TOWARDS A STRATEGY FOR THE ACHIEVEMENT OF AFFORDABLE HOUSING Shelter is human necessity, especially in the often harsh Canadian climate. Quality residential living is a desirable goal in any civilized society, yet Canada's cities are witnessing an ever-increasing rate of homelessness. Inner cities are in need of residential intensification while low-density residential development continues to sprawl in suburban municipalities. The cost of housing is influenced by a number of factors including land, financing and, construction costs, taxes, regulatory bodies, approval processes and market demand. Land cost, of which location is a key factor, makes up a significant portion of total housing cost. STATE OF AFFAIRS TODAY Rental accommodation is in a state of crisis at all market rental levels. Many cities in Ontario have vacancy rates less than one percent. In Ottawa, the nation's capital, the vacancy rate is 0.2 percent. Despite this, federal and provincial government policies have moved away from funding the development of social housing. The lack of any significant new rental construction since the mid-1970s is directly associated with a 1972 change to the Federal Income Tax Act. Prior to that date, some 50,000 units were constructed in Canada each year. Today, less than 2,000 rental units are built per year. Municipalities are therefore under increased pressure to work with private interests to generate creative housing solutions in a fiscally responsible manner. While affordable family accommodation is often very tight within a major city core, there is no shortage of affordable single-family homes in the suburban periphery of cities. Competition and distance from the core combine to keep prices down. However, low density, space-extensive development results in urban sprawl, creates significant congestion on the road networks and increases travel times. It also prevents the introduction of transit and reduces the need to intensify existing urban communities. Confronted with this dilemma, provincial and municipal governments and agencies, organizations and institutions with a stake in housing have undertaken extensive studies to assess the various components that impact housing cost and location. What appears to be essential is a comprehensive approach that considers the multi-faceted business of developing housing. Currently, the development business is subject to a myriad of controls and influences such as: • banks and financial institutions; • federal laws and taxes; • provincial laws, policies and regulations governing • - land transfer and registration, • - planning and building, • - taxes; • municipal laws and policies, including • - official plan policies, • - zoning by-laws, • - development charges, • - park levies and other fees, • - property tax; • cost of construction materials and labour; • litigation before tribunals and the courts; • changes in the economy; • whim of the market-place. Before solutions can be found, an understanding of the barriers or challenges to rental and affordable housing is critical. Challenges may differ from community to community and vary between provincial jurisdictions. In addition, it is necessary for each community or municipality to fully understand the specific needs of its population. They must determine the type of housing best suited to their residents' needs and their ability to meet these needs. An added problem facing urban municipalities is the fiscal impact of changes to transfer payment policies by the federal and provincial governments. Today, many municipalities realize that to maintain healthy, well-balanced communities, they must take the initiative to find solutions for the housing needs of their constituents. Municipal leaders are, however, becoming increasingly aware that any approach they decide upon must be within a fiscally responsible agenda. Municipalities need assistance in developing such strategies and identifying needs within a fiscally responsible framework. RENTAL The economic climate for investing in rental housing is controlled, to a significant extent, by the federal government's taxation policies and CMHC mortgage insurance practices. Improvements in these two areas are urgently needed. Another deterrent to construction of new rental properties is the fact that in certain jurisdictions, rental properties are given a more onerous property tax burden than ownership units. In Ontario cities, the variances can range from two to five times the ownership tax rate. Some provincial jurisdictions have also imposed rent controls, which can dramatically cool the incentive to build rental units. Even where rent controls have been repealed, the fear of their return in the future can negatively impact a decision to undertake a strictly rental project. Subsequently, many projects are registered as condominiums as a precaution. From a financial perspective, many development companies in Ontario say that they want to start building rental apartments again. Many see an enormous market opportunity given the absence of any major infusion of rental accommodation into the market since the mid-1970s. Others want to increase their assets where they are already based, noting extensive rental portfolios that they have developed in the United States. The numerous barriers, however, frustrate their efforts, especially when compared to the favourable and receptive rental investment climate in the Untied States. MUNICIPAL INCENTIVES A growing number of municipalities are offering incentives to development companies that build rental or affordable housing based on identified needs and targeted income levels. An array of tools is available and can be effectively and selectively packaged to achieve a desired objective. Such incentive tools can be: • equalizing the property tax rate for rental and ownership units; • deferring property tax or portions of property tax; • waiving development charges; • waiving planning approval and building permit fees; • fast-tracking through the approvals process. Municipalities would be wise to consider preparing a strategy that identifies specific needs groups, maximum rents sustainable by these income groups, incentive packages required to achieve such a development and pricing target, and the fiscal impact it would have on the city's economic well being. Often the impact on the local economy can be surprisingly positive. PRIVATE-PUBLIC PARTNERSHIPS In conjunction with the incentives identified above, some municipalities are experiencing the benefits of formalizing partnerships with private businesses. They are also using surplus lands to achieve certain affordable housing goals. A number cities in the United States, such as Chicago and Atlanta, have been successful at redeveloping inner core lands in partnership arrangements with the private sector. The City of Toronto has promoted five housing projects on identified surplus parcels through its Let's Build program and has worked with qualified non-profit groups to provide for "hard core" special needs groups. The opportunities available here can only be limited by a lack of creativity and imagination. The challenge is not to risk losing the opportunity for creative solutions and creative partnering. In 1998, PricewaterhouseCoopers prepared Guide to Affordable Housing Partnerships for CMHC. INTENSIFICATION/RE-URBANIZATION Intensification within a planning/urban design policy framework is an effective way to achieve a sustainable supply of affordable accommodation while maximizing existing infrastructure and increasing property assessment. In contrast to simple intensification, re-urbanization is a process intended to achieve comprehensive urban change leading to residential intensification. It becomes a multi-purpose planning strategy for city building. In addition to maximizing the utilization of existing infrastructure, it increases patronage of transit and can revitalize main streets with active commercial and residential uses. It can provide inner city alternatives to the on-going suburban sprawl, thereby decreasing congestion and the length of travel times. Simply put, re-urbanization leads to smart growth. Municipalities working together with community groups and development companies can devise effective incentive strategies to produce redevelopment scenarios. community involvement, early in the process, is necessary to achieve a high degree of community acceptance. Facilitation by a qualified professional in developing such a comprehensive strategy can ensure that needs groups are properly identified and municipal incentives are used for the highest public good and economic return. It can help ensure that partnership arrangements are sound; that land-use planning regulations and processes promote re-urbanization within a strong policy framework; and that a high level of community acceptance is achieved. CONCLUSION Affordable housing and rental accommodation can be achieved. A comprehensive, insightful strategy that understands community needs, offers incentives for selective projects and encourages private/public partnerships is key to addressing the housing crisis. - Diana L. Santo, Vice-President, PricewaterhouseCoopers LLP

This article is published in the OEA Newsletter, Spring 2002.

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