B.C. lays first bricks for $500-million rental protection fund

The world of non-profit housing is celebrating B.C.’s new Rental Affordability Fund as a key move toward protecting renters who live in existing affordable units.

As announced this month, the fund would offer the non-profit sector $500-million to purchase purpose-built rental buildings that come onto the market, with an eye to older suites throughout the province. The fund, targeted for launch by April, would be overseen by a newly formed society made up of three experienced housing groups.

They’d likely purchase using a combination of grant money and financing, says Jill Atkey, chief executive officer of the B.C. Non Profit Housing Association. The BCNPHA will oversee the fund with the Aboriginal Housing Management Association and the Co-operative Housing Federation of B.C.

The idea isn’t to deplete the fund, but to grow it so that it becomes a key part of the sector’s ability to get into the housing market. In order to get a competitive advantage, there could, down the road, be right of first refusal given to the society on buildings that come up. Another possibility is tax breaks for sellers to the non-profits, although both those tools are only at the discussion stage. Changes to tax policy can take years, says Ms. Atkey.

Right now they just want to get the fund up and running. But she said they’ve already heard from “a number of sellers” since the fund was announced, including an apartment building owner in Victoria, who’s concerned about the elderly tenants.

“I do think there are buildings that will come onto the market and for whatever reason, there will be preferential negotiations with non-profits specifically,” Ms. Atkey says.

The process would likely pre-qualify non-profit groups that have a proven housing track record and a portfolio of housing. The grant money will vary, depending on the building and must ensure rents remain at the existing amounts, and are sufficient to pay down financing, operating costs, and repair work. She estimates the purchase of 2,000 to 3,000 units province-wide.

“As they identify buildings, they can bring those forward and we would have a team looking at the underwriting and financing.”

She says they could also look at investors contributing to the fund, in exchange for a small return, perhaps 2 per cent.

“It’s a new approach and it hasn’t been tried anywhere in country before. We are testing it out to see what’s going to work best.”

It’s not likely to eradicate the affordability crisis, she says, but it’s a step.

“I know there has been some commentary on [the question], ‘will this inflate prices?’ While it’s a considerable contribution and will actually make a difference in protecting affordability, it’s not likely sufficient to move the market province wide,” she said.

Minister of Housing Ravi Kahlon says the purpose of the fund is to protect renters after decades of leaving it mostly up to the private market to provide housing.

“The question I’ve been getting is how many units can this $500-million buy?” Mr. Kahlon said. “That’s supposing you are buying those units as straight cash.

“There are a lot of progressive organizations – certainly the credit union world – who all have an interest in perhaps partnering and leveraging the dollar. So this half a billion dollars is a solid foundation for the fund, for these organizations, but it’s just the beginning, and I do think you will see the fund become significantly larger, given the opportunities out there.”

He cited Montreal’s right of first refusal for social housing as an example of a tool that could be used one day to give the non-profits a leg up in a competitive market.

“But at this stage we are not ready,” he said. “It requires a lot of policy work. When we announced this fund we said there would be a lot of landlords who’d prefer to sell to the not-for-profit world instead of selling it to the private side. And I know some scoffed.

“We are seeing a lot of interest from people in the market saying, ‘I’d rather sell to the not-for-profit world than to the REITs [real estate investment trusts] of the world.”

The idea grew from a recognition that new housing is too often replacing affordable rental stock. Data provided by Ottawa consultant Steve Pomeroy helped form the new B.C. policy. Mr. Pomeroy wrote a paper called Why Canada needs a non-market rental acquisition strategy in 2020. He said that the most serious threat to Canada’s supply of affordable housing is the erosion of units that are affordable to households earning less than $30,000 a year, or paying rents below $750. He estimated that for every new affordable unit built, the market lost 15 existing affordable units.

“If you can’t beat them join them,” he wrote, recommending that non-profit providers “emulate the behaviour of the REITs and capital funds to acquire rental buildings with rents at or below the median market rent.”

In B.C. there was a loss of 97,390 units renting below $1,000 between 2016 and 2021, according to the BCNPHA. During the same five-year period, the province saw an increase of 180,000 units renting for more than $1,000.

Habitat for Humanity wants to get in on the action. The long-time worldwide non-profit, going since the 1970s, builds home ownership housing for those who otherwise would not ever be able to purchase. The group has the volunteers, the network and the development experience to build a home for about one-third of what it would normally cost, said Scott Fehrenbacher, chief executive officer for Habitat in Greater Vancouver.

He is hopeful for some sort of collaboration with the province since hearing about the fund. Habitat uses an “equity build” model, with approved buyers paying one-third of their income toward a mortgage held by the non-profit.

Habitat raises funds through government, foundations, donors and its retail stores, and it’s looking for more partnerships in order to grow. It collaborated with developer Anthem on a small project in North Vancouver, B.C. But Mr. Fehrenbacher feels they could expand a lot more into the market, with the provincial government’s help.

“Habitat wants to be at the forefront of non-profit affordable housing solutions,” he says. “We are a unique animal in that we are a bit of a developer, a non-regulated bank with our mortgages … and we are also an active operating non-profit organization.

“We depend on municipalities and the province to access land. We commit that that land will only be used for affordable housing through our model. We just did a project in Mission, 19 homes, and it was access to the land that made that possible. We are doing 42 units in Coquitlam – our biggest project ever, this year.

“Why do we do this in small doses? I’d like to see the whole province embrace that concept.”

When asked about the idea, Mr. Kahlon said there would be more announcements in the coming months, and they will also address affordable home ownership.

“There is a whole host of initiatives experts have told us about that will increase the types of units that are available to buy and to get more from the existing land that we have. And so we are looking at those measures,” he said.

The fund has its critics. Commercial broker Mark Goodman, who specializes in the sale of apartment buildings, said the fund won’t go far because the average apartment unit in the Vancouver region is priced at around $400,000. His firm did a survey of buyers in the region and found that 11 per cent are institutional investors. He believes that relatively small group is taking the brunt of the blame.

“The irony is the institutional buyers and REITs are well capitalized, accountable, doing everything in a transparent way. They are not the bad apples.”

Using taxpayer money to preserve old buildings instead of building new ones is misguided, and will create more competition for housing, he said. He suggested funding to develop publicly owned land.

Landlord BC chief executive officer David Hutniak said that he hasn’t yet gauged interest from members because the full details aren’t yet known. But he said there would likely be interest in selling to the non-profit sector.

“I suspect there likely are rental building owners who would be interested … because perhaps they’ve had a past relationship with the non-profit sector,” Mr. Hutniak said.

But he wanted to remind the public that the private sector is the largest provider of all new housing, and the challenge to continue to build for a growing population is “staggering.”

His group is therefore focused on working with all stakeholders “to create an over-abundance of rental housing,” he said.

He was also grateful that there was no mention of right-of-first-refusal [ROFR] in the announcement.

“It would have numerous negative impacts on the addition of new supply,” Mr. Hutniak said.

For example, land assembly could be thwarted if one property was subject to the ROFR.

“This increased risk would be substantial and a strong disincentive to builders and lenders, who contribute to the supply of new rental housing, leading to higher rents.”