trends
continue to evolve, the social/affordable sector
will be impacted
• Need to have a strong presence and role – but
what is it?
• 50 years of activity
• Some ownership and management capacity
• Some assets & some liabilities
• New provincial association – setting a new
course, new strategic direction, a new era?
Steve Pomeroy Focus
Consulting Inc
End of an Era: opening of a
new one?
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Is the existing social housing
sector sustainable?
•
•
•
•
•
Amalgam of individual providers vs. strong sector
Fragmented ownership – many small providers
Highly dependent on public subsidy (and renewal thereof)
Limited capacity to revitalize and redevelop properties
Limited capacity to leverage existing assets (credibility to lenders,
strength of security, professionalism and expertise)
• Perverse subsidy and rent system that:
• Undermines sustainability
• Creates disincentives to work and fails to support better outcomes
for residents
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Consulting Inc
• I think not:
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A new vision: a sustainable
sector
• Capable – professional, human resources /expertise
• Less reliant on government – a partner not a dependent
• Investible – attractive partner for lenders, philanthropic
investors, government to achieve their goals
• Resourceful and entrepreneurial – able to leverage existing
assets
• Compassionate but business focused – with a social mission
• Exist to preserve and expand opportunities for low-income
and vulnerable households to secure appropriate and
affordable housing
Steve Pomeroy Focus
Consulting Inc
• Characteristics of sustainable sector:
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• Ask not what government can do for the social
housing sector; ask what the sector can do for
government
• How do we reinvent ourselves as a strong vibrant
effective professional sector that government
will WANT to invest in
• How can we position social/affordable housing
as a platform to create better outcomes for low
income families and children?
• Health, education labour market outcomes
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Consulting Inc
Apologies to JFK
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Learn from Mistakes of Past
• Build cheap inexpensive housing for poor people or build
sound good quality, but modest housing?
• Can’t create affordable housing – create housing then add
assistance so it can be affordable (e.g. early sec 15/27 no
subsidy, then added RS)
• Project based subsidy highly inefficient (admin oversight)
• RGI model (especially with income assist minimum rents) robs the
asset of viability
• Cannot build equity, cannot build reserves cannot be sustainable
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Consulting Inc
• MUPs to control cost (utility and maintenance impacts)
• Wrong type of government support (became dependent)
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• UK housing associations
• Netherlands Housing Companies
• South Africa Social Housing Institutions
• US “vouchering out”/moving to opportunity
• with gov’t, but lever their accumulated assets
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Consulting Inc
Create Opportunity:
International examples
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Lessons in International
examples
• All separate asset from rental support
• Use their asset base and corporate balance sheet
to lever financing for expansion
• Partner with gov’t, but lever their accumulated
assets (i.e. not wholly dependent on govt $)
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Consulting Inc
• What makes them different and inspiring?
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Insights and options
• Reform subsidy model, separate personal rental assistance from
project based
• Reform social assistance minimum rents
• Post expiry, not social, so max shelter component
• Need scale to be professional and investible
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Consulting Inc
• Create capacity to build equity for reinvestment (long term
sustainability and increased self reliance)
• With low rents, valuations are low or negative (but can rectify)
• What’s necessary to optimize potential financial leverage?
• Explore consolidation of single project providers
• Explore group structures, land trusts to hold assets
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Insights and options (cont’d)
• Examine existing assets and opportunities to
intensity/redevelop
• Your property values have increased (underlying land values)
• Selection disposition of valuable assets to reinvest elsewhere?
• Value of NP ownership in in preserving long term affordability
• Break-even costs rise slower than market rent (Ekos/Ottawa)
• At low end market rent achieve leverage but can also offer
government some competitive advantage (e.g. cost of stacked
rent supplements)
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Consulting Inc
• Benefit of rising house prices
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Role of Government(s)
• Fundamentally housing affordability is an income issue
• Argument for some capital funding for retrofit (e.g. under
CEAP) = federal role
• EOA maturing mortgages creates federal direct financing room
• Use to for low cost financing for renewal and expansion
• Responding to declining federal subsidies
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Consulting Inc
• Income redistribution remains important
• Provide subsidies to household not projects (province?)
• Some important issues (especially underfunded capital renewal)
• But pursue as opportunity, create attractive proposition for
investment (political win win)
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• Don’t settle for just preserving what you have
• Set the bar higher – dream and think big
• Create new opportunities for low income and
vulnerable people to live and succeed
• Become more self reliant and sustainable
• Challenge yourselves and government
Steve Pomeroy Focus
Consulting Inc
A Bold New Social Sector
• Together you CAN DO BETTER!
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Steve Pomeroy Focus
Consulting Inc
Thank you
Additional background reports available at
www.focus-consult.com
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