May 4, 1999

To:Corporate Services Committee

From:Commissioner of Community & Neighbourhood Services

Commissioner of Corporate Services

Subject:Community Based Affordable Housing Demonstration Project

647-657 Lawrence Avenue West at Allen Road (Ward 8)

Purpose:

To request:

• Approval for the lease of the City-owned land at Lawrence Avenue West and Allen Road to a not-for-profit community group to allow the group to construct 24 units of affordable and below-market rental housing;
• Approval of the business case for financial assistance, as recommended by the advisory Reference Group of the Capital Revolving Fund for Affordable Housing, and
• Approval to request the Province and Federal Government to contribute capital or operating funds to the project or forgo development and tax revenue.

Funding Sources, Financial Implications and Impact Statement

Capital Revolving Fund for Affordable Housing

The Capital Revolving Fund is recommended as the primary source of City funds to facilitate the Demonstration Project. A capital grant of $10,000 per unit and a no-interest second mortgage from the Fund is proposed as it will enable the community group to secure private mortgage funding for the majority of the cost.

Delayed and Foregone Revenue

There is an impact on potential revenues as it is recommended that all planning, development and building fees be waived. It is further recommended that the land be leased to the not-for-profit community group at a nominal rate, thereby delaying the short-term achievement of revenue from the sale of the land. The market value of the land was previously estimated at $322,000 in late 1995. A current appraisal is being obtained.

Capital Budget

There would be a very small increase of $8,000 in next year's Works and Emergency Services capital budget for minor traffic management measures on Lawrence Avenue West.

Increase in City Revenues

City revenues would increase in the first year of the development through the payment of approximately $33,700 in annual reality taxes. Currently no tax revenue is generated as the property is vacant and is not entered in the City's tax rolls. From the second year onwards, an escalating repayment of the second mortgage would begin to the Capital Revolving Fund for Affordable Housing.

Operating Grants

No operating grants are to be provided by the City. Program support will be provided by existing organisations from their established budgets. The not-for-profit community group is providing a minimum of $360,000 towards the capital cost of construction and other donations of goods and services are being sought.

Cost Reduction

By diverting people from the hostel system, emergency shelter costs to the City could be reduced by up to $261,000 annually.

Recommendations:

As a result of a request for proposals issued by the City of Toronto for City-owned land at 647-657 Lawrence Avenue West, and with the advice of the Reference Group for the Capital Revolving Fund for Affordable Housing, it is recommended that:

1.The business case from Out of the Cold and Congregation Darchei Noam for below market rental housing be accepted as an Affordable Housing Demonstration Project.

2.Vacant lands at 647-657 Lawrence Avenue West previously withheld from sale be leased to the not-for-profit corporation to be established jointly by Out of the Cold and Congregation Darchei Noam on a long-term basis at an initial rate of $2 per year, subject to terms and conditions which are satisfactory to the Commissioner of Corporate Services and Community and Neighbourhood Services and in a form acceptable to the City Solicitor.

3.The continued provision of below-market rental units by the not-for-profit group be secured through the review provisions in the land lease agreement with the City.

4.Subject to the final approval of the Commissioner of Community and Neighbourhood Services, that the following funds be provided from the Capital Revolving Fund for Affordable Housing:

a) a capital grant of $10,000 per unit to a maximum of $240,000; and

b) a no-interest, second mortgage of up to $600,000, for a maximum of 35 years, to be repaid to the Capital Revolving Fund from net cash flow.

5.The final amount of the second mortgage from the Capital Revolving Fund for Affordable Housing be adjusted by the Commissioner of Community and Neighbourhood Services to reflect the budget reductions from the use of innovative building technologies, budget refinements, or other cost-saving measures.

6.In order to reduce the cost of private construction financing, City officials are authorized to disburse the capital grant from the Capital Revolving Fund for Affordable Housing to the not-for-profit corporation as soon as possible after the building permit is issued

7.Council agree in principle that all planning, development and building permit fees and charges for 647-657 Lawrence Avenue West, should be waived or forgiven and that:

a) the Commissioner of Urban Planning and Development Services waive all application fees or costs of giving notice under The Planning Act;

b) the Commissioner of Economic Development, Culture and Tourism and the Commissioner of Urban Planning and Development Services, in consultation with the City Solicitor, report by September 1999 on the measures required to exempt this development from building permit fees and the payment in lieu of parkland; and

c) Toronto Hydro be requested to waive or forgo any required connection fee or charge.

8.The cost of the 22-metre centre median on Lawrence Avenue West required as a condition of previous site plan approval be provided for in the 2000 Works and Emergency Services capital budget. The current estimated construction cost is $8,000.

9.The advancement of the capital grant and second mortgage from the Capital Revolving Fund for Affordable Housing be conditional upon the not-for-profit group obtaining a first mortgage commitment within six months of the zoning by-law for the lands coming in to force.

10.City officials be authorized to take such actions as are required to implement these recommendations.

Background:

Selection Process

In July of 1998 Council considered a report from the Commissioner of Community and Neighbourhood Services to the Council Strategy Committee for People Without Homes. On the basis of the report, Council directed staff to proceed with affordable housing projects that would demonstrate new models of housing and respond to the needs of a range of target groups in Toronto. The adopted strategy was for the City to facilitate the delivery of the targeted housing by community sponsors and the private sector. The City of Toronto would "seed" the projects through the use of City-owned sites, waiving of development fees and limited capital contributions from reserve funds for housing. Actual development and long-term operation would be by the community sponsor or the private sector.

A small City-owned site was identified. It had been approved in principle for 24 apartment units under the Provincially-sponsored social housing program. Just before the building permit was to be issued, the Province terminated the housing program and the development was abandoned.

After consultation with the local councillors a two-stage Request for Proposals was issued to community groups. The Request for Proposals asked that the majority of units be targeted to single parents with children who may be living in emergency or hostel accommodation.

Target Population

A significant portion of the families in the hostel system are mother-led with one or more children, generally less than 16 years of age. They would likely have been in the shelter and hostel system for a significant period of time, or in danger of ending up in the system because of domestic abuse or economic set backs. Many have cycled through various temporary housing situations, creating a variety of problems, particularly for children, due to the instability of constant relocation. Others may be sharing with friends or relatives in an overcrowded or unsuitable situation. Many are on long social housing waiting lists.

Housing Model

The needs of these families are largely related to economic conditions and the inability to find suitable housing. They require stability, and in the case of abused women, security. These families need housing which will allow them to work on other issues in their lives and eventually have the option of moving to more independent housing.

While certainly not "hard-to-house," this group nonetheless requires voluntary access to support services, which may be provided on site, and would contribute to the transition to fully independent living.

An appropriate transitional housing model would provide housing suitable for women with children, and offer flexibility or variety in order to serve a range of family sizes and living styles. Units may be entirely self-contained, with common areas, or include shared components such as kitchens, living, recreation or employment space. Operationally, the long-term operating cost of the project must be self-sufficient based on the incomes of the target group, which is usually the shelter component of social assistance benefits.

Support services might include employment counselling and referral, childcare, settlement and literacy or language services, health, nutrition and home management and parenting skills. Some require access to educational facilities. For children, specialised services might include personal counselling and school liaison to deal with issues surrounding instability in their lives, and recreation or socialisation opportunities.

Supply of Affordable Rental Housing

The Mayor's Task Force on Homelessness documented a need for 2,000 new low rent units annually just to keep pace with the new demand. These units are required only to prevent low-income housing needs from worsening. Even with historically high level of production, it would not even address the needs of existing tenants, 23% of which have an affordability problem caused be declining incomes coupled with increasing rents and low vacancy rates.

Further the Task Force analysed the costs for developing new rental housing. The economic monthly rent required to allow the private sector to produce new units is in the range of $1,300 to 1,400 while the market rents were in the range of $835 to $947. Consultants to the development industry expect a few hundred new private high-rent units to be started in the next year of two, mostly in downtown or subway locations. This will add to the high-end rental units produced each year in the form of condominium apartments that are rented out. While this adds to the overall supply and reduces the pressure on the vacancy levels, the trickle-down effects for lower income tenants will be modest and long-term.

The inescapeable conclusion is that basic development economics prevent the private sector from meeting low-income housing needs.

The significant challenge for the not-for-profit group is to build new housing that can be afforded by the target group i.e. the shelter component of welfare which is currently $554 per month for a family of three. This is about 40% of the rent level required for the private sector to deliver the same units.

Comments:

At its meeting of April 26, 1999 the Corporate Services Committee received an information report on the results of a request for proposals under the Affordable Housing Demonstration Projects framework adopted by Council in July 1998. This report detailed the two-stage request for proposals selection process that resulted in the preliminary acceptance of the Out of the Cold/Darchei Noam proposal as the working model for the refinement of the financial plan.

Business Case

Staff and the Reference Group have now reviewed the business case and detailed financial program. At its meeting of May 4th the Reference Group received a presentation from members of the proposed Board of Directors of the new not-for-profit corporation now being formed specifically for this development. Members of the new Board are drawn from the Out of the Cold and Congregation Darchei Noam.

The Board submitted to the Reference Group a profile of the members of the Board of Directors and the organizational structure adopted for the development phase. (Appendix B)

A financial presentation was made by the Board. The Board detailed a capital budget - development pro forma - (Appendix C) and an operating budget with a 10-years financial projection (Appendix D). Finally the operational housing model was presented and discussed (outline in Appendix E) and features of the site plan were outlined (Appendix F)

Staff and the Reference Group have reviewed the capital and operating budgets. The costs and expenses are reflective of a modest unit proposal and well within industry standards. In addition they are within the range of the costs of development detailed in the background studies for The Mayor's Task Force.

The not-for-profit group is providing 17 of the 24 units at a rent that is only 40% of the rent normally required to support this construction. As a result this new below-market rental housing clearly would not happen without government support.

Financial Support

The items of financial support are as recommended in The Mayor's Task Force. Further the level of assistance from the City proposed for 647-657 Lawrence West is in line with the financial models detailed in The Mayor's Task Force. The following items are listed in the proposed capital budget enclosed with this report:

• A long term land lease at an initial nominal rate of $2 per year
• A capital grant of $10,000 per unit to total$240,000
• A second mortgage of up to $25,000 per unit to a maximum of $600,000
• Waiving or foregoing of planning, development and building fee revenues

Initial proposals for the new Development Charges By-law contains a proposal to exempt affordable rental housing from the charge. Waiving or forgoing other fees and charges requires the authorization of Council.

Wise Use of City Resources

There is a basic choice for the City to make: either provide grants and loans up front from the existing Capital Revolving Fund to generate new affordable rental units or pay annually from on-going budget allocations to provide emergency shelter accommodation. The proposed development at 647-657 Lawrence could house up to 55 people at below-market rents. If this same number of people were to be housed in the emergency shelter system, the yearly costs would be $875,000. Under the existing capped cost sharing formula, $261,000 of the savings would accrue to the City of Toronto and $615,000 to the Province.

Savings, Taxes and Revenues to Others

The facilitation of this development by the City of Toronto will generate the following savings or direct revenues for other levels of government and the private sector:

• $615, 00 annual savings to the Province for hostel costs (discussed above),
• $16,673 in P.S.T. to the Province (announced rebate of $48,000 already discounted),
• $63,218 in G.S.T. to the Federal government,
• $3,600 in underwriting fees to Canada Mortgage and Housing Corporation,
• up to $75,602 in mortgage insurance premiums to CMHC,
• $28,357 in interest for private construction financing, and
• $105,262 annually in virtually risk free mortgage payments to the private sector.

On this basis, the Federal government could be requested to contribute an amount equal to the G.S.T. while CMHC could be asked waive its fee and to provide direct mortgage financing, as was the norm for over 30 years after World War II.

The above proposals in regards to the G.S.T and direct mortgage lending would implement Recommendations 81 and 83 of The Mayor's Task Force on Homelessness.

Conclusion:

The proposal outlined in this report is a prototype of what can be done with the resources provided to the Capital Revolving Fund for Affordable Housing. Approval of the business case and financial plan by the City of Toronto will result in the production of new affordable rental housing. It is also cost-effective because the development will provide long-term savings to the City's operating budget by reducing the cost of providing emergency shelter accommodation.

Significant funds and volunteer time are being provided by the community. Further, while ongoing affordability is secured through the terms of the land lease, there are no annual City grants.

Contact Name:

Joanne Campbell

Phone: 392-7885

Fax: 392-0548

Shirley HoyMargaret Rodrigues

Commissioner of CommunityCommissioner of

Neighbourhood ServicesCorporate Services

Appendix A

The proposed New Development Charges Bylaw would replace the current former City of North York Development Charges and Sewer and Water Charge listed above with a charge of $67,688