TCHC dollars and sense: Calculating costs of selling off 22 affordable homes

Toronto Community Housing Company’s one-man board – Case Ootes – meets Wednesday to consider a plan to sell 22 of the city housing agency’s scattered homes and possibly replace a handful of them with rent supplements in the private rental market. While a member of Toronto City Council, Ootes expressed strong support for the sell-off of certain TCHC homes. The Wellesley Institute has prepared this guide to the dollars and sense behind the sell-off.

How much will the deal net financially for TCHC?

TCHC estimates the sale of the properties will generate $16.8 million. That’s an average of $762,300 per home – well above the Toronto Real Estate Board’s latest average house price in Toronto of $456,147. The houses are identified as having ‘high capital repair costs’. TCHC has already canvassed more than 400 non-profit housing providers – and none of them would make an offer even close to the estimated value. Well-above the average market price, costly repairs, rejected by non-profits – the TCHC estimate is certainly ambitious. If the sale fails to reach the estimated high price, then that will mean less dollars for TCHC.

Subtract commissions and related costs and the net proceeds are $15.8 million, according to TCHC. In addition, since seven of the units will have to be maintained as subsidized housing, according to provincial legislation, and the cost of maintaining those units is set at $2.4 million, the net profit from the sale shrinks to $13.4 million.

What will the sale cost TCHC in financial terms?

The sale of the units will lead to an annual loss of $396,900 in rental revenue to TCHC. The rental revenue loss is partially offset by savings in repairs, operating costs and utilities – leaving a net annual loss in the first year of $121,350. Since that annual loss compounds every year, and an annual inflation rate of 2% (the average annual rate over the past decade) drives the loss even higher, the sale of the 22 homes will cost TCHC an estimated $1.5 million over ten years (even more if inflation tracks higher).

Are rent supplements a better deal financially than dedicated affordable housing?

In the very short term, a monthly rent supplement appears to be less expensive than the capital subsidy required to fund new or rehabilitated affordable housing. But the City of Toronto’s 2011 operating budget notes that the monthly subsidy for social housing is $190.32 – far less than the typical rent supplement that ranges from $350 to $600 monthly (or higher, depending on the particular program and the household income of the recipient). Over ten, twenty or thirty years, dedicated affordable housing – in the form of community-based municipal or non-profit housing, or non-profit co-ops – is a better deal financially than rent supplements.

What role do rent supplements play in Toronto’s shrinking rental housing market?

Rent supplements are an important component of a comprehensive affordable housing plan, but they cannot replace a balanced program that includes funding for new homes and the acquisition of existing rental housing. Toronto’s private rental ‘universe’ is shrinking – losing 1,353 units in just one year to drop to 254,555 rental homes in October 2010. The number of vacant rental units is disappearing at a rapid rate, plummeting by almost one-third from 7,962 vacant rental units in Toronto in 2009 to only 5,532 vacancies in 2010.

Toronto’s affordable housing waiting list stood at 77,475 households in Febnruary 2011 – up 7% over the previous year. In February, only 316 households were housed from the list. The low number of vacant units in the private rental sector set against the high number of households seeking affordable homes means that rent supplements – while useful – cannot meet all or most of the deep and persistent housing needs of Torontonians. Even if rent supplements were used to fill every vacant unit in the city, there would still be almost 72,000 households remaining on the list and desperate to find a good place to call home.

What about the tenants in the TCHC homes set to be sold off?

On the eve of the meeting at which the one-man board is expected to rubber-stamp the plan to sell off the 22 units, TCHC officials released a revised report promising that “all documented commitments made to tenants” will be honoured. Therefore, tenants who have received promises from TCHC that they will not be forcibly removed will be allowed to stay. Tenants who cannot supply a documented commitment will be subject to provincial tenant eviction laws, which allow tenants to be forcibly removed if a new owner intends to personally occupy the unit, or offer the unit to a member of her/his immediate family.

The bottom line: Selling off TCHC homes raises serious concerns

Toronto Community Housing Company is required to be a prudent manager of a multi-billion dollar real estate portfolio that includes almost 60,000 homes. The city is required, under provincial legislation, to maintain most of those homes as subsidized housing for low and moderate-income Torontonians. Rent supplements can be an important and effective way to ensure lower-income households get good homes, but the shrinking private rental market means that the city cannot rely on rental supplements alone to meet the diverse housing needs of all Torontonians. Over time, the cost of rent supplements are more expensive than the cost of subsidies to support the development or acquisition of affordable homes.

The loss of 22 homes represents a tiny fraction of the overall TCHC portfolio, but housing officials should resist the temptation to use the sell-off of a handful of homes as a precedent for a larger sell-off of TCHC stock.

What is the impact of rent supplements on private rental market?

Research in the United States, which relies heavily on rent supplements in the private rental market, shows that supplements inflate rents for all tenants, not just those receiving the subsidies. The economic cost to all tenants – measured in the higher rents – outweighs the economic value of the rent subsidies, creating a net loss for tenants in the private rental market.