Human Resources Committee on May 12th, 2022

[Sam Reisman]

Sure.

Typical condominiums require two things. They require a pre-sale test, and the reason they require that is that they require a much larger equity base, between 25% and 30. That comes through the developer, but mostly two-thirds would come from the pre-sales. You then go to the bank and say, “Please help me build my condo. I've sold 60% or 65%.” They give you the money, and you build a bunch of one-bedroom condominiums that end up getting rented to people and don't really service the community's need.

With a rental, banks generally want the same kind of equity money. The problem is, of course, that you don't have the equity source of the purchasers. What we were able to do was to align policy. It took us a long time to work with York Region and the town, and we said, “Guys, why don't you chip in the development charges? We'll pay them back, but there are two things. Could you defer them, and could you effectively subordinate them to bank financing?

The subordination is not technically subordinated, but it's deferred for 20 years, and the banks accept that as equity. As a result of that, we were able to develop a third building that we're now building. We have a condominium, so there are three buildings that we're building. The 600 units I mentioned are all on the back of that program and stacked with some assistance of CMHC as well. The key literally was the deposit money.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

You created some affordable housing units within the complex. What was the percentage there?

[Sam Reisman]

In the first building we built, the town could take up to 25% of the units, which would have been 52 or 53 units, and use them in their York Region program. We sold that building, so I don't know how much they accessed, but at the time they had access to a considerable number before we sold.

On the two other buildings—again, there are different definitions of affordability between CMHC, the region and the town—but essentially there are 100 units out of the 400 that were built, 25% of them, that would be affordable.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

You've raised another issue there, and that is the differences in interpretation and criteria for the different lenders. Where would you see that liaison role that you've recommended? Where would you see that seated?

[Sam Reisman]

I've been very impressed with CMHC over the last three or four years. I think that the organization, from my perspective, has become pretty flat and they seem to have their finger on the pulse. They have good stats. They have good data. They have good underwriting.

I'm not that familiar with the hierarchy or the structure, but I would have put the liaison group in there. I think they have one. I think they have individuals who are doing it. I just don't think they have enough resources to really align the various levels of government. It takes a lot of time. It takes a lot of lobbying, and it takes a lot of thought.

We've done that. It took us a couple of years within the context of my small development, but I think that office would come out of CMHC and I think it would be very effective.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

With regard to the potential for this fund to buy down the construction costs so that the financing is sustainable with affordable rental, what percentage of the project would you see as needing to be bought down?

[Sam Reisman]

Do you mean the interest rates or the capital costs?

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

The capital costs.

[Sam Reisman]

I think I would answer the question by not answering. What I would tell you is that the CMHC was able to provide us with financing at their market rates, which are subsidized, and that was all we needed.

The only problem is that all of the projects we have developed and that are in the ground now could not be developed on the basis of current market forces. Construction costs have gone up 40% in the last two years. All other things being equal, somebody would have to subsidize the lion's share of that cost in order for us to build another affordable rental.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

There's a discussion going on now, I believe in the town of Newmarket, where the town has passed a resolution that requires any development approval to have an expiry date.

What are your thoughts on that?

[Sam Reisman]

I think that makes sense. In that particular case—Newmarket, York Region—you have a limited amount of allocation. As a result of that, it makes all the more sense, because if you're not going to develop it, then move on. You need to use the allocation somewhere else to get the units built.

[The Chair, Liberal, Bobby Morrissey]

You have 10 seconds left.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Finally, Sam, what do you think is the highest and best use of the $4 billion?

[Sam Reisman]

The most effective thing would be to try to experiment and see if you could pay down direct subsidies to individuals. Simulate the reverse tax that I spoke about. I would be interested to see what that would do. I think it would alleviate a lot of affordable—

[The Chair, Liberal, Bobby Morrissey]

Thank you.

Thank you, Mr. Van Bynen.

Mr. Trudel, go ahead for six minutes.

[Denis Trudel, Longueuil—Saint-Hubert, BQ]

Thank you very much, Mr. Chair.

I thank all the witnesses for joining us to discuss the major housing crisis we are experiencing in Quebec and elsewhere in Canada.

We can say that there are two major issues related to the current housing crisis. The first is accessibility—the need for more housing—and the second is affordability—the need for new housing to be less expensive, as most of the poorest people are experiencing housing instability.

The new federal housing advocate, appointed recently by the federal government, said in an interview last weekend that, unfortunately, the entire national housing strategy was meeting only the core housing needs of 4.8% of people, those who spend more than 30% of their income on housing, which was problematic.

She even added that considerable funds have been committed under the national strategy. Significant amounts of money were announced, but, at the end of the day, only 35,000 housing units have been built since 2017, which is unbelievable.

My question is for Mr. Armstrong.

The new $4-billion fund for municipalities is a significant investment. Do you think this new program will be able to change the situation by improving accessibility and affordability?

[Thom Armstrong]

I would say that it can, but the key factor will be whether it could be effectively stacked with other programs. The contribution levels that we're talking about under some of the scenarios we've seen sketched out wouldn't be enough to plug the entire equity gap between economic and market rent, or between market rent and affordable rent.

I'd say, depending on how carefully the money is targeted—and you have to remember that whenever we're talking about subsidizing housing development, the critical question is whom we are trying to house—then it can have the potential of being very effective. Again, that's as long as it's stacked effectively with other programs, and not just federal programs but also with provincial programs, where they in fact exist.

[Denis Trudel]

Thank you, Mr. Armstrong. I have another question.

Many housing observers are saying that, generally speaking, we should rather provide money to non-profit organizations, which would be in a better position to ensure housing affordability over the long term.

Unfortunately, in the case of programs such as the national housing co-investment fund and the rental construction financing initiative, after a while, the housing is often no longer as affordable as it was in the beginning. However, the rapid housing initiative, RHI, is a worthwhile program that covers 100% of the housing cost and ensures affordability over the long term.

Do you think we should spend money on that kind of a program rather than on the new program announced in the latest budget?

[Thom Armstrong]

I certainly think that's a valid point to be making. A lot of people like to wax nostalgic about some of the older tax incentive programs—the MURBs and the ARPs—but if you wander around your community today and try to find one of those developments, they've typically been flipped several times and all the affordability has been washed out of them.

The new agreements around purpose-built rental construction tend to have very modest ambitions when it comes to affordability. The agreements are short term and the affordability targets address a very shallow level of affordability. If you want to achieve deep, lasting and permanent affordability, I think you need to align the mission of the housing developers with the outcomes you're looking for.

That would lead to the conclusion that the more development you can spark through the community housing sector, which has a lot more development capacity today than it did 10 years ago, then the more lasting outcomes you're going to generate, because the thing that people most forget is that housing is never less affordable than on the first day the door opens. Over time, as it gets managed, refinanced and invested in, it becomes more and more affordable if it's being operated as a not-for-profit housing business. I would tie the results to the 10-year model and expect that performance to deliver an enormous return on investment to the government.

[Denis Trudel]

Thank you, Mr. Armstrong.

I would like to put a question to Mr. Rubinstein, from the the Federation of Canadian Municipalities.

Everyone is happy about the new $4-billion fund to accelerate the building of housing in municipalities. That's a substantial investment, and I think it is very important to make massive investments in housing.

However, there is some worry over the fund in Quebec. The last time the federal government announced money under its national strategy, it took three years for it to come to an agreement with Quebec.

I don't know whether it works in the same way in the rest of Canada, but, in Quebec, municipalities come under the jurisdiction of the provincial government. No money is spent in municipalities without negotiations by the Government of Quebec. Last time, while money was being spent across Canada—for instance, in Vancouver, in Toronto and in Calgary—nothing was being spent in Quebec because negotiations were ongoing.

Do you have the same concern?

[Daniel Rubinstein]

Thanks, Mr. Trudel.

If I understand the question, it's about making sure that all parts of the country have access to the funding. I can assure you that's very much top of mind for our Quebec members.

I can't speak for how the federal government will work with the Province of Quebec to deliver, but I will say we know that with the rapid housing initiative and other programs we were able to make sure that there has been planning delivered on the ground for housing options in Montreal, Laval, Longueuil, Gatineau, Quebec, and elsewhere in the province, and we certainly want to make sure that happens here with the accelerator fund.

To the earlier point about stacking and alignment, there are opportunities. I fully agree with the comments about stacking within the federal programs. Likewise, we know that in affordable housing space there are models within provinces, including in the Province of Quebec, that can be tapped into.

I look forward to seeing how that happens, but I share the interest in making sure there's as limited a delay as possible to that access.

[The Chair, Liberal, Bobby Morrissey]

Thank you, Mr. Trudel.

Now we have Ms. Zarrillo for six minutes.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Thank you, Mr. Chair.

I really thank all of the witnesses today. I think it would be great to have testimony like this for all city councillors and even for the planning departments of municipalities across the country.

I'm going to start with Mr. Lancastle and then go to Mr. Armstrong to ask about protection for co-ops and purpose-built rentals.

Mr. Hahn, if I get the opportunity, I'd like to talk to you about operating agreements, expirations and how those need to look going forward.

Mr. Reisman, if I get to you, I'd like to understand, for those municipalities that are underwriting some of this purpose-built, if they are underwriting with municipal reserves or assets, what is their risk? If I don't get a chance to ask you, if you wouldn't mind sending that in writing by email, that would be awesome.

Starting with Mr. Lancastle on assessment, I'm so pleased that you are here. With the number of times I have questioned “highest and best use” around assessment, I really feel strongly about this. Granted, the assessment authority is a wonderful organization, but highest and best is not keeping up with the societal impacts of assessing land only on market value. I've always wanted to separate highest and best. We're losing many businesses on our high streets. Local businesses are being rezoned and then immediately become more valuable as a piece of land than as an asset to the community.

My question for you, Mr. Lancastle, is that I keep getting told by BC Assessment that it can't be touched, but are there any conversations happening at the assessment authority on separating highest and best, the art and the science in the assessment of land, in these current conditions?

[Keith Lancastle]

Thank you very much for the question.

While I will say that we have a number of our individual members who work in assessment authorities, including places like BC Assessment, across the country, we would not presume to speak for the assessment authorities.

I will say, though, in terms of highest and best use, that is a fundamental principal evaluation, but it does recognize, in arriving at a value for a subject property, the need and the requirement that the use of the property be legally permitted.

I think when we talk about that degree of flexibility and that need for all parties to come to the table to look at innovative and different ways perhaps to zone properties to allow for more innovative approaches to bring more housing supply onto the market—that's why we believe very strongly there are no silver bullets—we do have to address the whole question of Nimbyism. I appreciate my colleague Mr. Lee's “Yimbyism”. That will be one I will borrow on a go-forward basis. I do think it is really about looking at this in a whole new way and bringing everyone to the table who can play a role. Highest and best use has to be a premise, because at the end of the day, regardless of whether it's a commercial lender or a government or an individual who's making the investment, they have to understand that the value is going to be there down the road. Moving the needle on some of those other factors can really help shift the energy and shift the focus there.

[Bonita Zarrillo, NDP, Port Moody—Coquitlam, BC]

Thank you. I do agree that we need to look at it differently. My concern is that even if the OCP changes without a rezone, they automatically apply a probability that it will be rezoned, which in my opinion is pushing or forcing a redevelopment, and the value to the community of the current use is not being considered in any way.

That's the one conversation I hope happens when we reimagine what this should look like, because I understand that redevelopment needs to happen. However, the phasing of redevelopment to support the needs in the community is important, and I'm interested in having further conversation on what that could look like.

Mr. Armstrong, you mentioned you've had a change of heart or thought on the protection and the maintenance of purpose-built rental. I want to add to that the co-ops, because we know they're disappearing at an alarming rate. I can't remember which of the witnesses talked about who we're serving in this housing.

How could the accelerator fund potentially be used to protect the purpose-built rental and co-op rental that right now is serving the community? We need to wait until we have affordable supply on hand before we can start to take these down.