Written by Marny S. Paul, Senior Associate
September 5, 2023
Most municipalities in Alberta have identified affordable housing as a top priority within their strategic plans. Renewed commitments from all levels of government to fund affordable housing projects, together with the myriad of strategic tools available to municipalities, means that innovative and tailored programs can be developed to facilitate and promote affordable housing projects for our communities.
AFFORDABLE HOUSING A TOP PRIORITY
The rising cost of living means that many working families are spending up to 45% of their monthly income on mortgage payments. Current projections show that the population of Alberta grew by almost 16% (363,597 people) from 2016 to April 2023. Alberta is now expected to grow by another 57% by 2051 (2.6 million people) with housing needs becoming increasingly diverse. These factors, together with the challenge that many families face in finding housing they can actually afford, suggest that the need for affordable housing is going to be an ongoing issue.
Recently, another round of provincial funding was announced for affordable housing projects as part of Alberta's Affordable Housing Partnership Program. In order to access this funding, municipalities in Alberta may be actively exploring new ways to implement strategic plans for increased affordable housing projects within in their communities. Fortunately, the options are limitless and flexible, allowing municipalities to tailor their approach to meet community needs.
The most basic goal of the affordable housing programs is relatively simple – provide immediate and sustainable relief in the housing market in terms of cost and available housing. Creating accommodation that is suitable to a full range of individuals and families is critical to creating and maintaining dynamic, energetic, growing and sustainable communities.
How these goals are achieved can vary substantially from community to community, but some common principles will generally guide these initiatives:
- Fulfill a Need – identify the specific needs of the community for stable, secure housing not otherwise available in the community;
- Encourage and Facilitate Private Development – encourage and facilitate the private sector to develop a version of affordable housing to meet the needs of the community;
- Create Self-Sustaining Revenue – where possible, create a revenue stream through which the affordable housing assets and additional funding resources can be reinvested into the program and additional projects;
- Maximize Support Programs – utilize all available supports including public grants and rebates not otherwise available to the development community; and
- Establish Eligibility Criteria – both income thresholds and supplementary criteria must be clearly set to ensure that the end users/tenant purchasers of affordable housing units are in fact the parties that the affordable housing program is intended to assist.
STRATEGIES AND TOOLS
Reducing the costs of construction is the most common strategy for encouraging more affordable housing. A municipality's role in reducing initial project costs can take many forms, including:
- Land Costs – reducing the cost of developable land by providing lands at a reduced cost or at below market cost for development as affordable housing;
- Planning and Density – allowing for greater density within certain areas in order to allow for greater overall revenue which can be required to be reinvested within the project to result in reduced rentals or reduced purchase price across the board;
- Financial Support – providing cash payments or interest-free loans to targeted non-profit organizations, or offering cash-equivalent support to projects (i.e. reduced development fees) to reduce project costs and the resulting rents or purchase prices; and/or
- Forming Partnerships – contractual arrangements can be established with private parties with the clear goal and purpose of satisfying housing needs.
THE BASIC MODELS
When exploring the availability models and strategies, there is no "one size fits all". Current studies suggest that a tailored and innovative approach often leads to greater success. Regardless of the model selected, the final decision must be based on comprehensive research with a clear understanding of the benefits and limitations of each model. Advice should be sought from the outset on topics such as accounting treatment, advertisement and procurement and the legal limitations that may apply to each proposed arrangement.
In considering the alternative models, the basic options to consider are as follows:
- Municipally Owned, Operated and Funded – this is the simplest model, where a municipality will own, operate and fund the housing stock in its own name. This is likely one of the more typical routes taken, where the municipality combines available grants with its own financing and borrowing from available sources;
- Municipal Corporate Entity Owned and Operated –this model involves a municipality creating a new corporation or non-profit that is 100% owned and controlled by the municipality. The separate municipal corporation and will own and manage the housing stock. One benefit to this approach (among others) is that, as a separate legal entity, any borrowing of the municipal corporation may not count against the municipal debt limit if the matter is correctly structured. As well, under this model, the separate entity can facilitate a shared equity approach which can provide families the opportunity to own a home and build equity, even if they cannot afford the large down payment that is required.
- Private Party Designed, Built, Financed and/or Operated – this is the most complex of the different models. The involvement of a private party can be beneficial as private parties can be more efficient in providing services, but municipalities must be aware that a private party is always involved for the purpose of making a profit and this will likely be their primary concern. Projects under this model must be structured so that the private party sees a profit, while also meeting the municipal goal of providing affordable housing.
- Privately Owned and Operated – in this model, a municipality might support a new private housing corporation with its entry into the market, or an established non-profit, with a strong track record of achieving operational sufficiency. In this model, the private party will have complete control over the ownership and operation of the affordable housing, with the municipality's main role will be to provide opportunities for reduced construction costs and facilitate development steps.
The primary risk with this model is ensuring that the housing remains as true affordable housing. Controlling the lands and the affordability of homes must be maintained through the use of contractual arrangements such as restrictive covenants and/or options to purchase.
The above provides only a snapshot of the available options and the key characteristics for each approach. As with most local programs, the model selected and the parameters imposed will depend upon the particular needs, conditions and priorities of each municipality.
Before a municipality selects how to structure and carry out a new or expanded affordable housing program, we strongly recommend seeking professional advice so that the needs of a particular community, and the resources available, can be independently evaluated. Municipalities will best meet strategic goals by exploring all available tools and resources and by selecting suitable partners and advisors to assist with the formulation and operation of an appropriate affordable housing plan.
Brownlee LLP has broad experience in advising municipalities on the legal aspects of these models and setting up innovative approaches to affordable housing. Please reach out to a member of our team directly if your municipality is wanting to further explore its options for addressing this ever-increasing community need.