Lessons from Affordable Housing Innovators

[Editor's note: In this installment of ongoing Tyee series Priced Out, reporter Luke Brocki connects with two individuals doing affordable housing differently -- a housing authority manager in Whistler, and a social entrepreneur in Toronto -- in his quest to find a Vancouver home within his price range. Find an introduction to the series here. Priced Out is a partnership between The Tyee and the CBC.]

A young man takes the podium and tells the well-dressed crowd he’s eating a bagel. This goes on for a few moments. We learn what kind of bagel it is and also that it's smeared with cream cheese. Finally, another man at the back of the room flashes a hand signal and the awkward breakfasting man moves off, the mic check complete. It's approaching 7:30 a.m. at BCIT's downtown Vancouver campus and I'm wondering what the big production is all about, since I don't see a single other reporter.

As the morning moves along, it's clear more than just the in-house cameras should be rolling, because this morning's Metro Vancouver community breakfast is all about housing affordability, a favourite topic of many an assignment editor. So where the hell is everyone else, I wonder, craning my neck for familiar faces as New Westminster Mayor Wayne Wright takes the podium.

"You young people deserve to have a home and you have to have a home that gives you the ability to do other things in your life," says Wright, also chair of the Metro Vancouver Housing Committee. "You have to be feeling well and be close to work, which means you can't be traveling three hours a day."

Hear hear! I'm surprised that the first person truly sympathetic to my hatred of commuting is a suburban old-timer in a shirt and tie under a black suit with gold pins on the lapel.

"The cost of owning a home in the Metro Vancouver region can be prohibitively expensive," Wright continues. "How can we attract and keep our skilled workers when there simply isn't an adequate supply of affordable housing here in the region?"

The morning continues with plenty more worries and complaints about us young people leaving Vancouver for more affordable cities, but then a friendly brunette down from Whistler for the day offers ideas faster than my thumbs can pound them into my iPhone. I chase her down after the presentations to learn more.

The Whistler way

"There were vans, squatters, couch surfing, a whole new form of density before densification was even in our planner speak," Marla Zucht tells me, laughing. The general manager of the Whistler Housing Authority says she knew Whistler had a problem with housing prices outpacing incomes as far back as the 1980s. The crisis worsened in the 1990s, but by 2011, housing wasn't even a civic election issue anymore.

Zucht credits that to the municipality, and more specifically the passing of a new bylaw that required commercial developers to provide on- or off-site employee housing in new developments, or pay cash-in-lieu into a municipal housing fund.

"And then we just started going out, acquiring land and building housing," she says. The authority built mostly condos and townhouses, 1,879 units in total since the idea took root 15 years ago, with 1,065 of those for sale and the remaining 814 for rent. But only to Whistler's local workers.

"We really want to target the range of employees," says Zucht. "So in our housing, we have the lifties, we have the doctors, we have the lawyers, we have the nurses, we have the baristas, we have the servers, we have the whole gamut of the workforce."

In short, the authority has created a separate housing market: it restricts prices of the employee units by tying their appreciation to the consumer price index (currently some 2.5 percent per year). It also controls resales, all of which must be individually approved by the municipality, a strategy Zucht says keeps out flippers and speculators.

But what’s the point of buying a house without promises of geometric returns, I ask, teasing about the alleged hassles of home ownership.

"You do continue to build equity," insists Zucht. "It's still forced savings, you're still going to make two per cent a year. It keeps up with inflation."

I understand what she’s saying. Even if your mortgage interest eats into your return, you're still standing to get a portion of your shelter costs back when you sell the unit, which is more than I'll get if and when I move out of my big rental house in East Van. But as an aspiring home owner, I feel entitled to more. Even more so after a man from Toronto tells me he's been providing home ownership options for people with incomes as low as $32,000 per year.

Options for Homes

Fifty-nine-year-old Mike Labbe is president of Toronto's Options for Homes, a non-profit development consulting firm whose end client is the homeowner (some of his developments enjoy owner-occupancy rates as high as 95 per cent).

Labbe started his 30-odd year housing career in 1979. Back then he was with another outfit named Lantana Non-Profit Homes, which helped connect people with federal and provincial social housing programs. When government funding started drying up, Labbe founded Options under a social enterprise model.

"We're paid to create a differential between construction cost and market value as a societal benefit," he says simply.

But the idea takes a bit of explaining: Since launching in 1997, the company has built some 2,500 units of housing across 10 developments in Toronto and another 1,500 units through affiliated development consulting groups in Ontario and Quebec. The contingency fund Options built from scratch to fund its activities in perpetuity has turned into a multimillion dollar war chest, which pays for some 1,000 new units per year. Labbe is surprised to learn the model has not spread to Vancouver, given his repeated visits to the city and meetings with city officials and developers.

"I've tried to design the entire system so that there's no grants involved, because it's the grants that have made for the political Achilees' heel. Every program that came out since 1975 produced less units for more money and so it became politically untenable to pour more money into housing," Labbe tells me one Sunday afternoon on the phone from his home in the Toronto suburb of East York.

"This system is set up to only require loans from governments, with no need for grants. The only role the government has is to speed up the delivery process by making land available."

It works like this: Options goes after less expensive sites close to rapid transit. It promises to pay the landowner in full, but not for some 18 months (if you can handle this opportunity cost, we're in business). In the interim, Options chases after cash from the Canada Mortgage and Housing Corporation's pre-development housing program (CMHC usually kicks in some $100,000 per development) and strikes deals with architects and builders to defer their fees until after Options secures construction financing.

He says his builder, Toronto giant Deltera, usually lends Options money (as much as $200,000) to get the first marketing push off the ground and secure its future involvement in the project. Marketing is cheap and minimal and everyone gets paid in full as soon as the homes are 75 per cent pre-sold -- that's when Options secures construction financing from the likes of Vancity Enterprises.

Passing on the savings

After that, it's about building in bulk and skimping on everything from marble, granite and parking to fancy finishes, appliances and advertising, a strategy that yields significant savings Options passes on to would-be buyers. Options' profit margins are capped at 2.6 per cent and the contingency fund takes another five per cent. Since 1997, that fund has grown to $65 million, $30 million of that in cash and the rest in assets. At this point, thanks to the efficiency of the building and marketing process, there's still a decent spread between the cost of construction and the unit's appraised value, and Options makes some of this cash available to would-be buyers in the form of interest-free second mortgages to cover whatever they're missing for a down payment.

And herein lies the beauty of the model: when Options helps applicants come up with down payments for their home, that loan goes into a separate pot, which builds market equity along with the rest of the unit. (If the market crashes, the second mortgage is written off.) Then, when the owners sell, decide to rent out the suite or die, Options collects that portion plus whatever equity it's built and drops it into the contingency fund.

Thus, would-be buyers applying for down payment help don't try to cheat the system by hiding their incomes or asking for more help than they need.

"There's an advantage to taking less," Labbe says, plainly. "People are rewarded for being honest that they only need so much."

Bringing 'Options' west

In the absence of a replacement hire, I go to Vancouver's recently ousted director of planning Brent Toderian to ask about the Whistler and Options concepts. I dog him on email and Twitter until he gives me a number for a Seattle hotel, where I reach him one Sunday morning. He's speaking at a conference organized by the Congress for the New Urbanism, and goes by a new title now, consultant at Toderian Urbanworks.

He speaks at length about density done well and while he's excited about alternative models of affordable housing, he says home ownership is but a dot on a long housing continuum that also includes homeless shelters, social housing and purpose-built rentals.

"What concerns me is usually these kinds of concepts are held up as easy quick fixes, and they're actually much more complicated in tough fiscal environments when governments have to make tough choices and priorities. Now it doesn't mean we don't do it. I'm intrigued by it. We should look at it. But there are no silver bullets. Affordability is the biggest challenge a city can face, especially a city with expensive land costs."

I call Labbe back to pass on Toderian's sentiments, which launches the usually soft-spoken man into a frustrated tirade: "I'll stake my reputation on the fact that this is a broad-based solution for our supply side problems in housing. If we could properly support systems that generate their own resources, we can solve the problem through private non-profit initiatives," he says. "We're talking about the piece of land in False Creek that's available for affordable housing, we're talking about a couple of other pieces of land that the City of Vancouver has that are available for affordable housing and any other surplus land within Greater Vancouver that's owned by the government: surplus school land, provincial land, federal land, anything that's government-owned. If it's appropriate for housing, it should be put out for a proposal call to non-profit groups to deliver affordable ownership housing at market value."

Labbe says social enterprise models offer the cheapest ways to create mixed-income, sustainable cities of the future.

"Housing is where our society is anchored. We don't want to produce exclusively low-income neighbourhoods and we don't even want to produce exclusively high-income neighbourhoods," he says. "If children are raised in a ghetto environment, everyone outside of the ghetto is foreign to them. And we develop a society that has no empathy for the other people around."

He says the Options model has been self-sufficient in Toronto since its launch in 1997 and he encourages Vancouver's social entrepreneurs to get in touch and discuss bringing the idea to the west coast.

"We're basically developers saying we're satisfied with our salaries and we're willing to give our profits to solve the housing problem," he says, laughing. "So we're a pretty unique group of people, but there were 500 such people around when there were government-subsidized programs, so it's not an unheard of way to do your work."

Tomorrow: I hear back from City Hall that the mayor will see me now. I'm keen to hear what sorts of affordable housing promises he will make with my recorder running.