Making affordable housing investible – current discourse overlooks the most critical issue
Steve Pomeroy
Executive Advisor and Industry professor at Canadian Housing Evidence Collaborative (CHEC) McMaster University
If we want to attract investment into affordable housing, we need to think about the revenue (rent) side of this equation. In emphasizing affordability, most of the current discourse completely overlooks this aspect. There is a new advocacy in Canada on the need to expand the non-market community housing sector as a way to help meet affordable housing need (and the large existing shortfall of lower rent units). And there has been much discussion of the need to attract capital into the affordable sector, including both private, institutional, and social impact capitaI.
In the course of some research on this issue, I just discovered a 2021 report Bridging Gaps: Exploring investment opportunities in affordable, funded by CMHC, and produced by Social Venture Connexion (SVX) and the Infrastructure Institute at the School of Cities (SoC), University of Toronto. This study undertook a review of case studies to explore how recent affordable projects were financed and the sources of capital. The report identifies issues and barriers ?to investment, including need to strengthen capacity of the sector, developing partnerships , access to free or low-cost land and public grants.
Nowhere in any of the case studies nor in the findings does the study review and discuss the topic of revenues and net operating income – the sauce that facilitates financing – even low-rate financing or social impact equity requires a rate of return and accordingly positive cash flow. This is the single largest gap in the financing conundrum yet was completely overlooked.
The legacy of social housing in Canada is one of setting rents very low to make homes affordable – a valid social policy objective, but inconsistent with attracting investment, beyond philanthropy. Setting rents low compensates for low income. ?It also precludes leverage and access to financing and results in a dependency on large public capital subsidy. It precludes attracting private institutional and social impact finance.
领英推荐
Effectively, our public and social housing programs are a de facto form of income assistance. This is an issue that should be addressed through income assistance and social security programs – not by housing programs. There is a critical need to review and enhance income security and support programs, as well assisting people to improve their labour market skills and capacity to increase earnings.
The Bridging Gaps report did not explore the international experience which is fundamentally different and provides critical insight. Countries in Western Europe with large social housing sectors got a head start from large-scale post war public construction. But they now sustain affordable housing development through a far more robust rent structure. National housing allowance/benefit programs provide subsidy to low-income persons (a housing specific form of income assistance) enabling them to pay a market or near market rent. This stronger level of rent revenue then creates financial leverage. In short, these approaches are far more investible that those in Canada. Canadian models need to review and learn from that experience.
Only when we address the revenue side of this challenge can we evolve to a more mature conversation about attracting private, institutional, and social impact capital
Mental Health Advocate & Consultant | Leading Mental Health Initiatives
3 个月Steve, Appreciate you sharing this!
Director, Strategy and Communications at Discovery House Family Violence Prevention Society
8 个月This is helpful, thanks for sharing Steve. Will you be teaching at McMaster again this year?
Facilitation, Organizational Development, Research, Project Development & Coaching for Social Change Organizations
8 个月So how do we calculate ROI- return on investment - in terms of community sustainability? Many folks in need of ‘affordable’ rentals are employed by businesses that require their labour, that in turn sustain local economies. It’s not just about the rent.
City Council Member @ City of Stratford | Hospitality, Marketing Communications
8 个月This statement is crucial: – the sauce that facilitates financing – even low-rate financing or social impact equity requires a rate of return and accordingly positive cash flow. This is the single largest gap in the financing conundrum yet was completely overlooked.
Facilitator of Action
8 个月Absolutely need to look at revenue if we expect private sector involvement and collaboration. As we all know there are many players that elevate the expense side of development, such as the substantial financing fees and even realtor costs, which could if addressed, also lower rents and the cost of construction but without a business model that provides a positive income stream it is not realistic to expect the private sector to address a public sector housing crisis.