The
white paper is worth reading. My two cents, it's pretty fair in its options for co-ops and finally seems to demonstrate understanding on the City's part that Co-Ops' freed-up financial room resulting from paying off their original CMHC mortgages has already been reallocated to self-fund the subsidy for low income members now that CMHC has wholly withdrawn from supporting low income housing.
Quote:
Lease renewal scenarios
1.Basic renewal: A co-op pays the City a slightly discounted ground rent on an annual basis with limited reporting requirements.
2.Renewal with additional grant: A co-op pays the City a slightly discounted ground rent on an annual basis (i.e. Basic renewal), and receive an additional grant to provide deeper affordability based on incomes of the co-op’s members. This scenario requires greater reporting requirements to ensure City subsidies target low to moderate income households.
3.End of lease: As a last resort and the City’s least preferred scenario, a co-op may opt not to renew its lease. Should this be the scenario pursued by the co-op, the City will work with that co-op to protect its members and work to identify a new building operator as quickly as possible.
Redevelopment scenario
4.Redevelopment: The City is interested in working with co-op housing partners to increase the number of co-op homes on City-land. Should the City decide that a particular site meets certain criteria, including poor building conditions and/or unused development potential, the City may opt to work with an individual co-op to explore the potential redevelopment of the site to increase the number of affordable co-op homes. The City and the co-op agree on a new lease for the new building.
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Some stream of consciousness thoughts on Co-Ops (having grown up in one in False Creek South): Co-Ops are intentional non-profit communities that provide thousands of moderately priced, subsidized, and deeply subsidized homes and a tremendous sense of community and belonging. They are individually self-governing and have extraordinarily low operating costs because members perform all but the most technical tasks (e.g. Co-Op members manage their own budget and external reporting, all of which are externally audited annually, they perform all grounds keeping and normal routine maintenance, and leverage buying power for routine and major purchases).
When CMHC founded most of these Co-Ops in False Creek South in the late 70s and early 80s, they prepaid the leases to the City based on the rates it set at the time. CMHC also provided mortgages to the Co-Ops for their buildings. Since that time, Co-Ops have been paying off the CMHC mortgages, which are interest bearing and comparable to commercial mortgages in their rates and terms, paying property taxes to the City, and self-funding all operating costs and maintenance (including the 90s gift of condo-rot full building envelope replacement).
Co-Ops set their housing charges (rent) based on their budget and individual members fall into "market", "shallow (self) subsidy", or "deep subsidy" based on how 30% of their income falls in line with the Co-Op budget divided by households. With a range of incomes, this means that those paying "market" housing charges, which is in excess of the per-household cost of operating the Co-Op provide an internal subsidy to those on "shallow subsidy". This model ensures that the Co-Op is affordable to a wide range of incomes and that there is no need for outside support for those who cannot afford to pay the "market" rates. This whole process is also wholly anonymized and it is a first principle of Co-Ops to keep income and subsidy information extraordinarily confidential and to have no outward signs of income disparity (e.g. there aren't certain units reserved for market vs shallow subsidy members).
Next is "deep subsidy". This is for members whose income falls below the CMHC poverty line. Historically, CMHC provided an annual grant to Co-Ops to make up the difference between the self-financing "shallow subsidy" amount and the amount associated with 30% of income for the low income members. This amount would vary over time with need, but CMHC would still only need to subsidize the increment between shallow subsidy and the deep subsidy amount. CMHC viewed this as the absolute best "bang for your buck" method for providing affordable housing since it (a) maintains the dignity of low income people and ensures they are fully integrated into the community; (b) is cost effective for CMHC since there's no need to fund the ancillary parts of typical affordable housing, like an housing operator's overhead or extensive case management staffs and oversight; and (c) it avoids the moral hazard of people becoming dependent of social programs since the recipients of deep subsidy are essentially excluded from the whole process, as they just pay their housing charges to the Co-Op based on 30% of their income and aren't penalized at all as their incomes rise or fall based on their circumstances.
As the Co-Ops pay off their CMHC mortgage, they take on the responsibility of providing this deep subsidy using the freed up financial room. At the Co-Op I grew up in, where my mother still lives, the Co-Op decided to shift new membership criteria to increase the proportion of members on deep subsidy to fully redeploy the freed up financial capacity gained from paying off their mortgage.
Where I'm going with all this is that Co-Ops in False Creek South are a highly functional, low cost way to have a range of incomes live in the city and to provide deeply affordable housing without external subsidy. With that said, the value of the City land on which the Co-Ops are located has changed dramatically over 30+ years, in no small part, I might add, as a result of the success of the urban redevelopment experiment of False Creek South, of which Co-Ops are an approximately 1/3rd part. I have no issue with the City renegotiating the lease terms to bring them in line with market rates and I think the City's proposed approaches all have merit.
Option 2 is, I think, the most fair. It recognizes that when the City accepts anything less than market rates, that constitutes a subsidy. The City is prepared to provide such a subsidy on the below-market households in a Co-Op, which will require regular financial reporting and auditing of the Co-Ops. This is no different than what CMHC required. Member income information was always verified and anonymized in reporting and the Co-Op would be audited annually by a major accounting firm (E&Y, PWC, Deloitte, etc.) at the Co-Op’s expense. Furthermore, the City is proposing a phased ramp for the new ground lease, which I think is eminently fair. Additionally, the requirement that household size correlates appropriately (e.g. having a single person household in a 3 bedroom unit, whose kids are now grown and have left home, move to a one-bedroom when one becomes available) is already common practice and I think formalizing this is appropriate.
Even though a new lease was always expected by Co-Ops, such a fundamental change in their financial obligations will significantly increase the costs borne by Co-Op members. They have been following the rules set out when the City and CMHC negotiated the original lease and now with CMHC out of the picture, it is up to the City and Co-Ops to negotiate a new deal. Whatever the change, it will result in higher housing charges for the market rate members, and this may push some to shallow subsidy, jeopardizing this self-financing model. I expect that originally CMHC expected Co-Ops to use the freed up financial room from their mortgages being paid off to pay the new lease to the City (either pre-paid through financing or on an annual basis). What has changed was that CMHC has withdrawn entirely from affordable housing and the deep-subsidy grant that CMHC contributed to Co-Ops has now been shifted to Co-Ops and uses up the freed-up financial room from the mortgage being paid off.
In light of this change, there’s no way that the freed-up financial room can be expected to both pay a new lease with the City and fully fund all deep-subsidy costs. I think the City (finally) understands this conundrum. For the longest time there was a disconnect on the City’s part (“but your mortgage is paid off, you have the money now to pay a new lease.”) but years of skilled and dedicated good faith negation on the part of both parties has resulted in an understanding that the freed-up mortgage room cannot cover a market rate ground lease and self-fund low-income housing.
There's no way to know how this will shake out until the City puts some lease numbers on the table for the Co-Ops to consider, but these scenarios for that negotiation are now on the table, which is good. Short of just charging members more, Co-Ops may consider increasing the total number of units through renovation (where possible) to divide a larger 3 or even 4 bedroom suite into several smaller suites, but this will greatly compromise the ability of Co-Ops to provide family-friendly homes, and will likely torpedo the enrollment of False Creek Elementary. Alternatively, and most pragmatically, is redevelopment.
I am aware that several Co-Ops are actively looking into partial and/or even complete phased redevelopment to both increase the unit count and provide accessible suites, since many of the original buildings are walk-up stacked townhouses that lack wheelchair accessibility. The City sounds like it is aware of this and supportive in principle. This would increase the total unit count while also expanding the breadth of household types that the Co-Op can accommodate. The cost of such a major investment would be tremendous and the Co-Ops would need much longer lease terms from the City to be able to secure commercial lending to undertake such a project and repay it through a new mortgage.
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