Affordable Housing Doesn't Pay: why private developers will not pick up the slack from government

If the provincial government wants to get out of the housing business, who would build non-profit and co-operative housing in Ontario? According to Dwight Syms, no one.

Syms has worked as a development consultant at Waterloo-Wellington Non-Profit Homes in Waterloo since July 1995. Before this he worked with a Toronto-based resource group called The Tenants Non-Profit Redevelopment Co-operative. They assisted tenants in buying out their landlord and converting their buildings to housing co-ops. Over a five-year period, the organization helped organize 15 co-ops, ranging in size from 64 to 359 units!

"We have already heard developers saying, 'Based on the economics, don't assume we can just jump into the market and build all this new housing.' If you are going to build low-income housing, you have to get some help from government. The incomes just won't support it."

Michael Shapcott of the Co-operative Federation of Canada agrees. "The critical problem of course for the private sector is they can't collect enough money in rent to cover the costs of developing and managing affordable housing. No matter how ideologically obsessed the provincial government is, there is a simple fact they can't get away from. Lower-income persons can't afford the kind of rents private landlords need to recover their costs and make what they consider a reasonable return on their investment."

Mark Paul of the Central Ontario Co-operative Housing Federation also said the idea makes no sense. "There is no money in it for them. Even tax write-offs aren't an incentive. The government says the private sector can provide all the housing. This is a fallacy. The reason government got into affordable housing originally was because the private sector wasn't doing it."

Dwight Syms said the real question is what kind of housing will be built. "Do you want it to be non-profit in perpetuity and still standing after 35 years? Or do you want it like some of the 'limited-dividend' buildings I saw while I was in Toronto? They were run down, maintenance was not kept up and the municipality did not force the landlord to do the work required. The landlords just milked them for all they could."

Bill Kirk, current co-ordinator at the provincially funded Needlewood Glen Co-op in Waterloo and past president of The Central Ontario Co-operative Housing Federation, said this is precisely the kind of low-income housing the province is aiming for. "They want private landlords to take all the responsibility for housing. This would lead to many more xxxxx-type apartment buildings where the majority of tenants are on social assistance and a big company owns the building. They build it and let it run down and make what profit it can as fast as it can."

Dale Holland is the Managing Director of Waterloo-Wellington Non-Profit Homes. He has worked there since February 1983. He lived in Beaver Creek from May 1984 until January 1986 and was a developing board member of our co-op. Months before the Conservative's new Planning Act, Bill 20, received third and final reading, on Wednesday, March 27, he predicted the Conservative plan would lead to the destruction of an infrastructure that has taken decades to build.

"The government plans to amend the Development Charges Act to reduce the kinds of levies and taxes housing developers have to pay up front to municipalities. All municipal infrastructure development, such as building arenas, libraries, roads and sewers gets paid out of development. I think they are going to re-write the Development Charges Act so it seriously undermines the municipality's ability to pay for this infrastructure.

The reason they would do this has to do with their orientation towards the private sector taking care of everything. They say 'We are going to create housing by getting government off the backs of developers and landlords.' So they are going to undermine seriously development charges and effectively gut rent controls with the aim of getting the government as far out of the market as possible.

They also say the elimination of rent controls is going to spur development and the same thing will happen when they make changes to the Development Charges Act. Along with spurring development, another rationale is this will make housing more affordable. What you can be certain of is two things. First, these changes will lead to increased profit margins for developers.

Second, a whole range of lower- and modest-income people will not have access to affordable housing. They are going to be paying 40, 50 and even 60 per cent of their income on housing. This situation, combined with existing low vacancy rates, is only going to spur a housing crisis.

Is there method in this apparent madness? Michael Shapcott said the CHF has heard about a bizarre strategy the government has formulated to deal with this situation. Shapcott said he and his colleagues have dubbed it the "trickle-up theory."

The idea is the government says 'We want to get the government out of the business of providing housing for poor persons. We know the private sector won't do it. What we are going to do is create the conditions to make it okay for the private sector to invest money in luxury rental housing. The high end of the tenant market with $1,200 and $1,300 per month units with the marble bathrooms and gold-plated faucets!

How this theory is supposed to work is when they build these luxury rental housing, upper-income tenants currently living in other forms of rental housing will desperately want to get into this new stock. They will leave their less luxurious units, creating vacancies for tenants of more moderate means who will then be able to move up to the vacant units. Then tenants of even lower means will be able to move into units vacated by the moderate tenants. This will continue down the scale until at the very bottom those units becoming vacant by this 'trickle-up theory' will become available to homeless persons.

To make conditions suitable for the creation of luxury rental housing, the Conservatives have announced a clear agenda. It includes getting rid of rent controls, the landlord and tenant act, and various other laws protecting tenants. This will allow, in their words, 'rents to rise to their natural level.' It also involves changes in the planning act, to environmental laws, to the Occupational Health and Safety Act, to building codes, and fire codes.

The government commissioned study from an economic consultant in October. The report came back saying, 'New rental projects need high rents to be viable.' So the government is now looking at how exactly can it create the conditions allowing high rents. Obviously, if it gets rid of rent controls, this is a quick answer. The author of the study did a survey of the private sector building industry and wrote, 'Industry representatives indicate there is little prospect for significant new private rental housing to be built without changes to their cost structures.'

How do you change the cost structure of a building? You reduce the standards required for construction, the plumbing systems, electrical systems and other things. The private sector has argued for many years Ontario is the most over-regulated building sector in North America. There are some pretty ominous things they want to do. They want to change the Occupational Health and Safety Act which among other things governs the safety rules on construction sites.

These plans were welcomed with open arms by the Ontario Home Builders Association. Al Leach, the Minister for Municipal Affairs and Housing, famous for saying he knows as much about housing as he could fit on the head of a pin, published a consultation paper in January titled "Back to Basics." He was quoted as saying his aim was to strip Ontario's Building Code of any regulation "that unnecessarily increases the cost of housing but doesn't necessarily improve health and safety."

According to a Toronto Star report, it turned out one of those building code regulations that could have been eliminated had to do with wheelchair accessibility! On Wednesday, February 14, Leach backed away from the paper, and later Vince Brescia, a special advisor to the minister, said Leach had never read the document before issuing it!

He said "Back to Basics" was "badly worded," and was "meant to be a statistical thing." The advisor said the government's real intent is to remove regulations designed to save energy and protect the environment, such as requirements for insulation and window glazing. To date the document has not been withdrawn or rewritten.

Michael Shapcott said while they may stumble along the way, we should have no doubts about the determination of the Conservatives to stay on this course.

This government has an absolutely clear vision of where it wants to go. It has a very detailed agenda it is intending to pursue. They know what they want and don't want to hear.

While we have difficulties speaking with them, they are meeting, on a regular basis, with the key organizations representing private landlords, private developers and private builders to flesh out this agenda. The Conservatives are obsessed with moving away from the post-war consensus of the government having a legitimate role in low- and moderate-income housing.

It is committed to moving towards a scenario where the only role government will have is creating market conditions at the upper end of the rental market. Then private landlords will build and charge enough rent to recover their costs and leave the rest of the population to deal with the leftovers.

The co-op movement has to meet this ideology head on. In reality housing is not just an ideological question. For those of us living in co-ops it is a question of home. It's where we live. It's the basis of our lives.

Note: The following article appeared in the April 1996 edition of our DAM newsletter and reflects rising concerns over the co-operative movement's future in an increasingly hostile environment. Since this article came out, co-operatives joined together and have won many battles to continue to exist. While the war isn't over, our prospects have greatly improved.