December 3, 1998
To:Budget Committee
From:City Clerk
Subject:Establishment of a Capital Revolving Fund for Affordable Housing and the Social
Housing Reserve Fund
Recommendation:
The Community and Neighbourhood Services Committee on December 3, 1998,
recommended to the Budget Committee, and the Strategic Policies and Priorities Committee,
the adoption of:
(1)the recommendation of the Board of Directors of the City of Toronto Non-Profit Housing
Corporation and the Board of Directors of The Metropolitan Toronto Housing Company
Limited embodied in the attached communication dated November 23, 1998, from the
Corporate Secretary respecting the Social Housing Reserve Fund and the establishment of a
Capital Revolving Fund;
(ii)the attached joint report dated December 1, 1998, from the Commissioner of Community
and Neighbourhood Service and the Chief Financial Officer and Treasurer on the
establishment of the Capital Revolving Fund for Affordable Housing.
City Clerk
R. Dyers/tl
Item No. 20
(Communication dated November 23, 1998, addressed to the
Community and Neighbourhood Services Committee from the
Corporate Secretary, The City of Toronto Housing Corporation and
The Metropolitan Toronto Housing Company Limited)
The Board of Directors of The City of Toronto Non-Profit Housing Corporation (Cityhome)
and theBoard of Directors of The Metropolitan Toronto Housing Company Limited (MTHCL)
on November 23, 1998, had before them a report (November 16, 1998) from the Chief
Operating Officer, advising that in July, 1998, City Council agreed that a capital revolving
fund for affordable housing should be established to provide financial support to projects that
demonstrate the City's role in facilitating the creation of affordable housing; stating that this is
an initiative of the City and will have no anticipated financial impact on the new amalgamated
Housing Company; setting out a draft set of management principles for such fund, which will
be presented to City Council in December; and recommending that the Board of Directors
approve the following:
(1)recommend to Council the establishment of a Capital Revolving Fund for Affordable
Housing using proceeds from the Social Housing Reserve Fund which are not required by the
new housing company;
(2)transfer the amount of $5,670,000.00 in the Social Housing Reserve Account to the
Capital Revolving Fund when approved by City Council. Any profit earned from the sale of
units in the Pooled Investment Fund on the date of transfer will also be transferred to the
Capital Revolving Fund;
(3)the amount of $1,100,000.00 be retained in the Social Housing Reserve Fund account
currently being managed by Cityhome to be used to subsidize budget shortfalls in future
years; and
(4)transfer the interest income earned on the Social Housing Reserve Fund during the year of
1998 to revenue as approved in the 1998 Operating Budget.
The Boards of Directors recommended to the Community and Neighbourhood Services
Committee, and Council, adoption of the aforementioned report.
(Report dated November 16, 1998, addressed to the
Boards of Directors, The City of Toronto Non-Profit Housing Corporation and
The Metropolitan Toronto Housing Company Limited,
from the Chief Operating Officer, Toronto Housing Company)
Recommendations:
That the Board of Directors approve the following:
(1)recommend to Council the establishment of a Capital Revolving Fund for Affordable
Housing using proceeds from the Social Housing Reserve Fund which are not required by the
new housing company;
(2)transfer the amount of $5,670,000.00 in the Social Housing Reserve Account to the
Capital Revolving Fund when approved by City Council. Any profit earned from the sale of
units in the Pooled Investment Fund on the date of transfer will also be transferred to the
Capital Revolving Fund;
(3)the amount of $1,100,000.00 be retained in the Social Housing Reserve Fund account
currently being managed by Cityhome to be used to subsidize budget shortfalls in future
years; and
(4)transfer the interest income earned on the Social Housing Reserve Fund during the year of
1998 to revenue as approved in the 1998 Operating Budget.
Background:
In July, City Council in its meeting agreed that a capital revolving fund for affordable housing
should be established to provide financial support to projects that demonstrate the City's role
in facilitating the creation of affordable housing. City Council asked the Chief Financial
Officer and Treasurer, the Commissioner of Corporate Services and the Commissioner of
Community and Neighbourhood Services to report on options for establishing such a fund and
potential funding sources. Draft management principles for a Capital Revolving Fund for
Affordable Housing (Appendix "A") have been prepared by staff of the Shelter Housing and
Support Division, City of Toronto, and a report will be presented to Council about the Fund
on December 16 and 17, 1998.
Staff from both Cityhome and the City participated in the development of this report. One of
the recommendations of this report requested the City to establish a Capital Revolving Fund
for Affordable Housing and redesignate the Social Housing Reserve Fund (SHRF) of the
former City of Toronto for this purpose. The SHRF are currently kept in two separate
accounts, one under the City and one under Cityhome.
The funds in Cityhome were the result of City Council adopting a report in March of 1993,
entitled "Plan to Restructure the Financial Relationship between the City and the City of
Toronto Non-Profit Housing Corporation" (Appendix "B"). The report authorized Cityhome
to use these funds to reimburse the City of Toronto for any salary and employee benefit costs
shortfall of City of Toronto Housing Department employees performing work on behalf of
Cityhome that is not otherwise reimbursed through other payments to the City on an annual
basis; and to provide funds for Cityhome's land acquisition wherein full cost recovery
including full interest carrying costs will occur and where City Council has approved such
acquisitions.
For the past five years, Cityhome has withdrawn approximately $1.4 million annually from
the SHRF to reimburse for salary expenses shortfall not funded through Provincial/Federal
subsidy. The Cityhome reorganization plan adopted by the Board in 1997 substantially
reduced the salary and benefits expenses of the corporation and our reliance on the SHRF. The
1998 Operating Budget approved by the Board included the use of only the interest portion of
the SHRF, budgeted at $422,000.00, a substantial reduction from the $1.4 million in the
previous year. With the amalgamation of Cityhome and MTHCL, we anticipate that further
savings can be achieved in staffing costs. Our projection indicated that the retention of $1.1
million in the fund will be sufficient to provide the same budgeted contribution in 1998 of
$422,000.00 over the next three years assuming investment return rate of7percent. Within
these years, the new housing company will eliminate any further dependance on the SHRF.
The remaining balance of $5,670,000.00 in the SHRF is available to be transferred to the
Capital Revolving Fund for Affordable Housing. The SHRF are currently invested in the
Pooled Investment Fund with a market value about 11percent over the booked value. The
exact amount available at the date of transfer will depend on the prevailing market condition.
Alternatively, the new housing company could continue to manage the City's fund within the
Pooled Investment Fund until withdrawals are required.
Conclusion:
It is recommended that the Board of Directors adopt the recommendations to support the
housing initiative of the City since there will be no anticipated financial impact or burden on
Cityhome or the new amalgamated company.
(A copy of each of Appendices A, B, C and D, referred to in the foregoing report
(November16,1998) from the Chief Operating Officer, has been forwarded to all Members of
Council with the agenda of the Community and Neighbourhood Services Committee for its
meeting on December 3, 1998, and a copy thereof is also on file in the office of the City
Clerk.)
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(Joint Report dated December 1, 1998, addressed to the
Strategic Policies and Priorities Committee from the
Commissioner of Community and Neighbourhood Services and
the Chief Financial Officer and Treasurer)
Purpose:
Recognizing that Council has agreed in principle to establish a Capital Revolving Fund for
affordable housing to provide financial support to projects that demonstrate the City's role in
facilitating creation of affordable housing (July 1998), the purpose of this report is to:
(i)report back in response to Council's request for options to establish such a fund and
potential funding sources;
(ii)recommend establishment of a Capital Revolving Fund to support partnerships with
non-profit groups to develop affordable ownership, rental and transitional housing;
(iii)recommend "seeding" the proposed fund using monies in the existing Social Housing
Reserve Fund of the former City of Toronto, and with funds from the partial settlement of
claims against the Province relating to cancellation of non-profit housing projects for this
purpose;
(iv)provide draft management guidelines for the proposed Capital Revolving Fund; and
(v)report back in response to Council's request for options to reallocate the $11.7 million
which was set aside in the 1998 City Operating Budget for Social Housing Costs, and is no
longer required due to the Province's decision to retain funding for 100 percent supportive
housing portfolios.
Financial Implications:
This report would redesignate approximately $10 Million in existing reserve funds (not
including the value of City-owned sites where proceeds must be returned to the SHRF -value
to be determined), part of which was previously allocated to Cityhome for social housing
purposes under a 1993 Council-approved plan (former City of Toronto) for the Social
Housing Reserve Fund (SHRF), and the remainder of which is in Account No. 5210 (social
housing account, former City). As these funds were acquired in exchange for negotiated
increases in height and/or density, their use is restricted by agreements (as provided under
Section 37 of the Planning Act) which requires that they be used for affordable housing
purposes. The proposed Capital Revolving Fund for Affordable Housing would support
affordable housing development that falls within this restricted use.
This proposal would require having Cityhome to phase out its reliance on the SHRF (the
Board supports the proposal).
This report proposes that net proceeds from partial settlement of claims against the Province
due to cancellation of non-profit housing projects be allocated to the proposed Capital
Revolving Fund for Affordable Housing.
Recommendations:
It is recommended that:
(1)the City establish a Capital Revolving Fund for Affordable Housing and redesignate the
Social Housing Reserve Fund of the former City of Toronto for this purpose;
(2)the Capital Revolving Fund for Affordable Housing be managed as a restricted reserve
fund, consistent with the requirements of Section 37 of the Planning Act;
(3)the Commissioner of Community and Neighbourhood Services and the Chief Financial
Officer and Treasurer be responsible for making recommendations to Council about allocation
of funds from the Capital Revolving Fund to non-profit organizations including
Cityhome/Metro Toronto Housing Company Limited, per the management plan outlined in
this report, and restricted to the following purposes:
(i)proposal development funding for affordable housing projects;
(ii)project development assistance including forgivable loans and repayable loans;
(iii)project financing (e.g., second mortgage loans); and
(iv)other activities related to improving the quality and quantity of affordable housing supply
in the City of Toronto;
(4)the $1,288,776.72 received from the Province of Ontario as partial settlement of the former
City of Toronto and Cityhome's claim against the Province arising out of the cancellation of
non-profit housing projects be allocated as follows:
(i)$214,186.23 to Corporate Services to cover legal costs associated with the claim;
(ii)$7,813.00 to Cityhome to cover expenses related to the claim; and
(iii)$1,066,777.49 (plus accumulated interest) to the proposed Capital Revolving Fund for
Affordable Housing;
(5)the Commissioner of Community and Neighbourhood Services and the Chief Financial
Officer and Treasurer report back on options for ongoing funding of the Capital Revolving
Fund for Affordable Housing, if adopted;
(6)the Commissioner of Community and Neighbourhood Services and the Chief Financial
Officer and Treasurer report back on final management guidelines for the Fund;
(7)Council write to the Minister of Municipal Affairs and Housing and the Federal Minister
responsible for Canada Mortgage and Housing advising that Council has established a Capital
Revolving Fund to support Affordable Housing, and to request that the Province of Ontario
and Government of Canada participate in supporting development of affordable housing in the
City of Toronto by contributing to this Fund; and
(8)authorize and direct appropriate City officials to take the necessary actions to implement
these recommendations.
Council Reference/Background:
At its May 1998 meeting, Council asked the Chief Financial Officer and Treasurer and the
Commissioner of Community and Neighbourhood Services to submit a joint report regarding
disposition of funds to be received as a result of partial settlement of claims against the
Province related to cancellation of non-profit housing projects, and the possibility of such
funds being allocated to the Social Housing Reserve Fund.
At its July 1998 meeting, Council agreed, in principle, that a Capital Revolving Fund for
Affordable Housing should be established to provide financial support to projects that
demonstrate the City's role in facilitating the creation of affordable housing, and asked the
Chief Financial Officer and Treasurer, the Commissioner of Corporate Services and the
Commissioner of Community and Neighbourhood Services to report back on options for
establishing such a fund and potential funding sources. As part of that report, the concept
using a portion of proceeds resulting sale of City-owned surplus sites to provide ongoing
funding to a capital revolving fund was put forward and, therefore, it was necessary to obtain
input from the Commissioner of Corporate Services. Since we are not at this time making
recommendations about ongoing funding sources, the Commissioner of Corporate Services
has not been a party to preparing this report.
Also at its July 98 meeting, Council asked the Commissioner of Community and
Neighbourhood Services and the Chief Financial Officer and Treasurer to report back on
reallocation of $11.7 million which was set aside in the 1998 City Operating Budget for
Social Housing Costs, and is no longer required due to the Province's decision to retain
funding for 100 percent supportive housing portfolios. Potential uses for this fund would
include providing support for affordable housing demonstration projects. We are not
recommending that the savings be reallocated for this purpose at this time, as we feel that
there are sufficient funds available to "seed" the proposed Capital Revolving Fund should
Council agree to redesignate the Social Housing Reserve Fund and allocate net proceeds from
the partial settlement of claim against the Province, as recommended by this report in the
September variance report. The 1998 savings have reduced the draw from the Transition
Reserve Fund for Capital Projects.
At its meeting of November 23, 1998, the Cityhome Board approved turning over their share
of Social Housing Reserve funds (approximately $5.67 Million) for use as part of a Capital
Revolving Fund for Affordable Housing, and recommended to the Community and
Neighbourhood Services (for its December 3, 1998, meeting) that the City support such a
fund.
Comments:
Comments are provided under the following headings:
(1.0)Strategy for Creating Affordable Housing
(2.0)Sources of Funding for a Capital Revolving Fund for Affordable Housing Development
(2.1)Existing Social Housing Reserve Fund;
(2.2)Settlement of Claims Regarding the Non-Profit Program Cancellation;
(2.3)Savings due to "upload" of dedicated supportive social housing portfolios; and
(2.4)Additional sources of initial and ongoing funding.
(3.0)How the Fund would be Used:
(3.1)Precedents; and
(3.2)Proposed Capital Revolving Fund for Affordable Housing
Appendix A:Precedents; and
Appendix B:Fund Management Guidelines.
(1.0)Strategy for Creating Affordable Housing:
The interim report of the Mayor's Action Task Force on Homelessness (July, 1998) stressed
the need for preventive and long-term solutions to the City's serious homeless problem. In
particular, research indicates that there is a shortfall of 5,000 supportive housing units and,
over and above this, there is need for an additional 2,000 to 4,000 affordable housing units
annually. The interim report points out that it is significantly less expensive to provide
permanent housing (about $22.00 to $30.00 rent per day for a self-contained one or two
bedroom unit) than it is to provide emergency or short term shelter (about $30.00 to $43.00
per day for a hostel or shelter bed). Since cancellation of Provincial and Federal funding for
new non-profit housing (in 1993 and 1995, respectively), there has been virtually no
construction of permanent rental or affordable housing in the City of Toronto.
At its July meeting, Council adopted a Strategy for Creating Affordable Housing that
addresses this gap and proposes a new role for the City in creating affordable housing. The
strategy recognizes that the City does not have the resources or the mandate to address the
causes of housing affordability problems on its own. Therefore the City's role is as a facilitator
and partner in the creation of affordable housing:
The goal of the Affordable Housing Development Strategy is to create an environment in
which private sector and community partners will be willing and able to develop affordable
housing for people with a range of housing needs that are not currently being met in the
market."
Consistent with this facilitative role, the City of Toronto does have certain tools that can be
used to make it more feasible to create affordable housing. These include policy tools related
to its planning and regulatory powers that can have a major long term impact (e.g., density
incentives, reduced property taxes), and a more immediate impact (such as contributing assets
such as land and financing power to support specific affordable housing projects).
Research by Greg Lampert for the Metro Stakeholder Panel in 1997 suggests that a
combination of tools, such as equalizing property taxes for new rental buildings with the
residential and condominium rate, and reduced land costs, can make it feasible to produce
rental housing. Additional measures, such as equity contributions or reduced financing costs,
help make it possible to produce housing that is affordable (below market). One example, now
under development, is the 30 St. Lawrence project where 10 affordable townhouses will be
constructed by Dixon Hall to accommodate 40 homeless men and women.
Certain tools which would greatly increase the feasibility of new affordable housing could,
and should, be provided by the senior levels of government (e.g., capital funding, rent
supplement funding, reduced mortgage insurance, equitable GST policies). One goal of the
proposed Capital Revolving Fund for Affordable Housing is to use the fund to lever financial
support from other levels of government (for example, matching funds) and, potentially, the
private sector.
Also at its July meeting, Council approved City facilitation of demonstration projects, through
partnerships, to create affordable housing using three models:
(a)Transitional Housing Demonstration Projects: housing that provides a transition from
living in emergency shelter to stable, longer term housing, and which includes appropriate
community supports;
(b)Affordable Rental Demonstration Projects: affordable rental housing for target groups
which do not require linked community supports; and
(c)Affordable Ownership Demonstration Projects: ownership housing that is sufficiently
low-cost that it can be purchased by households (in particular, families) with moderate to low
incomes.
Staff are now taking steps to identify suitable City-owned sites and community partners for
demonstration projects, and will be reporting back to Council through the Council Strategy
Committee for People Without Homes.
Another ingredient key to proceeding with these demonstration projects will be provision of
financing assistance, including second mortgage loans, grants for some or all development
soft costs, and project development financing. The proposed Fund would be used to provide
some direct City financial assistance to non-profit organizations developing demonstration
projects, but more importantly, this assistance is given to help the group to lever other sources
of financial assistance whether through charitable donations, financing, government subsidies
and/or other contributions.
(2.0)Sources of Funding for a Capital Revolving Fund for Affordable Housing Development:
This section discusses redesignation of the existing Social Housing Reserve Fund for use as a
capital revolving fund to support affordable housing development. It also proposes using net
proceeds from the partial settlement of claims against the Province related to cancellation of
non-profit housing projects as additional "seed" funding for the capital revolving fund for
affordable housing.
Sources of ongoing funding will need to be established. At this time, no recommendations are
being made about sources of ongoing funding. Instead, this report recommends that the
Commissioner of Community and Neighbourhood Services and the Chief Financial Officer
and Treasurer report back about ongoing funding sources, should Council agree to establish a
Capital Revolving Fund for Affordable Housing.
(2.1)Existing Social Housing Reserve Fund:
We recommend that the Social Housing Reserve Fund be redesignated as a Capital Revolving
Fund for Affordable Housing, to be managed as a restricted reserve fund, consistent with the
requirements of Section 37 of the Planning Act. As discussed in section 3.2, and detailed in
Appendix B, the proposed uses for this funding meet the requirement that the monies be used
for affordable housing purposes, and would be a productive use of this capital asset.
The SHRF was established by the former City of Toronto in 1986. It was set up initially to
provide a separate account for a $2 Million cash-in-lieu payment from the World Trade Centre
as part of an agreement to satisfy the assisted housing obligation of this project under the
Official Plan. Section37 of the Planning Act allows local municipalities to pass zoning
by-laws that authorize increases in density and/or height in exchange for the provision of
public benefits. These benefits may be secured by a municipality entering into one or more
agreements with a developer, which may then be registered against the title of the land. The
former City of Toronto successfully secured a range of facilities and/or amenities by
participating in Section 37 agreements, including land and capital funds for social housing.
All funds received by the City for assisted or social housing purposes through negotiated
density bonuses since 1986 have been deposited in the SHRF.
Up until 1993, monies in the SHRF were used to acquire land and buildings for non-profit
housing projects, and to cover fees and charges incurred up until the time that the housing
provider was able to establish a mortgage. Revenues from the sale of sites to non-profit social
housing providers were returned to the SHRF.
In 1993, when the SHRF balance stood at approximately $4.7 Million (not including the value
of sites to be sold or developed), the former City Council made a policy change with regard to
future use of the SHRF. It was determined that there were sufficient City-owned sites for
non-profit housing development, and site acquisition stopped. A budget decision was made to
transfer management of the SHRF to Cityhome, as part of an overall plan to restructure the
financial relationship between the City and Cityhome. Under this "Cityhome Independence
Plan", Cityhome was given authority to draw from the fund to cover certain operating costs,
and the City's annual operating budget contribution to Cityhome was eliminated.
For the past five years, Cityhome has withdrawn approximately $1.4 Million annually from
the SHRF to reimburse for salary expenses shortfall not funded through Provincial/Federal
subsidies. The 1998 Operating Budget approved by the Board included the use of only the
interest portion of the SHRF, budgeted at $422,000, a substantial reduction from the $1.4
Million withdrawn in the previous year, and Cityhome staff anticipate that retention of $1.1
Million of the fund will be sufficient to provide the same budgeted contribution in 1998
($422,000.00) over each of the next three years, and that during that period, Cityhome would
be able to eliminate any further reliance on the SHRF. The Cityhome Board supports
re-designation of $5.67 Million (plus interest) for a Capital Revolving Fund, as will be
reported to Community and Neighbourhood Services Committee on December3,1998.
Since 1993, additional monies (over and above interest earned on investing the fund) have
been credited to the Fund and remain with the City in Account No. 5210 Social Housing
Fund. In 1998 alone, $1.8 Million was returned to the City's share of the fund due to sales of
specific properties. As of Oct.31, 1998, the balance in Account No. 5210 was $4,212,000.00
including interest (about $933,000.00 of this amount is already committed for social housing
related capital projects).
This report proposes that the remaining balance of $5.67 Million in the Cityhome SHRF along
with the remaining balance of $4,212,000.00 in the City's portion of the SHRF, including
interest (and adjusted as of the transfer date), be transferred to the proposed Capital Revolving
Fund for Affordable Housing.
(2.2)Settlement of Claims Regarding the Non-Profit Program Cancellation:
As reported in May 1998, the City has reached a partial settlement with the Province with
regard to claims by the former City of Toronto and Cityhome over costs incurred as a result of
cancellation of the non-profit housing program. The partial settlement relates to legal,
consulting and other project development costs that had been incurred by the City relative to
specific non-profit projects cancelled by the Province in 1995. The City agreed to accept the
partial settlement of $1,288,776.72.
We recommend that $214,186.23 of the partial settlement be allocated to the Corporate
Services Department as reimbursement for legal costs related to the claim. An amount of
$7,813.00 should also be disbursed to Cityhome for the company's expenses related to the
cancelled projects.
As for the remaining $1,066,777.49 (plus accumulated interest), we recommend that this
amount be allocated to the Capital Revolving Fund for Affordable Housing. The settlement
received on the cancelled projects was due to the City's efforts to develop affordable housing,
and it is therefore appropriate that funds recovered be directed to the same purpose.
The remaining claim against the Province of approximately $56 Million, relating to costs
incurred by the City in acquiring and holding land for cancelled housing projects, has yet to be
settled. Negotiations have only just begun and can be expected to continue for quite some time
given the magnitude of the claim. Staff will report further on these negotiations and,
ultimately, will require Council approval for any settlement which is negotiated before an
amount can be formally accepted. At that time, staff will make recommendations for
disposition of the settlement amount.
2.3Savings Due to "Upload" of Dedicated Supportive Social Housing Portfolios:
As reported to Council in July, the cost of social housing portfolios which are 100 percent
dedicated to supportive housing as defined by the Ministry of Municipal Affairs and Housing
are no longer the responsibility of municipalities (retroactive to January 1, 1998).
For 1998, $266,278,406 was set aside in the City's Operating Budget for social housing costs.
The Province has estimated social housing cost savings to the City for 1998 are $11,784,329,
after being adjusted by GTA pooling. This means the City's base budget for social housing
costs has been reduced for this year and all future years and the City's ongoing downloading
impact is reduced from $266 Million to $254 Million.
In July, Council asked the Commissioner of Community and Neighbourhood Services and the
Chief Financial Officer and Treasurer to report back on reallocation of the savings. Potential
uses for these savings would include providing support for affordable housing demonstration
projects. We are not recommending that the savings be reallocated for this purpose at this
time, as we feel that there are sufficient funds identified above to "seed" the proposed fund.
This recommendation has a direct impact in terms of reducing the City's operating budget
requirements in 1999 and beyond, to the extent that these funds are available. This
recommendation has been reflected in the September 1998 variance report.
(2.4)Additional Sources of Initial and Ongoing Funding:
Redesignation of the SHRF and allocation of the partial settlement from the Province can
provide a good start for the proposed Capital Revolving Fund. However, in comparison to the
high cost of housing production and the overwhelming need for affordable housing, longer
term ongoing funding will be required. This report recommends that the Commissioner of
Community and Neighbourhood Services and Chief Financial Officer and Treasurer report
back on potential sources for ongoing funding, which may include options such as a portion of
revenues earned on sales of surplus City-owned sites, City operating or capital budget
allocations, and matching fund contributions from other levels of government or the
charitable, private and corporate sectors.
(3.0)How the Fund would be Used:
This section provides an overview of how similar funds have been used before by the City and
in other jurisdictions (additional information is provided in Appendix A), and proposes a
management model for maintaining, accessing and using the funds (additional detail provided
in Appendix B).
(3.1)Precedents:
A report by CMHC dated January 1998, "New Ways to Create Affordable Housing", looked
at what community-based organizations were doing across Canada to build affordable housing
without government subsidies. After surveying 186 organizations, they found that 38 percent
of the groups were able to develop, or are developing, affordable housing projects without
Provincial or Federal subsidies. The biggest obstacle faced by organizations trying to develop
affordable housing without government subsidy was the difficulties they had in obtaining
financing (followed by cost of land and site acquisition and then difficulties with development
approvals).
This does not mean these groups always wanted or needed free money, although providing
grants would also help reduce costs. It means that the groups needed assistance with cash flow
during project development and construction, and needed help to obtain mortgage financing
once the project is complete, such also provision of second mortgages in recognition of the
fact that these community groups seldom have a great deal of equity at the start.
For this reason, potential uses for the proposed capital revolving fund for affordable housing
include providing grants but, more importantly, providing financing assistance so non-profit
groups can manage cash flow during development, and are able to secure mortgage financing.
The City already has experience with revolving funds for housing. Some examples include the
Capital Leverage Fund for Homeless Initiatives, City of Toronto Loan Program, and the
Contract Aftercare Program. The Capital Leverage Fund for Homeless Initiatives is most
similar to the Fund being proposed in this report. In 1997, the former City established the
Capital leverage fund for Homeless Initiatives to provide a means to "recycle" the funds
returning to the City from projects supported under a 1996/97 "survival fund". As part of this
"survival fund", $1.4 million was set aside as capital funding for the expansion or creation of
facilities for homeless people. The City used the fund as leverage to obtain joint funding and
in-kind supports from other parties, to secure private loans or contributions, and to encourage
partnerships among community and private partners. The intent behind establishing the
Capital Leverage Fund was to ensure loan repayments would be available for future projects,
rather than being returned to general revenues. By September 1997, $900,000.00 was
allocated to six projects (including Streetcity). Earlier this year, Council approved an
additional $500,000.00 from this fund assist development of a Youth Housing Demonstration
Project (for more information, see November 1998 report to Council Strategy Committee for
People Without Homes, "Update on the Strategy to Create Affordable Housing and
Demonstration Projects"). Funds are provided as a combination of forgivable loans and
repayable no interest loans.
Although housing trusts, foundations and other types of funds have had a long history in the
U.S., their emergence in Canada has been limited until quite recently, and appears to be a
relatively common municipal response to cancellation of social housing programs by the
Federal and Provincial governments. In some cases, municipal funds previously made
available to community groups to assist them in obtaining a social housing allocation have
been transferred into affordable housing funds with a wider scope, and have received
additional municipal inputs.
Municipal funds which support affordable housing development and revitalization have been
established or are under development in Quebec City, Saskatoon, Edmonton, Calgary
Vancouver, Surrey and Hamilton. The funds typically provide grants and loans to non-profit
groups and home-owners/buyers. The amounts are small -intended to cover only a portion of
costs, with the housing provider responsible for levering the remainder. In Saskatoon, for
example, the maximum funding amount is a grant equal to 5 percent of total project capital
costs. In Quebec City, the fund provides low-interest second or third mortgages to cover the
gap between what a lender will provide to the non-profit group and the total cost of the
project.
The Calgary Homeless Foundation Fund is notable in that their goal is to acheive $6 M
through contributions from the province (1/3), the City (1/3) and from the corporate sector
(1/3). The Province has already contributed $2 Million, the City $1 Million plus land and
buildings, and an additional $2 Million will be fundraised from the corporate sector (there has
already been some success in obtaining corporate donations).
(3.2)Proposed Capital Revolving Fund for Affordable Housing:
This section summarizes key management principles which would apply to use of the
proposed Capital Revolving Fund for Affordable Housing. Appendix B outlines, in more
detail, draft management guidelines.
Purpose:
Broadly stated, the objective of the Capital Revolving Fund for Affordable Housing is to
provide assistance to non-profit groups developing approved affordable ownership, rental and
transitional housing demonstration projects. Financing assistance will be given as a
combination of re-payable and forgivable loans for development (capital). A small portion of
the Fund may be used for research types of projects which relate to affordable housing
development.
A basic principle of the Fund is that allocations are to be used to lever the greatest benefits
possible, but not to pay for the entire cost of development. As with other municipal funds, the
intended use is to get development started (project development financing, payment of soft
costs such as architect fees, interim construction loans until a mortgage is secured, etc.), and to
provide financing assistance so the non-profit housing provider can secure mortgage financing
(e.g., to "bridge" the gap between the mortgage a private lender will provide and the mortgage
which is required through a second mortgage). For example, CMHC will generally insure up
to 85 percent of the market value of the project. The Fund would provide partial assistance to
the group in raising the remaining 15 percent.
Since the fund will not cover the full cost of development, and will not contribute to operating
costs, non-profit groups will be required to contribute (for example, through fund-raising and
obtaining mortgages from private lenders).
Eligibility:
Non-profit organizations developing approved affordable housing demonstration projects will
be eligible for access to the fund, including Cityhome/Metro Toronto Housing Company
Limited.
Affordable housing demonstration projects will be selected through a request for proposals
process (RFP). For each RFP, a definition of what "affordable housing" means will be
established based on the specifics of that RFP and the project type (i.e., ownership, rental,
transitional, and target group to be housed). Some projects may include a mix of market units,
below market units and units for those with the deepest need; for all projects receiving
assistance at least 51 percent of the units must be affordable to households with incomes
below the median. Over time, it is intended that the RFP definitions will relate to definitions
established for affordable housing under the Official Plan development process.
Approvals and Reporting:
Decisions about the exact support to be provided to a project will be made as part of the RFP
process and established as part of a legal agreement with the housing provider, in consultation
with the City Solicitor and Chief Financial Officer and Treasurer. Council approval would be
required before any allocation is agreed upon, and will be requested within the context of a
business case for each Affordable Housing Demonstration Project which is recommended for
approval.
The business case will outline the full package of City support being offered to the project,
and provide an assessment of feasibility and potential benefits and risks.
The agreement with the housing provider will set out exactly what contributions the City will
provide as part of the partnership, as well as contribution levels to be provided by other
partners, performance standards for the provider (such as the number of affordable units, how
long they are to remain affordable, defining what "affordable" means for the project, and
reporting) and remedies should the housing provider fail to maintain performance standards.
The Commissioner of Community and Neighbourhood Services and Chief Financial Officer
and Treasurer would report annually to Council on how the Fund has been allocated, and
results achieved.
Fund Management:
The Capital Revolving Fund will be managed as a restricted reserve as required under Section
37 of the Planning Act. Total annual expenditures (whether repayable or forgivable) will be
limited to a maximum amount annually (to be determined). Repayments of allocations given
as repayable loans will return to the fund, ensuring that it is truly a "revolving" fund. Details
about how the fund would be managed will be provided as part of a report to Council in
March 1999 recommending Fund Management Guidelines.
Affordable Housing Reference Group:
At its July 1998 meeting, Council also approved establishment of a "reference group" to assist
with the selection of affordable housing demonstration projects. The Commissioner of
Community and Neighbourhood Services was requested to work with the Chair of the Council
Strategy Committee for People Without Homes and the Mayor to establish the group, which is
to include representatives of the private development community, the financial sector, support
service providers, the non-profit sector, Canada Mortgage and Housing Corporation, the
Province of Ontario and a City Councillor. Work is underway to establish the reference group,
and we expect that the group will first meet in early 1999.
Conclusion:
It is recommended that Council establish a Capital Revolving Fund to support affordable
housing development. The fund would be initially "seeded" through redesignation of the
existing Social Housing Reserve fund and net proceeds from the partial settlement of claims
against the Province due to cancellation of the non-profit program. Sources of ongoing
funding will be identified in reports to Council, and may include such things as using Official
Plan provisions (density bonuses), allocating a percentage of proceeds from sales of surplus
City lands, and direct annual funding from the City operating budget. This report recommends
approaching both the Provincial and Federal governments for matching funds.
The proposed Capital Revolving Fund would be used to support projects developed under the
Affordable Housing Demonstration projects program. The type of support provided would
vary depending upon the project, but would be in line with overall management principals as
set out in this report. These guidelines are currently in draft format, and a final set of
guidelines will be prepared for Council approval March 1999.
Contact Name:
Joanne Campbell
General Manager
Shelter Support and Housing
Tel: 392-7885/Fax: 392-0548
Len Brittain
Director of Treasury and Financial Services
Finance
Tel: 392-5382/Fax: 392-3649
Appendix A: Precedents -Municipal Housing Funds
Canadian Precedents:
Since 1994, Quebec City has had a development fund for co-operative, non-profit housing
which is partially funded by municipal loans ($1 Million over 10 years). The City also
provides a grant of at least $1,250.00 per unit through another program targeted at
home-buyers, as part of an overall effort to revitalize certain neighbourhoods. The fund
provides second and third mortgages at 4 percent to cover the gap between what a lender will
provide to the non-profit housing group up to 100 percent of the project's capital costs. The
fund also provides a mortgage guarantee, interim (construction) financing, site acquisition
financing, and pays for appraisals of potential sites. The fund itself is operated by a non-profit
organization.
Surrey, B.C., has an Affordable Housing Statutory Reserve Fund. Monies were provided
through cash-in-lieu contributions by developers ($750.00 per lot), and by way of a 5 percent
contribution from the sale of City lands. The current balance is about $5.7 million. Surrey is
now updating its 1993 Affordable Housing Strategy and an Affordable Home Ownership
policy is now under development. Two options are proposed: (1) partnering with a developer
to reduce the sale price to 15 percent below market (similar to Toronto's Royce/Dupont
ownership project) or (2) providing the subsidy directly to the first-time home-buyer
purchasing a new home at a price below a certain maximum (forgivable loan, repayable
interest free upon sale of the unit). The proposal includes having the City subsidize the fund
each year from its operating budget (the amount to be approved annually). Only interest
earnings from the fund would be used (like an endowment fund).
The City of Edmonton has a Low Income Capital Assistance Program that provides capital
funds to help community groups provide new housing or upgrade existing housing for low
income and special needs households. The fund was established in 1992, and each year some
$300,000 is added to the fund from the City's past landbanking project. As with the Capital
Revolving Fund proposed for Toronto, Edmonton's fund is used to leverage other funding;
however, it is not a revolving fund. Edmonton's fund covers about 16 percent of total capital
costs. Edmonton also has a land trust program, and is currently developing a Housing trust
Fund.
The City of Vancouver established a social housing fund in the late 1970's. The fund (since
re-named the Affordable Housing Fund) is used to provide capital grants to social housing
projects. Ongoing funding is provided by developer penalties, a demolition fee ($1,000.00 per
demolished unit), and primarily from the City's capital budget ($3.5 million for the period
1994 to 1999). Since 1991, the City has levied a development charge for replacement of
affordable housing lost through re-development and requires that either 20 percent of units in
larger projects are used for social housing or "cash-in-lieu" is given to the Affordable Housing
Fund ("larger projects" are usually those with 400+ units but sometimes projects with as few
as 100 units are considered under this policy). Recent projects funded include renovation of a
120 unit single-room-occupancy project (SRO) and development of a 50 unit youth housing
project. In addition to the Affordable Housing Fund, there is a $45 million revolving fund
specifically for Neighbourhood Demonstration Housing Projects.
The City of Saskatoon has a housing trust fund (Social Housing Reserve) with on-going,
dedicated revenue sources, totalling about $7.2 million since inception. The fund was initially
"seeded" by about $5.2 million from a land bank reserve, and receives ongoing funding
through 10 percent of net proceeds from sale of City-owned land and net revenues from tax
arrears sales. Annual contributions average about $350,000.00, and the general guideline is
that no more than 30 percent of the fund should be spent in any one year. The fund provides 5
percent of total project capital costs (no maximum), and the grant is given at the start of the
project to provide a cash flow. Saskatoon has a Social Housing Advisory Committee
comprised of representatives from home builders, real estate board, CMHC, non-profit
housing providers, aboriginal group, anti-poverty organization, council and the planning
department. One of the functions of this group is to recommend to Council proposals from
non-profit organizations which should receive support from the fund. In addition to capital
funding support, the fund is used to provide development assistance to non-profit groups (the
City has hired a "housing facilitator" using the fund).
Under Calgary's Housing Supply Action Plan, the City has set aside $1,000,000 in their 1998
budget, along with an equivalent value of land and buildings, to stimulate private-sector and
government participation in easing the housing crunch. The Calgary Homeless Foundation
Fund has a goal of obtaining $6 Million in contributions: 1/3 from the Province, 1/3 from the
City, and 1/3 from the corporate sector. The province has already contributed $2 Million, the
City $1 Million plus land and buildings, and an additional $2 Million will be fundraised from
the corporate sector (there has already been some success in this area).
The City of Hamilton provides zero interest loans to individuals wanting to convert space to
residential use (for example, converting the upper floors of commercial buildings to
apartments) or to renovate existing residential space (to bring existing apartments in
commercial buildings into compliance with property standards by-laws and the fire code). The
maximum loan is $20,000.00 per unit, the maximum term is 10 years, and the loan is secured
by a promissary note and lien.
In addition to capital contributions, other tools commonly used by municipalities in Canada to
support affordable housing development include:
_property tax exemptions/grants (5 to 10 years);
_relaxing parking requirements and fast-tracking projects through approvals process;
_long term land leases (e.g., 10 years at $1.00 per year; or 25 years to 60 years with no
payments due until cash flows make payment possible) or provided free of charge; and
_assuming risks associated with initial lease-up.
U.S. Precedents:
There were at least 71 known affordable housing trust funds in the U.S. according to a 1994
survey, and possibly as many as 115 based on more recent information (Richard Drdla and
Associates, "Case Studies of the Municipal Role in Housing", January 1998). Although
potential funding sources for U.S. funds are generally beyond those which can be accessed by
the City, and the functioning of U.S. funds differ, program objectives are similar to what is
being proposed for Toronto's Capital Revolving Fund.
Most funding is directed at new construction and rehabilitation, but some trusts also financed
other activities and special needs. When necessary, many support capacity-building efforts to
enhance local skills and resources. Only a few support rent subsidies, and even then only in
very specific circumstances.
The San Diego fund, for example, established the following types of programs to address their
funding allocation priorities:
-housing rehabilitation, including purchase of deteriorated or functionally obsolete housing
through below-market loans;
-below-market rental housing through deferred loans, land banking, land write-downs and
matching funds from government and private sources;
-special needs housing (same funding method as above);
-transitional housing through grants and loans to non-profit developers for acquisition and
improvements;
-rental assistance to low-income residents;
-non-profit capacity-building through pre-development loans, technical assistance and
administration grants; and
-funds for first-time homeowners directed primarily at neighbourhood revitalization and
stabilization.
Most of these funds were used in partnership with non-profit and community-based
organizations. They are also used to assist for-profit developers, local housing authorities and
other providers under appropriate circumstances. Most do not support home-ownership
projects, but exceptions are made for projects which target first-time buyers (these units are
subject to agreements to ensure long term affordability).
Because of their limited resources, the trusts seldom finance a project on their own. They
depend upon financial packages drawing from many sources, and typically their funds are
used for "gap" financing: either the first funds needed to get the project underway, or the last
funds needed to complete the package.
Appendix B: Draft Management Guidelines for
Capital Revolving Fund for Affordable Housing
These draft management guidelines outline the purpose of the proposed Capital Revolving
Fund for Affordable Housing, uses for the Fund and eligibility requirements. These
management guidelines will be reviewed by a "reference team" of internal and external
housing stakeholders, and a final version will be brought forward to Council for approval by
the Commissioner, Community and Neighbourhood Services prior to Fund monies being
allocated from the Capital Revolving Fund for Affordable Housing.
(1)Purpose:
The purpose of the Capital Revolving Fund for Affordable Housing is to provide financial
assistance to non-profit groups in the development of approved affordable ownership, rental
and transitional housing demonstration projects. The Fund is "revolving" in that a portion of
financial assistance provided will be repaid to the Fund (60 percent), and used for future
affordable housing projects. Financial assistance is given to support only part of the capital
costs of any project. Non-profit groups developing Affordable Housing Demonstration
Projects will be required to lever additional capital funds needed, and to access ongoing
operational funding if required.
(2)Definitions:
(2.1)Affordability:
Affordability will be defined specifically for each affordable housing demonstration project,
based on project type and target group to be housed; however, at least 51percent of units must
be affordable to households with incomes below the median. In principle, affordability will be
based on the following:
Ownership:Housing available for purchase by first-time homeowners with incomes below the
City's median household income, with some units available at prices affordable for
households with incomes at or below the average annual income for the lowest 12.5 percent of
the population, depending upon the development model proposed.
Rental:Units provided at rates ranging from below average median rents to rents affordable
based on the shelter allowance portion of general welfare benefits, depending upon the
development model proposed.
Transitional:Rents affordable based on the shelter allowance portion of general welfare
benefits, or depending upon requirements for shelter/hostel funding, depending upon the
housing model proposed.
(2.2)Low income Household:
Any household that has a gross annual family income at or below 50 percent of the current
city average family income for tenants as defined by Urban Planning and Development
Services.
(2.3)Non-profit Groups or Non-profit Housing Providers:
Approved Affordable Housing Demonstration Projects would be eligible for funding.
Organizations eligible for approval of Affordable Housing Demonstration Projects must be
registered as a non-profit or charitable group in Ontario or Canada with a functioning board of
directors. Other participants can be unincorporated community groups, and religious
institutions.
(3)Guidelines:
The City may extend financial support to housing projects which meet the following criteria:
(3.1)General Eligibility Criteria:
(a)Financial support will apply only to Affordable Housing Demonstration Projects which
have been selected through a competitive process and approved by Council (process is
outlined in July 1998 Council Report "Toward a Municipal Strategy to Encourage the
Creation of Affordable Housing and a Framework for Proposals to Develop Affordable
Housing Demonstration Projects").
(b)Financial support must be used to deliver affordable housing units for individuals and
families, as defined in section 2.1.
(c)In any project supported by the Capital Revolving Fund, at least 51 percent of the total
number of units must be affordable to low-income households as defined in section 2.2.
(d)The units must be in addition to and must not replace existing subsidized housing stock.
(e)Non-profit organizations are eligible for financial support, including Cityhome/Metro
Toronto Housing Company Limited.
(f)Financial contributions are subject to the project demonstrating that adequate additional
financing and adequate and appropriate management and operational strategies are in place.
(3.2)Level of Assistance:
The level of assistance provided by the City shall normally be in a combination of repayable
and forgivable loans, and will vary depending upon other assistance which may be provided
by the City (for example, if land is provided, the level of financial assistance provided will be
reduced).
(a)Transitional Housing:
Given that transitional housing demonstration projects are more likely to have higher project
development costs and operating costs (due to provision of support services and/or nature of
the project itself), a higher degree of financing support will be provided than is available to
other project types, and transitional housing projects will receive priority treatment in the use
of funds (see 3.3 below). The level of financial assistance which may be provided is:
_Forgivable loan of $15,000.00 per unit maximum (adjusted where housing model is not
based on units);
_Forgivable loan based on matching funds contributed by the housing provider at a ratio of
one City dollar to every three dollars contributed by the housing provided (not to include
"in-kind" contributions or funds provided by other levels of government) to a maximum of
$5,000 per unit; and/or
_Repayable loan in the form of a second mortgage, not to exceed 15 percent of the project
value.
(b)Rental Housing:
_Repayable loan in the form of a second mortgage, not to exceed 15 percent of the project
value.
(c)Ownership Housing
_Repayable loan in the form of an interim (construction) loan, not to exceed 15percent of
appraised value of completed project. Loan to be repaid when units sold. Financing assistance
for ownership projects must include conditions to ensure long-term affordability of the units,
and on re-sale, re-investment of all or part of any profit in the Capital Revolving Fund.
Financial assistance to be provided for development (capital) only. Financial assistance will
not be provided for operating subsidies or rent supplements. Financial assistance may be
provided for research types of projects related to affordable housing development in the form
of forgivable and/or repayable loans.
(3.3)Fund Expenditures:
Total annual fund expenditures will generally be limited to:
(a)Forgivable loans: A maximum of 30 percent of the previous year end balance of the
Capital Revolving Fund. Loan repayments will return to the fund to be used for future
affordable housing projects; and
(b)Repayable loans: A maximum of 60 percent of the previous year end balance of the
Capital Revolving Fund, of which at least 30 percent must be used to support transitional
housing development projects.
Additional details about fund management to be determined.
3.4Approval
Financial assistance to be provided is subject to Council approval, and within the context of
approving/rejecting each affordable housing demonstration project recommended by staff .
Projects recommended will be selected though a competitive process. Council will be
provided with a business case for each project recommended which outlines the full package
of supports to be provided by the City (for example, financial and City-owned land for a
specific project) and will provide an assessment of feasibility and potential benefits and risks.
3.5Performance Standards:
As a contributing partner to the housing development, the City has the right and obligation to
ensure that public benefits are acheived in return for providing support (whether financial or
in-kind). Subject to Council approval, a legal agreement between the City and the housing
provider will be prepared which will set out exactly the contributions the City will provide as
part of the partnership, contribution levels to be provided by other partners, performance
standards for the provider (such as the number of affordable units, how long they are to
remain affordable, defining what "affordable" means for the project, and reporting) and
remedies should the housing provider fail to maintain performance standards.
3.6Reporting:
The Commissioner of Community and Neighbourhood Services to report annually to Council
on how the Fund has been allocated, and results achieved.
(4)Responsibilities:
(4.1)Affordable Housing Demonstration Projects Reference Group
(a)Review and recommend amendments to draft management guidelines; and
(b)Review affordable housing demonstration project proposals and make recommendations to
Commissioner of Community and Neighbourhood Services about which projects should go
forward and what the appropriate level of City support should be.
(4.2)Commissioner Community and Neighbourhood Services and
Chief Financial Officer and Treasurer:
(a)Based on input from Reference Group, finalize management guidelines.
(b)Review and approve/reject recommendations for financial assistance, and other types of
City supports which may be provided, and make recommendations to the Council Strategy
Committee for People Without Homes.
(c)Review and recommend future amendments to management guidelines.
(d)Monitor and prepare annual reports for Council about performance of Capital Revolving
Fund.
(4.3)Council Strategy Committee for People Without Homes:
(a)Review and approve/reject projects and recommendations made for financial assistance
and other City support.
(b)Review and approve Fund management guidelines and future amendments.
(4.4)City Council:
(a)Review and approve/reject projects and recommendations made for financial assistance
and other City support.
(b)Review and approve Fund management guidelines and future amendments.
