AFFORDABLE HOUSING – ATTRACTING/ RETAINING LABOUR (2007)

The lack of Affordable Housing in BC poses a problem for the BC economy. The rapid rise in housing prices over the last several years and the increasingly competitive wage environment from competing employment jurisdictions (such as Alberta, Ontario, the Northwestern US) has, and will continue to make it more difficult for BC employers to attract and retain labour.

Looked at from a different angle the problem can be stated as follows: in the absence of affordable housing, the wages paid by businesses to attract and retain workers will need to rise to a level where housing IS affordable. The resulting high wage structure will make BC an unfavourable jurisdiction in which to operate an existing business or locate a new business/ plant.

What is Affordable Housing?
The Smart Growth BC Affordable Housing Policy (Oct 19th , 2005) provides the following definitions:

“Affordable Housing” encompasses much more than (subsidized) non-market housing; it means that families and individuals – of all income levels and lifestyles – can find suitable places to live and can enjoy a stable, secure place to call home.

According to the Canada Mortgage and Housing Corporation (CMHC), affordable housing is suitable, adequate and affordable housing where no more than 30% of the household’s income is spent on shelter.

An illustration of the Affordable Housing problem facing the BC economy is shown in the following data taken from an RBC Economics Report on Housing Affordability dated March 2006: 

BC:

Property Type	Avg. Price (Q4 ’05)	Qualifying Pre-Tax Income (Q4 ’05)	% of Income
Detached Bungalow	$379,507	$81,757	54.9%
Standard Two-Storey	$435,181	$93,596	62.8%
Standard Townhouse	$299,387	$64,378	43.2%
Standard Condo	$201,074	$44,565	29.9%

Alberta:

Property Type	Avg. Price (Q4 ’05)	Qualifying Pre-Tax Income (Q4 ’05)	% of Income
Detached Bungalow	$226,942	$54,103	29.9%
Standard Two-Storey	$245,257	$59,777	33.0%
Standard Townhouse	$156,359	$37,915	21.0%
Standard Condo	$141,629	$34,817	19.2%

Ontario:

Property Type	Avg. Price (Q4 ’05)	Qualifying Pre-Tax Income (Q4 ’05)	% of Income
Detached Bungalow	$275,146	$64,732	35.5%
Standard Two-Storey	$325,195	$76,193	41.8%
Standard Townhouse	$232,303	$54,389	29.9%
Standard Condo	$198,878	$46,818	25.7%

Canada:

Property Type	Avg. Price (Q4 ’05)	Qualifying Pre-Tax Income (Q4 ’05)	% of Income
Detached Bungalow	$249,821	$59,038	37.0%
Standard Two-Storey	$291,604	$68,583	43.0%
Standard Townhouse	$203,994	$48,077	30.1%
Standard Condo	$171,946	$40,966	25.7%

Why is a Lack of Affordable Housing a Problem for Business?
The lack of affordable housing poses a significant problem for the BC economy. Young families and the low-to-mid wage level workforce are increasingly finding (a) it is becoming a difficult and time-consuming process to raise even the minimum downpayment for a home, (b) current wage (high housing rental costs exacerbate the problem) levels do not adequately provide the opportunity to accumulate a downpayment in a reasonable period of time and/or to support a mortgage on a home once the downpayment is obtained, (c) other jurisdictions are more attractive in which to work and live due to lower housing costs and/or higher wages.

Historically, many areas of BC have experienced a high cost of housing with a large percentage of one’s wealth contained in housing equity. As long as the reasonable opportunity has existed for one to enter the housing market and maintain a reasonable wage level to cover one’s living expenses, the average BC resident has been willing to invest a high portion of their income into housing equity.

However, given the rapid rise in housing prices over the last several years and the increasingly competitive wage environment from competing employment jurisdictions such as Alberta, Ontario, and the Northwestern US, the willingness, perhaps even the ability, of the average BC worker to cover the cost of a home is rapidly diminishing.

The net effect of an absence of affordable housing in BC upon the business community will be (a) increased difficulty in attracting and retaining qualified labour willing to work and live in BC and/or (b) increased wage demands from workers in order to offset higher housing costs and/or (c) reduced attractiveness of BC as a jurisdiction in which to do business.

As noted by the TD Bank in its report entitled “Affordable Housing in Canada: In Search of a New Paradigm”, “Affordable housing is frequently viewed as a social and health issue, but the fact of the matter is that it runs deeper than that. An inadequate housing supply can be a roadblock to business investment and growth.”

Builder Magazine, in its July 2003 issue, states: “The inability of rank and file workers – retail clerks, nurses, janitors, and factory workers – to afford housing not only threatens to curtail housing growth, it negatively affects the ability to hire and retain workers, who must live farther and farther away from main employment centres. City officials increasingly realize that they can’t attract new businesses unless the people who will work for these companies have a place to live nearby”.

How should Affordable Housing be Funded?
There are many suggestions as to how affordable housing should be funded, embedded in this question is the issue of equity. For example: who benefits from taxpayer assisted housing, and who does not? How are private developers compensated for building less profitable affordable housing projects?

A full discussion of the funding of affordable housing is beyond our present purposes. However, the concept of Housing Trust Funds requires some mention as the forthcoming motion involves the use of Housing Trust Funds to allocate affordable housing development dollars.

The following is taken from the paper entitled “Housing Trust Funds – Opportunities and Options” by Kate Mancer of Lumina Services Inc., dated October 8th, 2003:

“Housing Trust Funds were created to provide a way of building and preserving affordable housing in the absence of senior government funding. They are often called reserve funds in Canada and in BC are enabled by Section 499 of the Local Government Act (Special Reserve Funds).” They are defined as:

“… distinct funds established by legislation, ordinance, or resolution to receive public revenues which can only be spent on housing. The key characteristic of a housing trust fund is that it receives ongoing revenue from dedicated sources of public funding such as taxes, fees, or loan repayments.”

Advantages of Housing Trust Funds are:
• Leverage: HTF’s create a source of equity that can be used to lever funds received from other sources, both public and private;
• Flexibility: Funds are very flexible and can be structured to meet the particular housing needs of communities in which they are established;
• Targeting: Because funds are established locally to meet local needs, they can be precisely targeted to meet the most pressing needs;
• Economic Development: HTF’s create jobs, training opportunities, and increased tax revenues;
• Partnerships: HTF’s rely on partnerships (including local governments) at the local level to accomplish their goal of building and preserving affordable housing … a useful way to marshall resources from a number of community-based agencies and to create synergies; and
• Innovation: Because they are flexible and local, HTF’s tend to be very innovative in their approach to the development and operation of affordable housing.

“In the absence of traditional housing programs, innovative, community-based solutions are required. The non-profit sector cannot step into the breach alone. The sector lacks sufficient resources to address the growing need for affordable housing. The housing trust model provides a framework to meet the growing need to finance the construction of new low and middle income housing.”

The Chamber believes that there is a need for a substantive initial investment by senior levels of government to establish a credible base for newly formed funds. Beyond the initial investment there is a need for all parties to work together to develop a sustainable, ongoing funding mechanism to ensure the continued viability of the funds.

Our members are clear; the provincial government must not increase taxes as a means of providing revenue to the fund. However, The Chamber does recognize the benefit of providing a dedicated, sustainable funding formula for affordable housing development which also provides some flexibility to reflect changes in the local housing market. For example, when the housing market cools and housing becomes more affordable, the funding received by HTF’s should fall accordingly. Alternatively, as markets heat up and housing becomes less affordable, the funding received by HTF’s should increase. One such mechanism is to apply a fixed contribution percentage to a base that fluctuates with housing values, say the value of all real estate transactions within a municipality in a given year.

The Chamber believes an important feature of the fund must be the need to be responsive if the housing market cools. In short, if housing becomes more affordable, the fund should be reduced to reflect this fact.

The lack of affordable housing is and will continue to be a challenge for municipal and provincial governments for years to come. The financial pressures felt by the community and the economy due to the lack of affordable housing will inevitably result in pressure on government.

The Chamber believes that the creation of Housing Trust Funds will provide local government with a dedicated, secure funding stream to facilitate the development of an affordable housing stock. The Housing Trust Fund structure allows localized allocation of resources and can accommodate both publicly funded or public-private partnership-funded projects. As with any infrastructure investment, if the project is properly planned and administered, the result will be the funding and development of a permanent, long-lived asset that can be used by successive generations. The benefits of developing an Affordable Housing stock will be more healthy communities and a more competitive economy.

However, simply throwing taxpayer dollars at a problem is rarely sufficient when dealing with complex social problems.

This will require new thinking from local government.

The Chamber believes the provincial government can assist local governments in the efficient use of Housing Trust Fund dollars by encouraging the development of a best practice guide for local government. This guide would provide a review of programs and initiatives used by each municipality to ensure they enable the development of affordable housing.

THE CHAMBER RECOMMENDS

That the provincial government:
 
1. work with local government to establish Housing Trust Funds intended to fund the development and ongoing maintenance of affordable housing infrastructure;

2. ensure the effectiveness of the fund to provide an initial endowment of $200 million;

3. work with local government to develop a long-term, flexible funding structure for the Fund that reflects the local condition of the housing market;

4. lobby the federal government to match any funds contributed by the province to Housing Trust Funds; and

5. work with the Union of BC Municipalities to develop a best practice guide of land use and zoning policies and development approval processes for municipal government.