Special Committee on Cooperatives Committee on July 26th, 2012

[Darren Kitchen]

So far the loans we've negotiated throughout partnership have been second mortgages, partly because that happened to be the most advantageous way to do it for those co-ops. They were quite close to the end of their operating agreement. You wouldn't want to bundle up what's left when most of what you're paying on that mortgage is principal and not interest. So it made sense.

We have a number of other co-ops where we know quite clearly that a second mortgage would make...covering the payments would make the housing charges completely unaffordable. They would have to be higher than the local market rates, which is a good way to empty your building, right? There are a couple where we know it would work much better if we could blend and extend, but it would be really good to come to some resolution on these penalties to avoid low- and moderate-income Canadians making a $200,000 donation to CMHC.

[The Chair, Conservative, Blake Richards]

Thank you. Your time has expired.

Mr. Preston, you have the next round for five minutes.

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

Thank you.

First of all, thank you very much for what you do, for providing affordable housing to your constituents. Mr. Hood, listening to your story on how it's been working, I understand it's a long process. It's a lifetime process; perhaps we all should start now and move forward.

Mr. Kitchen, you talked about the leverage of land from the city on the Olympics, but you've obviously done it on some others too, as developers give land to the city. It sometimes becomes surplus, most of it used for parks, or it might have been used for something else but becomes surplus. Then you leverage it, or you can if the city allows you to use that land. You can leverage it for affordable housing or for other cooperative housing projects, but then the municipality keeps ownership of the land. You're leasing it, or it may be a very favourable lease, but it's not gifted to you.

[Darren Kitchen]

It's not gifted to us. In Vancouver, they have what they call a property endowment fund, which holds the land, and then the co-op has a lease on the land, and those leases are typically 60 years. That's the case at Athletes Village. The city used to have a formula where it would charge 50% of market value for a 40-year lease and 75% of market value for a 60-year lease. Most recently, because they're so desperate for affordable housing, they've moved to individually pricing the leases. They're supposed to come out this week, they tell me, with a call for proposals for seven city sites where the land would be free; it would be a free lease.

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

Great. It's a free lease, but they still keep ownership.

[Darren Kitchen]

They still keep ownership, but they would be willing to offer someone—

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

You're hoping it's a long term, a 40-year or 50-year term still.

[Darren Kitchen]

You'd look for 60 years.

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

So there's a commitment there. How does not owning the land affect you from a capital point of view, certainly from a repair or a further mortgaging point of view? We've heard from our bankers that it's not hard to.... Well, they're risk-averse in some cases too. We'll use that term, but land is usually what holds all the cards.

[Darren Kitchen]

It's easier to borrow against a freehold property, obviously, because you can do anything you want against it. We've done loans for repairs for co-ops on several leased lands, and Vancity is happy to do it. Now, there needs to be a certain length of time on the lease. There have to be some conditions in place on the lease, but they're happy to do it.

We have some co-ops with 40-year leases that will be up in 15 years. So you could only get financing for ten years, and that's not enough. We're negotiating with the city on terms for extending those leases to permit financing to happen.

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

Are you anywhere close to the terms on any of those land lease deals?

[Darren Kitchen]

The closest would be about 15 years out.

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

So you're a good way out, but are conversations taking place as to what that will mean? You may be up against a similar thing with the city.

[Darren Kitchen]

Yes, we're having conversations with the city, because if we need a 25-year mortgage term we can't do that on a 15-year lease.

We've already extended a few that were suffering from the same syndrome as the leaky condos did. They needed an extension, so the city has already done that and extended by 20 years for free. So they're a good partner, Vancity is a good partner, and there's a lot more—

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

So there's a prior history you can bank on, or at least you hope you can.

[Darren Kitchen]

Yes.

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

You talked about the difference between equity cooperatives and a standard model, that there may be some good use in doing both.

[Darren Kitchen]

I think so. In high-value markets like Vancouver, where so many people are priced out of the market, it may be possible to do forms of limited-equity co-op specifically for models where perhaps you limit the resale value. So if you bought in at 80% of the market, you would have to sell at 80% of the market.

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

You're limited to the same limit.

[Darren Kitchen]

That's right.

We would see it as something of a niche market, something of an entry-level market for people who can't jump the full step all the way up to the increasingly expensive condos. It's something we're looking at actively now and hope to pursue in the near future.

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

Mr. Hood, on your project, you've said a couple of times you wish you had known. I think we all do that, whether it's in business or anything else. Are you sharing what you've learned with others now as they move forward?

[Kenneth Hood]

Any time anybody's got any questions, we're more than willing to share.

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

That's great to hear.

Thanks.

[The Chair, Conservative, Blake Richards]

You've got that figured out: no eye contact; go right to a question. Perfect.

We'll move now to Mr. Allen.

[Malcolm Allen, NDP, Welland, ON]

Thank you.

Thank you to both of you.

Mr. Hood, I can understand your dilemma with an equity co-op that looks at what I've experienced with some of my friend's family, who live in what they call a “life lease building”. Yours is the same, except it's an equity position. Theirs is non-equity. You just simply move from this residence to this residence to that residence, to your final resting place—as you pointed out.

I've been in Castlegar a few months back. You're absolutely right about the whole idea of folks coming together in a cooperative way to try to build in a remote area like Castlegar, which is in British Columbia's southern interior, that there are long distances between places, and it's not just in places where we live in southern Ontario. For instance, where my mother-in-law went to a nursing home, it was 40 kilometres away—you can manage that—and there's some public transit. There is no public transit in Castlegar to the next location. Basically there is, but there really isn't in a way that makes any sense. So you're right about this whole sense that you would literally be separated when it comes to families at perhaps certain stages in life. Hopefully you'll get success with CMHC.

I think your story tells us that we need to have flexible models around innovative thinking when it comes to cooperatives, with no offence to cooperatives, because we have them everywhere, including my own riding of Welland, of course. We need to be able to have that flexibility to think about equity positions in cooperative models where folks are coming together to do them, and we need to have that ability with either CMHC or lending institutions who start to think in a different way from what the normal structure might be. Ultimately, at the end of the day, this actually is an equity position where, as they say, you're putting all the skin in the game. You're not actually asking the government to put skin in the game; you're doing it yourself. So I think we need to help the regulators help you get it done, since it seems to me that you're the one with all the skin in the game. Somehow we need to find a way to do that.

I wish you well with the Grandview piece, because that is obviously your next hurdle. Hopefully that works itself through.