I think it's that we're still trapped in that old model of government-based subsidy, either capital grants or long-term operating subsidies, which were the norm for the better part of 30 or 35 years. In today's market that's absolutely the most expensive way to deliver affordable housing, because it relies on a single funder, the government. I just don't think that's realistic anymore.
We heard in the previous question a great description of the central dysfunction in the private rental market. But that math changes if the owner of rental properties becomes a non-profit or community land trust whose only purpose in existing is to keep housing affordable in perpetuity. To just put our hands out and wait for government to fill it with money is not a realistic approach to developing affordable housing anymore. Government money has to be leveraged to bring private equity and community equity into the equation.
We've spoken before about New Market Funds, which is a for-profit equity fund, the basis of which is five charitable foundations putting money into the entity. They've put $11 million into our land trust development in Vancouver. That's patience equity. It comes out in eight to 10 years, but in the meantime it makes the debt coverage ratio on the conventional debt much more attractive to a traditional underwriter, and that gets the housing built.
When the housing becomes more affordable over time because more of the initial debt is paid down, we can take the equity investor out at a reasonable, but not full, market rate of return and then refinance the property to make it more affordable.
Housing will never be more expensive than it is on the first day the door is opened. After that it just becomes more and more affordable over time. If you can overcome the need for initial risk capital through a combination of government and private equity, you can do a lot.
We put $4.5 million out, at risk, on the land trust development before we had a single shovel hit the ground, and none of those costs were avoidable. We'll spend a lot more in costs that are avoidable if something doesn't change in the equation, that relationship between government and the private and community sectors.