Please join Channel Consulting in thanking Liam Griffin and Brightside Community Homes Foundation for generously sharing these insights on current challenges facing the non-market sector.
Building Non-Market Rental Homes Amid Rising Uncertainty
Renters in Metro Vancouver continue to face record shortages in available housing and a vacancy rate barely exceeding 1% in most municipalities. For many, current market rental rates for homes that are available – frequently, but not exclusively the newer, purpose-built rental buildings – are far from affordable and often constitute well over 50% of a household’s income. The solution is more complex and immediate than building more supply, as the need for more non-market homes is urgent and pressing. However, the same market forces and external factors that have recently been affecting market housing developers are affecting non-profit housing providers that would typically build or otherwise acquire desperately needed below-market homes.
An Uphill Battle for Housing Sector Non-Profits
Rising construction costs present a growing barrier to new non-profit development. According to a Metro Vancouver Housing report released in May 2022, construction costs have escalated at a rate of approximately 15% per year since January 2020 (compared to a steady annual increase of around 2.4-2.8% in years prior), with lumber, plastics, concrete, and steel representing the highest increases. Fuel prices, which rose 25-30% over the past two years, also resulted in higher construction costs. With increasing costs come uncertainty and financial risk, which in turn affect the likelihood of whether or not a development or redevelopment project will remain viable. This creates an urgency around timelines that is particularly problematic for private-sector non-profit housing providers developing new affordable housing projects that are tied to very stringent budgets and financing requirements – as costs go up and proformas change, the possibility of funding being pulled becomes increasingly likely and project viability is put at risk.
Escalating interest rates create further challenges for non-profit housing providers. The Bank of Canada has increased interest rates three times in 2022, bringing the policy interest rate to 1.5%. This has created new barriers to borrowing for non-profit housing providers as organizations are required to qualify for loans that go well beyond rates that were in effect before the rate hikes. A Co-Investment Fund rate established in 2021 at under 2%, for example, would be over 4% in July 2022. This can add hundreds of thousands, even millions to the overall cost of a project.
Assuming any significant decrease in construction costs, labour shortages, inflation, or interest rates is unlikely in the immediate future, what can be done in the immediate term to help non-profits grow the number of truly affordable below-market homes in the immediate to intermediate term? Solutions rest first and foremost with increased government involvement at all levels.
Governments Can Help Grow Affordable Housing
Firstly, the Canadian Mortgage and Housing Corporation (CMHC) has the power to put a ceiling on interest rates for non-profits that are (re)developing affordable and/or non-market housing. Since divesting of the building of affordable housing in the nineteen-nineties, the CMHC has broadly relied on private-sector non-profit organizations to provide and grow the nation’s affordable housing stock. One key step the CMHC could take to assist non-profit housing organizations in the construction of new affordable housing projects would be to fix interest rates – ideally at lower rates for non-profit housing organizations redeveloping or developing new affordable rental housing – transparently and in advance of an organization’s first draw. This would make borrowing more accessible, and would allow for organizations to plan ahead based on a fixed rate. Further work is also needed on programs like the Rental Construction Financing Initiative, which provides funding primarily to private developers building rental housing that does not meet the affordability needs of most Canadians.
Secondly, municipal governments have numerous policy tools at their disposal to help non-profit housing organizations save costs both in the initial phases of a project and over the life of the building(s). The City of Vancouver, for example, has already exempted affordable housing proposals that meet certain criteria and do not exceed six storeys from the expensive and lengthy public hearing process when seeking rezoning. While this is helpful, it limits the scope of eligible projects and does not do enough to promote the growth of affordable rental housing. Exclusionary zoning further complicates the ability of non-profit housing organizations to develop new affordable rental housing as projects are largely limited to building on arterial routes and are unable to access communities zoned exclusively for single-family homes. Looking at the longer term, municipalities like Vancouver have it within their power to reinstate permissive tax exemptions. Non-profit housing organizations lose these important tax exemptions when redeveloping affordable and non-market housing projects – such as affordable seniors housing – a policy that can cost organizations millions over the life of a building.
Finally, the provincial government has an important role to play in helping private-sector non-profit housing organizations grow below-market housing to help meet demand. Funding is, of course, a key component of provincial involvement in the housing sector. The Community Housing Fund (CHF), provided by BC Housing, is a crucial source of financing for affordable housing providers looking to redevelop existing rental buildings; however, demand for funding far outstrips the availability of funds, and eligibility is tied heavily to a project’s ability to pencil out. Making funding streams such as CHF funding more accessible to established non-profit housing organizations, and adjusting funding requirements to allow for more deeply affordable non-market homes to be built, would greatly increase the amount of, and timeline for, truly affordable homes coming online in the next decade. Partnerships between BC Housing and non-profit housing providers, and even collaborations with private-sector developers, would help create new options for below-market housing developments in highly uncertain and increasingly expensive times.
Canadians need housing that is affordable in the immediate term, and lots of it. For many that are experiencing the same market stressors at the household level as the housing sector is experiencing as a whole – whether inflation or rising interest rates – waiting for market forces to kick in, for supply to outpace demand and bring costs down in the long run, is simply not an option. With government support, and the willingness of the entire housing sector to collaborate, the outlook for Canadians seeking rental housing that is both appropriate and affordable becomes much brighter.
Brightside is a charitable non-profit organization that provides affordable rental homes in Vancouver. With 70 years of experience, we house over 1,000 seniors, families, and people with disabilities in 22 buildings throughout Vancouver; 95% of our homes are rented at rent-geared-to-income (30% of income) rates. As part of our goal of doubling the number of affordable homes we provide over the next 10 years, we are currently redeveloping four sites which will provide nearly 500 homes once complete. We envision a future where people of all income levels have a home within a vibrant and healthy community, and it is our mission to build resilient communities, throughout Metro Vancouver, with safe and secure homes for those struggling to meet the demands of market housing.
To learn more about Brightside Community Homes Foundation, visit us online at www.brightsidehomes.ca, or email us at firstname.lastname@example.org.
About the Author
Liam Griffin is Brightside’s Communications & Partnerships Manager. Steward of the Brightside narrative, he conveys stories of impact and change to increase public awareness and focus Brightside’s advocacy for more affordable housing. Liam has extensive knowledge and expertise in the area of public engagement and digital communications and finds drive in his passion for equity and inclusion, reconciliation, and social justice. Working with other values-aligned organizations, Liam is a nexus in Brightside’s pursuit of supportive partnerships that aim to foster resilient communities and bolster Brightside’s capacity to provide affordable housing. In addition to serving as Brightside’s communications strategist, Liam also serves as Vice Chair on the Lesya Ukrainka Housing Society Board of Directors, a small non-profit housing provider for seniors living independently in Vancouver’s Strathcona/Downtown East-Side neighbourhood.