STAFF REPORT

January 27, 2000

To: Community Services Committee

From: Commissioner of Community & Neighbourhood Services

Subject: New Provincial Rent Supplement Program

Purpose:

This report describes the new provincial rent supplement program announced by the Province in January, and suggests a response to the identified issues that arise.

Financial Implications and Impact Statement:

There are no financial implications in 2000-2003. The program potentially creates pressure on the City to pick up the costs in three to five years unless the Province provides further funding.

Recommendations:

It is recommended that:

(1) Council strongly urge the Province that in regard to the New Rent Supplement Program:

(a) no rent supplement commitments be made that exposes the City to future unknown costs;

(b) no rent supplement contracts be signed by the Metropolitan Toronto Housing Authority without the concurrence of City of Toronto;

(c) provincial funding be guaranteed (at no municipal cost) such that whenever a landlord's rent supplement contract is not renewed, tenants in the units affected continue to receive supplements until they either choose to move or no longer need subsidy;

(2) Council strongly urge the Province to make no further provincial housing program announcements without the concurrence of the municipal sector; and

(3) the appropriate City Officials be authorized and directed to take the necessary action to give effect thereto.

Background:

The Ontario Ministry of Municipal Affairs and Housing on January 14 announced the implementation of a new rent supplement program with annual funding of $50 million allocated for an initial three- to five-year period.

The new program was originally announced in March 1999 as part of the response to the Homelessness Action Task Force report. Implementation awaited the signing in November of the federal-Ontario housing devolution agreement. The funds for the program form part of the $85 million annual surplus federal funds flowing to Ontario, described in the report on federal devolution which was before Council in December 1999.

Rent supplement is a contract between a government housing agency and a landlord, whereby a monthly public payment covers the difference between an agreed market rent and a geared-to-income rent that a low- or moderate-income tenant can afford. Selection of tenants for rent supplement units is through referrals from the social housing waiting list. The new program is in addition to existing rent supplement programs for private landlords, and for certain social housing agencies which would otherwise operate at market rents.

The initial allocation is 5,000 units across the province. Another smaller allocation may be required to reach the $50 million target; separate allocations are also intended for supportive housing. Just over half the units (2,706) have been allocated to Greater Toronto Area, including 1,841 units in the City (subject to adjustment depending on take-up during the coming months).

The new program will be administered initially by Local Housing Authorities as agencies of the Province. Municipalities are not empowered to administer rent supplement programs, and Housing Authorities, including Metropolitan Toronto Housing Authority, currently administer other rent supplement programs. Municipalities (Consolidated Municipal Service Managers CMSM's) will, in 2001, assume responsibility for housing program administration, including this and other rent supplement programs. Housing Authorities will therefore work with municipal staff in reviewing applications and determining allocations to landlords.

Applications are being sought by the Ministry in regard to new units built in private-sector or non-profit buildings, and for existing private-sector units. Some emphasis is being placed on encouraging development of new units, with (minimum) 25 percent of unit allocations in Toronto.

Comments:

The program presents some difficult choices for municipalities, with positive and negative aspects.

On the positive side, the program responds to the pressing need for affordable housing, the long waiting lists, and the large number of families at risk of losing their homes under current market conditions. Rent supplement can deliver subsidies quickly in units that already exist. It can help low-income tenants in private-sector housing, and can achieve a mix of low-income and other tenants in those buildings. The new program partly implements a position adopted by the City, that savings in federal housing funds should be redirected back toward meeting housing needs.

The provincial intention to make the allocations in consultation with municipalities is appropriate, and has been confirmed by the ministry at a staff-to-staff level. This proposed arrangement is reasonable in this period until legislation expected later this year, which will provide for overall devolution of administration of this and other housing programs.

Rent supplement funding can enhance what the City can achieve with its Let's Build proposal call (Capital Revolving Fund and City sites for housing). For example, more units can be provided that are targeted to low-income households, or there will be less need for sponsor groups to raise large amounts of equity in order to achieve lower rents.

Negative aspects of the program are the challenge of achieving take-up, the short period for the initial funding commitment, and the potential financial exposure of the City within a few years.

Take-up is likely to be slow. It will be difficult to find private landlords interested in rent supplement in the current market. Few private developers are interested in building rental projects and the few in the pipeline (including syndicated rental condos) will generally have rents above the ceilings set in the program to ensure cost-effectiveness. New non-profit projects will be few and will take some time to be completed. The easiest and most cost-effective targets for the new funding would be older non-profit buildings with large numbers of "low end of market" units; but (presumably due to the government's policy on social housing) these are ineligible.

The short three- to five-year funding commitment creates a major problem. Other rent supplement programs have funding allocations for multi-year time periods up to 20 years. This permits contracts with landlords to run more than three to five years, or permits a shift of funding to a new contract with a new landlord if the first one does not renew. It ensures that when a landlord does not renew, tenants receiving rent supplement do not face abrupt termination, but continue to receive subsidy until they decide to move or they no longer need it. In the new program, the City could potentially be faced with loss of 1,800 subsidized units when the program runs out. Alternatively, the City could face pressure to pick up the total costs of the program.

The short time frame and fiscal risk relate to the source of funding. The $85 million annual surplus federal funds will soon start to be needed to cover rising subsidy costs in existing social housing, and reduce municipal exposure to these costs. Subsidy for existing housing is expected to rise starting in about 2001, as mortgage savings are fully achieved in the non-profit portfolio, operating costs gradually inflate, and low-income rents lag behind rising costs. Scenarios prepared by staff in 1999 included a middle case where subsidy in the Greater Toronto Area rises by $30 million in 1998-2018, potentially absorbing the full GTA share of the province-wide $50 million.

Likewise, costs of the new rent supplement can be expected to rise. If the program at first averages $7,200 annually per unit ($600 monthly of a $950 rent) and annual inflation is 3 percent on market rents but only 1 percent on geared-to-income rents, then rent supplement costs will inflate at about 4 percent. The cost of 2,700 units in the Greater Toronto Area would rise from $19 million in year 1 to $28 million 10 years later with the City absorbing about half that pooled increase.

The provincial course of action under the Federal-Ontario devolution agreement should follow principles adopted by Council in December: that "any surplus funds within federal housing transfers to Ontario, beyond what is required for existing projects, should be flowed through to municipalities to be used for housing purposes"; and that "municipalities should have the power, within reasonable provincial guidelines, to determine for what housing purposes any surplus federal funds will be used".

Nevertheless, the Province is proceeding with this program, and is offering municipalities a role not seen before. It is important for the City to be involved and help shape the decisions made. The long-term future of this program will be decided as part of the overall provincial framework, being developed in 2000, for the transfer of administration to municipalities.

The immediate needs in the program are to ensure a City voice in allocation decisions; and to get Provincial guarantees that it will continue to pay the cost of subsidies for tenants in place, at the point where landlords do not renew their contracts. This is reflected in the recommendations.

Conclusions:

The new $50 million provincial rent supplement program announced in January will provide approximately 1,800 new geared-to-income subsidies in the City of Toronto along with others across the province. The Province indicated that it will be delivered by MTHA with City input. Rent supplement is a positive response to rising housing needs and will enhance what the City can achieve with its Let's Build proposal call. It will be a challenge to find private landlords and developers who are interested in the current market. Given that the City will administer this and other housing programs starting in 2001, the short three- to five-year provincial commitment exposes the City to the risk of either cancelling the subsidies at that time or picking up unreasonable costs on the property tax system. This must be dealt with as part of the provincial devolution framework. The Province must provide assurances of continued funding to ensure that rent-supplemented tenants in place are assured of ongoing subsidy at the point when the landlord does not renew the overall contract with MTHA.

Contact:

Derek Ballantyne, Acting General Manager, Shelter, Housing & Support Division

Phone: 392-7885; Fax: 392-0548

E-mail: dballant@torontohousing.com

Shirley Hoy

Commissioner of Community and Neighbourhood Services