Special Committee on Cooperatives Committee on July 26th, 2012

[Voices]

Oh, oh.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Perfect.

Mr. Hastie, you talked about recycling, and I simply wanted to share this with you. I think we've all grown up now in a generation of recycling. Some of us maybe weren't born into it, but we certainly have grown into it. You talked about trying to find a way to increase the amount of recycling that happens in a household. I'm just going to suggest this: have children. There was nobody who made me a recycler like my children. Dad put a pop can in the garbage, and it was announced around the neighbourhood, I think. But we did all learn that way.

Your percentages have hit a wall. I understand that. Household recycling is at a point where we need to have another bump in it. I'm sure the work you're doing is going to help with that.

You're a not-for-profit, but who pays your bills? How do you pay your bills?

[Neil Hastie]

We're organized under the Canada Corporations Act, part II, which provides a ruling from Canada Revenue Agency that we are not taxed on our surpluses. It's a tax ruling. There are in fact traditional not-for-profits, and they are organized quite differently. We simply can operate under that provision.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

You could have a surplus and then use it over subsequent years.

[Neil Hastie]

Exactly.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

Where are your funds generated? Is it by selling recycled goods?

[Neil Hastie]

About a third of all the money we get in is from selling the recycled goods, aluminum being the most valuable. A third of it, and now it's probably closer to 50%, comes from a fee we charge to consumers. These are the things that generated a lot of interest in Ontario. The last bit of it comes from the consumer as well, because with the beverage system, if you throw that beverage container away, I still have the nickel, so that's where I get about 20% of my revenue.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

The non-redemption—

[Neil Hastie]

It's the non-redemption. It's kind of perverse, because we want all the redemption we can get. We don't have any difficulty financing ourselves.

[Joe Preston, Conservative, Elgin—Middlesex—London, ON]

So if you don't get the can, you do get the five cents to use into the future.

[Neil Hastie]

We do, indeed.

I just want to add one thing in terms of the worst recyclers. Children are fine. Once children become 18, they stop recycling. When they become 35, they start again. We have a problem with that particular cadre. We need to work on it.

[The Chair, Conservative, Blake Richards]

Thank you very much.

Thank you to all of our panellists. Our time has concluded. It's been very informative. We've learned a lot. We learned that Mr. Bélanger is a night owl, and we learned about Mr. Preston's garbage and what goes into it that shouldn't. We learned that at Mountain Equipment Co-op, no matter how many members you have there are always a few more you need to work on. Maybe you could make Mr. Allen an honorary member, because it sounds as if that's probably the only hope you've got there.

We thank you all for your expertise and your knowledge today. It's much appreciated.

I'll now suspend the meeting until 3:30 to set up for the next panel.

[The Chair, Conservative, Blake Richards]

I'll call the meeting back to order.

We have with us two witnesses for the last panel of the day. We have with us, from the Co-operative Housing Federation of British Columbia, Mr. Darren Kitchen, who's the director of government relations. And we have with us, from Kootenay Columbia Seniors Housing Cooperative, Mr. Kenneth Hood, who's the president.

We will provide you both with the opportunity to present opening remarks of up to ten minutes. There are only two of you, so I will allow a little leeway on that, if need be, but not too much. You have approximately ten minutes.

We're going to start with you, Mr. Hood. The floor is now yours, Mr. Hood, for the next ten minutes.

[Kenneth Hood, President, Kootenay Columbia Seniors Housing Cooperative]

Thanks to the committee.

In 2005, after three years of looking into the feasibility of building seniors housing, a meeting was called. One hundred people showed up. At the end of the meeting, 50 people signed up, and Kootenay Columbia Seniors Housing Cooperative was formed.

A 40-acre parcel located in Castlegar was chosen, with a price of $400,000. We required about $7 million in infrastructure. Where was this kind of money going to come from? The seniors joined together and raised about $4.4 million, with the rest coming from credit unions, and the project was under way.

Grandview Housing, which is the co-op part of it, has bungalows and duplexes. Forty-three units have been sold and are being lived in, and six duplexes are under construction.

Calamida Estates, a separate section of the 40-acre parcel, has fee-simple lots for sale to the public. There have been 38 lots sold. Ten homes have been built, and 18 lots are still for sale.

The Château Grandview future site is a 4.3-acre parcel of land. The plan is to subdivide to permit maximum usage. Strata 1, phase 1, will have 63 units of supportive living. Strata 2 will have 72 units of supportive and assisted living. Strata 3, for residential living, will have 16 pods, with 76 beds. Strata 4 will be sold as a fundraiser for Kootenay Columbia Senior Housing Cooperative, KCSHC. And a parcel of land, lot 59, a future 37-lot residential subdivision, is listed for sale as an immediate fundraiser.

How can senior governments assist? It appears to us that current governmental agencies are involved in supporting housing that has as a basic criterion subsidizing rental housing. From our experience, this approach is not efficient or economical, from the standpoint that the delivery of rental housing has the following steps:

First, usually a society or a cooperative is required to be the source of this housing as a sponsor.

Second, a developer of some sort will be required to assemble and deliver the construction. This requires a fee for service and a profit margin for the risk.

Third, financing will always be necessary, and part of this may come from the provincial housing corporation. This usually involves a project manager who knows the requirements of all the agencies. And that person will be paid a fee for this service.

Fourth, other moneys will involve private financing, which will involve a fee to prepare the documentation and registration of mortgages.

Fifth, no financing will take place unless there is mortgage insurance, which usually comes from Canada Mortgage and Housing. This fee must be paid in the initial proposal.

Sixth, no financing can move forward without a mortgage broker. This also requires a fee.

When all of the above is added together, the cost of delivering this housing has an enormous hidden cost, even if it is supported by a not-for-profit organization. The end result is that any government subsidy is higher because of the above costs to render a project affordable.

The option now is that a for-profit developer undertakes a project, with subsidies from governments at different levels, which almost equates to the not-for-profit option.

The alternative is to have the above costs removed as a result of a seniors group managing the housing project. In the instance of Grandview, the following has taken place:

First, the project was developed with seniors' cash.

Second, the designs and concepts are those visualized by seniors who understand seniors' needs.

Third, the developer's fees and profits could be eliminated, because the project is managed by seniors' collective expertise.

Fourth, seniors will recycle their homes to others when they become owners in the project. This is a saving in energy and resources, as active seniors are occupying houses that are too large for them; they are more useful to young families starting out.

Fifth, land and buildings can be set aside for subsidized housing as part of any development, providing the needed support for these projects. This does not isolate these citizens, as is the usual current instance.

Even though we were 8% below their affordability criteria, the refusal of B.C. Housing to interim finance the construction of Château Grandview phase one shows the current misunderstanding of this agency to such a seniors' initiative. Its stance has had the effect of increasing construction interim financing, from the current 1% from B.C. Housing, to 5% and more in the private finance sector.

An 80% reduction in financing costs would do wonders to the resulting seniors' purchase price. The entire cost of this support would be paid back, not from subsidy but from the project itself.

The reluctance of CMHC to guarantee strata title condos, as in this instance, in permitting the public to own their seniors accommodations, rather than renting from a developer who is receiving a return on investment due to a subsidy, is another misunderstanding by government.

With regard to how cooperative associations can assist, we are not informed enough as to how the provincial and federal cooperative associations are constituted and operated.

A recent grant of $15,000 was received by the KCSHC for project development funding for the Château Grandview portion of the overall Grandview development from the federal cooperative agency. This is a huge contribution for a part of the project that is most difficult, as this is where funding usually is in short supply. Perhaps construction interim financing from the national cooperative body may be another area that would greatly assist future projects, as was experienced by the KCSHC.

I am not sure of the services provided by the Co-operative Housing Federation of Canada, but obviously the Grandview project did not take advantage of these services if they were available.

What has become evident to the KCSHC in this project is the following:

Lease ownership is not a favourite with government agencies. The Land Title Office refused to register a life lease, SRE has difficulty with filing disclosure statements with lease ownership, financing is not possible for a lease ownership, and CMHC will not guarantee lease ownership interim financing.

Financing a lease by members of KCSHC only became possible when the Heritage Credit Union undertook an investigation to determine a method to do so. By instructing their lawyers accordingly, the lease document was amended and HCU now finances lease ownership.

The cooperative movement could perhaps take an active role to alleviate these hurdles.

By way of synopsis, housing continues to be a fundamental concern to all of us. Providing shelter to all citizens is a difficult task, which all of us need to become involved with.

The KCSHC found that the lease ownership model is a strong handicap in the development process, and it became necessary to eliminate it.

The experience with design guidelines, as to inclusions and exclusions to ensure a minimal economic impact on sales for those planning a subdivision, is a serious issue. It has become an economic issue in the end analysis.

What the KCSHC members have been able to achieve in a short time is something that can provide lessons to those who are in the process of developing their own project. That may be a benefit to other cooperatives in their future successful ventures.

Thank you.

[The Chair, Conservative, Blake Richards]

Thank you for your presentation.

For your presentation, Mr. Kitchen, we'll give you the same ten-minute timeframe. I'll turn the floor over to you to make your opening remarks.

[Darren Kitchen, Director, Government Relations, Co-operative Housing Federation of British Columbia]

Thank you very much.

Good afternoon, everyone. Thank you very much for inviting us to speak to your committee. l'm Darren Kitchen. I'm the government relations director at the Co-operative Housing Federation of B.C.

I think—in fact I know, because he told me so—that Nicholas Gazzard from CHF Canada has already talked to you a fair bit about the history and community benefits of housing cooperatives, so I don't want to bore you by going over all that stuff again. What I'd like to do instead is talk to you a little bit about what it is that CHFBC does and why we do it, and so give some context to some of the main challenges and opportunities that are facing housing co-ops in B.C. and how we are planning to address those challenges and maybe seize some of those opportunities.

There are about 260 non-profit housing co-ops in B.C., and about 90% of those are members of the federation. The federation provides education for co-ops and advocacy for co-ops, but we also provide things like group-buying programs that lessen the expense of roofing, flooring, commercial services, office supplies, and that kind of thing. We also have a pooled investment fund with some of the local B.C. credit unions, which allows co-ops to gain a higher return on their operating accounts than they would usually get on regular chequing accounts. The federation also makes some money from those, because we don't get and don't actually want government funding. So fees from those services and dues from our members are what fund the federation.

Our latest venture is a partnership with Terra Housing Consultants and Vancity, who I believe was here speaking to you earlier today. Social Purpose Development Partners Incorporated is a development company, and it has two main purposes. It's a cumbersome name, but that's the registrar of companies for you—he's a pretty literal-minded guy.

The first of these purposes is to address what I think we all know is a huge need for new affordable housing. That need is key in Vancouver, which I'm sure you've seen in the papers and such. It is one of the most expensive cities on the planet to live in—not only in Canada but anywhere you'd like to go. Condominium prices are sky high. Single-family homes are beyond the reach of all but the very wealthiest. Vacancy rates are low. Rents are rising. And very little new rental housing is being built, for reasons I won't go into here. So affordable housing is a real challenge for families in the lower mainland and Victoria areas of B.C.

That's the kind of challenge that co-op housing has been meeting for a very long time. That's why we started. It's why we do what we do: provide affordable housing to families. We think we have a role in doing that in a challenging market like Vancouver in the future.

We know very well that there's a lot of demand out there for co-op housing. We recently did the Athletes Village Housing Co-op in partnership with the City of Vancouver on the site of the 2010 Olympic village. There are 84 units in that co-op. Before we actually stopped accepting applications—because we were getting so many—we had literally hundreds of applications from people who wanted to live there. So we know there are people who want to live in co-op housing. Through SPDP, the development partnership, we hope to develop more homes to meet that demand and to meet that need for affordability.

Athlete's Village, like most housing co-ops in Canada, is a kind of rental co-op model, unlike Kenneth's equity co-op model. It's purely rental. We'd like to work with other municipalities. What makes the Athlete's Village work is the fact that it is on city land and the city leases the land to us, which reduces the costs and helps to make it affordable.

Vancouver is unusual in having a fair amount of land, and it levers land from developers. Not all municipalities are able to do that.

So to do this kind of model of affordable housing outside of Vancouver, in municipalities that don't have those resources, more help is going to be required. I know that we can't turn the clock back to the late 1970s and have the feds do a big unilateral co-op housing program. Housing is now a provincial responsibility, but I don't think that means the federal government doesn't have a role to play in this. We strongly think that the federal government, in partnership with the provinces and us, should continue to provide support for the development of affordable housing—in B.C., as far as we're concerned, but across Canada, too—and that funding should come in a stable and predictable way. Housing development is a fairly long-term process, three to five years from “we think we can do this” till “we've got it built”. So the funding needs to be stable.

The second major issue we're facing is that the co-ops are getting old. They were mostly built in the mid-1980s, so they're a quarter of a century old, and more. A lot of the critical building systems have a lifespan. A roof lasts 20 or 25 years, that's what it's designed for, and you need to replace it after that. Also, many of the co-ops weren't built to what today we would regard as satisfactory environmental standards. There are a lot of single-pane windows out there in co-op land. It's really energy inefficient.

Planning for these repairs isn't easy. There are a lot of studies, engineering studies, environmental reviews, you name it, that have to be commissioned, paid for, and understood by somebody who knows about these issues. If you need a loan of a few million dollars, that's not necessarily all that easy either. It's not like going to your local credit union, talking to the credit officer and getting a couple of grand to buy a laptop. It's a much more involved process than that.

This is where SPDP comes in, the development partnership. We can help from soup to nuts, from “we know we've got a leaky roof” till “we're fixed”, the whole nine yards. When you think about it, it's a very natural partnership. We have co-ops that need money for repairs. Terra Housing Consultants has a lot of expertise on the technical side of the business and Vancity has money, capital that it would like to use to make high-impact, as they call it, social development loans.

We've hit a bit of a barrier. The best way to refinance these construction projects depends on the co-op. If you're a long way into your first mortgage, just got a couple or three years left or something, it would probably make sense to take a second mortgage on top of the first, pay out the first, and then the first turns into a second, and you get lower. If the loan's big and you've still got quite a few years left on your first mortgage, it makes more sense to roll up the existing mortgage with the new repair costs and finance the thing out over another 20 or 25 years, where the repairs are sufficient to justify that.

Usually a private lender, if you wanted to break the first mortgage and refinance it, would charge you something like a penalty of three months interest. CMHC have taken the position that a co-op exiting its first mortgage will pay a penalty equal to the entire interest that would have been paid on the mortgage, even though the mortgage no longer exists.

I've been doing some math and I'll give you a real-world example. We're working with a co-op that has about four years left in its current mortgage term, and a total of nine years left on the first mortgage. A three-month interest penalty for that co-op would be about $12,000. With four years left, the CMHC penalty to exit the first mortgage would be $218,000. That's about 7.5% of the outstanding balance on the mortgage. Needless to day, we think this is unreasonable. Whatever you think of it, it's certainly not helping the preservation of affordability in Canada's least affordable city.

The last thing I'd like to mention is a challenge that's perhaps more difficult for us in B.C. to address, in terms of forming a company or starting an initiative, and that's the end of the federal operating agreements. With the end of those operating agreements, the expiry of the subsidy that allows the co-ops to subsidize lower-income and modest-income members, this is becoming a growing concern. I've been working with the staff of Metro Vancouver, which is the regional government for most of the lower mainland, and they're very worried about it. I think we need to work together to come to some way to allow the lower-income and modest-income members to remain in their homes.

That's what I came here to say today. Thank you again for listening.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We'll move right to questioning now. For our first round of questioning, we have Madame LeBlanc. You have five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you.

Thank you very much to our guests for portraying the challenges that are all across Canada regarding affordable housing and how cooperatives are finding solutions.

Mr. Hood, I really appreciated the story you put forward about how seniors got together. It's a very good example of seniors getting together and building the community you described.

I would like you to tell me what you would say to another group of seniors who would like to set up a community or cooperative such as yours. What would be the lessons? You mentioned the lessons you drew from this, so what advice would you give to the people?

[Kenneth Hood]

First off, I think they need to do better research than we possibly did. They need to have all the facts before them on what is required in regard to getting disclosure statements and financing.

It seems like you run into a roadblock, and when you overcome that roadblock you run into another one. If there's some way you can get those facts before you in advance, then I think it makes it easier to proceed.

But I would say go for it. I think it's great.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Do you have an organization you called upon to offer guidance, or have you become aware of any organizations since your experience that could offer guidance? Where were you looking for information?

[Kenneth Hood]

That's a hard question for me to answer, because I've only been involved in this for two years. It's been in the process for ten years.

Our community has a strong Russian influence. They were very involved in community efforts and lived in communes at the turn of the century, when they first came to our area. They have been very involved in these types of things. They have been involved in other developments, so they've learned over the years. But other than that, I don't know.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you very much.

Mr. Kitchen, I think you explained very well and very clearly the challenges facing housing co-ops right now. There are great challenges, especially for the different changes that have happened. I think you explained that very clearly, and I think we will expand on the subject, probably later on.

What I would like to find out from you is what the trend is right now. Are there new housing co-ops being set up in the Vancouver area, or are there challenges right now in establishing new co-ops?

[Darren Kitchen]

The challenge isn't so much in establishing the co-op, which is really just filing a bunch of papers; it's doing the land and the buildings. I mentioned that this isn't just a challenge for us. There is very little new rental housing development in Vancouver at all.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Exactly. We find the same thing in Montreal. Montreal is one of the places in Canada where there used to be a lot of choices, but it seems right now that the choices are getting less and less. There are not a lot of opportunities for people of lower incomes.

[Darren Kitchen]

Yes, and the reason it is so hard to develop co-ops is the same reason it's so hard to develop market rental buildings. The land costs are very high. The construction costs are very high. It's much better for developers—who after all have to make a profit, have to keep the lights on—to build condos where they put their money in for a short time, they sell them off, they get their money out, and they move on to the next project.

With rentals, they typically have to leave their money in for some time until the cash flow turns positive and they can start taking their money out, and nobody wants to do that. So the economics of rentals and of co-ops are challenging. We can work with municipalities, as we have with the City of Vancouver on the Athletes Village Co-op, to get around some of those issues, and we'll continue to do more of that.

As I say, I believe there's a role for both the provincial and the federal governments to work with us to make that process easier and to make it doable in municipalities that don't necessarily have municipally owned land that they can lease.