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HOUSING DEVELOPMENT IN LONDON EXPLORING NEW FRONTIERS
September 23, 2013
Carling Heights Optimist Community Centre
London, ON
Agenda
TIME ITEM
8:30 – 9:30 a.m. Registration and Networking
9:00 – 9:15 a.m. Greetings and Opening Remarks: City of London, CMHC
9:15 – 9:30 a.m. Overview and Context: SHS Consulting, City of London
9:30 – 10:15 a.m. Setting the Stage
10:15 – 10:30 a.m. BREAK
10:30 – 11:15 a.m. Presentation: Wood Buffalo HDC, Bryan Lutes, President
11:15 – 12:00 p.m. Presentation: Other Canadian and US Experiences, John Fox, Robins
Appleby & Taub
12:00 – 12:30 p.m. Panel Discussion, Questions and Answers
12:30 – 1:00 p.m. LUNCH
Agenda
TIME ITEM
12:30 – 1:00 p.m. LUNCH
1:00 – 2:00 p.m. Guided Stakeholder Roundtable Discussions
2:00 – 2:15 p.m. Report Back
2:15 – 2:30 p.m. Wrap-Up and Next Steps
OVERVIEW AND CONTEXT SHS CONSULTING
Today’s Session: Purpose
To introduce and discuss with the London community the potential of establishing a municipal
(“HDC”) in the City.
Today’s Session: Objectives
• To from HDC models from other jurisdictions
• To potential opportunities and challenges
for the HDC
• To the community on the progress and
next steps of the project
Exploring the Establishment of a Housing
Development Corporation: Background
• City of London’s interest: “
” (The Housing Market and Canada’s Economic Recovery, FCM
Report, 2012)
– To help achieve social, community development, and
environmental goals
• The HDC has the potential to: give the City a vehicle
to directly achieve key local goals and objectives
– Greater potential capacity than the municipality itself for using a variety of financial instruments and operational
approaches
Exploring the Establishment of a Housing
Development Corporation: The Team
• To into best practices
• To related local environment
• To the business case and implementable
work plan supporting a new HDC in London
– Consolidating the necessary tools and services to advance
housing development within Council’s policies and
interests
– Inclusive of affordable housing
Exploring the Establishment of a Housing
Development Corporation: Project Goals
Exploring the Establishment of a Housing
Development Corporation: Work Plan
Conduct foundational research
Conduct in-depth research of MVP 1
Revise MVP (to construct MVP 2)
Formalize the business plan
Engagement: How to get involved!
11
Webinar Series
National Housing Day
Interviews and Stakeholder Meetings
TODAY!
SETTING THE STAGE: OVERVIEW OF APPROACH TO DESIGNING A POSSIBLE
HDC FOR THE CITY OF LONDON NORM TASEVSKI
Our Goal for Today…
To start a discussion with the London
community on the potential for establishing
a housing development corporation
(“HDC”) in the City of London
13
Not Our Goal for Today…
To “pitch” the idea of an HDC
14
To begin...
15
What is a Municipal Housing
Development Corporation?
An independent incorporated entity,
typically positioned to work with the private
sector and with the government sector to
advance housing development strategies
and actions within a geographical region.
16
What Can/Can’t HDCs Do?
Short Answer: it depends
17
HDC Mandates
• Range in scope: narrow to broad
18
Narrow
Mandates
Broad
Mandates
Role of HDC is restricted to 1-2 very specific policy objectives
Role of HDC expanded to encompass multiple policy objectives
HDC Mandates: Some Examples
19
• Main “customer”: nonprofit property managers,
private developers
• Primary “value proposition”: real estate sale,
financing/fund management, mortgages
“The goals of the Nova Scotia Housing
Development Corporation are to foster healthy
communities through innovative housing solutions,
and ensure access to a supply of safe,
appropriate, affordable and sustainable housing”
HDC Mandates – Some Examples
20
• Main “customer”: low income home buyers/renters,
property developers/managers)
• Primary “value proposition”: financial products
(mortgages, mortgage insurance, bonds/debt)
“The HDC seeks to increase the supply of multi-
family housing, stimulate economic growth and
revitalize neighborhoods by financing the creation
and preservation of affordable housing for low,
moderate and middle income New Yorkers”
HDC Mandates – Some Examples
21
• Main “customer”: first time home buyers,
nonprofit/for-profit property owners, BIAs,
government departments
• Primary “value proposition”: rental housing, real
estate management and sales, policy
development, neighborhood development
“To make Boston the most livable city in the
nation by working with communities to build
strong neighborhoods through the strategic
investment of public resources” Department of
Neighborhood
Development
HDC Mandates – Some Examples
22
“To provide affordable quality housing,
management and maintenance and other
housing related services to meet the needs
of low income families in a proactive and
caring manner”
• Main “customer”: individuals/families that can’t
afford private rental housing
• Primary “value proposition”: subsidized rental
housing
How do we set the Mandate of an
HDC?
Well…
23
Core Principles Informing an HDC
Feasibility Assessment
• Housing development in isolation of broader
community and economic development is not
desirable
• An HDC for London must balance competing aims -
advancement of social/cultural priorities alongside
financial priorities
• For an HDC to be successful in London, it MUST be
designed from scratch and accommodate
London’s unique social, geographical and
economic strengths, gaps, and interests
Why an HDC (why not the status quo?)
• Renewed Focus on City Building – An HDC can be a
conduit for many local and regional development
initiatives
• A Healthy New Dynamic – HDC becomes a partner
to government and to community/economic
groups and can engage all stakeholders in a new
way
• Increased Opportunity for Creativity – new financial
instruments and operational approaches can be
deployed that may not be open to government
directly
The MVP Development Process
26
What is a “Minimum Viable Product”
(MVP)?
• A technique for market testing a new product or
business before the product/business is fully built
• Popularized by Eric Ries (“Lean Startup”)
27
Lean Startup Approach (micro strategies, big launch, rapid iterations)
What is a “Minimum Viable Product”
(MVP)?
• An MVP…
– Has only those elements that allow a product/service to be tested, and nothing else
– Is tested with the “early adopters” (i.e. potential first
customers, stakeholders, partners)
– Is utilitarian (i.e. collect the most amount of customer/stakeholder/partner feedback with the least
amount of time/monetary investment)
28
An Example
29
Why use MVP to design a Housing
Development Corp?
30
• Reduces risk and complexity (especially important when there are many potential moving parts)
• Maximizes stakeholder feedback and buy-in (stakeholders are engaged from day one)
• Increases likelihood of success (as the HDC’s “offer” is tested, the market becomes primed for it)
Hearing From the London Community
31
How do we plan to engage the London
Community?
32
The Process
1. Conduct foundational research (initial consultation, best
practice data, data on social finance, impact investment, private/public sector opportunities and constraints)
2. Construct “Minimum Viable Product”(MVP) (customer segments, value proposition, key channels and relationships, key resources and activities, key partners)
3. Conduct in-depth research on MVP (potential revenue sources and cost drivers, primary/secondary research to validate customer segments, value proposition, key channels/relationships/resources/activities, review by advisory panel)
4. Revise MVP (i.e. Construct MVP 2) (consultation with London
staff, consultation with advisory panel members, revise MVP details, construct detailed financial model, integrate legal considerations)
5. Formalize Business Plan (background materials, business description,
cost/benefit analysis, mandate/strategic objectives, bylaw recommendations, sole shareholder agreement, financial requirements, sustainability model, funding sources, governance and organizational model, legal/risk management considerations, preliminary service delivery approach, 3 year cash flow projections)
Our Tool
33
Business Model Generation Canvas
MVP: Key Questions for Today…
Community input is sought to inform the following
components of the model:
• Customers
• Value Proposition
• Key Partners
BREAK
WOOD BUFFALO HOUSING DEVELOPMENT CORPORATION
BRYAN LUTES
AFFORDABLE HOUSING IN A BOOMING ECONOMY
City of London
September, 2013
AFFORDABLE HOUSING IN A BOOMING ECONOMY
City of London
September, 2013
AT WOOD BUFFALO HOUSING & DEVELOPMENT CORPORATION
WE BUILD COMMUNITIES
THE REGIONAL MUNICIPALITY OF WOOD BUFFALO
FACTS AND FIGURES
• The Regional Municipality of Wood Buffalo is big in every way – from a physical expanse of natural beauty that covers 66,361 km2 (making it the second largest municipality in Canada), to a thriving industry that sees $2.2 billion in investments annually from the third largest proven oil reserve on earth.
• Fort McMurray is surrounded by Crown land.
FACTS AND FIGURES
• RMWB is larger than two Canadian provinces and over 100 countries.
• Wood Buffalo has had an average annual population growth rate of 7.1 per cent for the past decade – the total population growth of 125% has made it one of the fastest growing communities in Canada.
• The Regional population has increased by 10 per cent, just since 2012.
FACTS AND FIGURES
• Average annual household income is over $210,000
• Wood Buffalo residents enjoy incomes 103% higher than the national average
• Residents, on average, have a $30,000 annual discretionary income
FACTS AND FIGURES
• Nearly 86 per cent of households in Wood Buffalo have an income over $100,000
• The average age in RMWB, at 32.2 years old is 7 years younger than the national average
• The 3.5 per cent unemployment rate in the Wood Buffalo region continues to be the lowest in Canada
CANADA’S MOST EXPENSIVE CITY
Over the last decade, the average price of a single-family dwelling in Wood Buffalo experienced an average annual growth rate of 12.24 per cent.
Fort McMurray’s housing prices are the highest in the country, passing Toronto in 2006.
ACCORDING TO THE 2012 MUNICIPAL CENSUS
• 25% of families could use assistance with housing
• 55% of the Region’s population earns less than the average income
• 25% or approximately 6,000 households in the RMWB are able to qualify for gap housing
AVERAGE HOUSE SELLING PRICE
*as per 2013 Fort McMurray Labour Market Information
ABILITY TO PURCHASE
0
100000
200000
300000
400000
500000
600000
700000
800000
$40,000$50,000
$60,000$70,000
$80,000$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
Detached @$784,961 Modular w. Lot @ $478,250 Multi-family @ $385,639
*as per 2013 Fort McMurray Labour Market Information
RENTAL RATES & VACANCIES
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Bachelor 1 Bedroom 2 Bedroom 3 Bedroom +
0
500
1000
1500
2000
2500
3000
Private Market Rents ($) Private Apartment Vacancy Rate (%)
ABILITY TO AFFORD RENTS
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
Rent @ 30% Monthly
$100,840 for 3 BR @ $2,521/mo $89,160 for 2 BR @ $2,229/mo $69,440 for 1 BR @ $1,736/mo
MEDIAN INCOMES – 2012
Couple Families
Lone-Parent Families
Non-Family Persons
Canada $76,950 $37,050 $24,680
Alberta $93,820 $40,150 $32,650
Fort McMurray $190,470
WOOD BUFFALO HOUSING & DEVELOPMENT CORPORATION
VISION STATEMENT
A region where all citizens have access to affordable housing
MISSION STATEMENT
• WBHDC Purposes • Shareholder Value • Funding Sustainability • Land Availability • Community Infrastructure • Competitive Market Positioning • Staff Engagement
We will provide affordable housing alternatives to citizens within the
Regional Municipality of Wood Buffalo
STRATEGIC GOALS
WOOD BUFFALO HOUSING & DEVELOPMENT CORPORATION
• WBHDC is a Part IX not-for-profit housing developer and property manager created in 2001 by the Regional Municipality of Wood Buffalo Council to address the Region’s affordable housing needs.
• WBHDC is able to offer a continuum of housing options from Homeless Shelter transitioning through several levels of Rental (including Seniors) into Affordable Home Ownership.
AVAILABLE OWNERSHIP PROGRAMS
• Second Mortgage Program
• Second Mortgage with Employer Assistance
• Lot sales to Small Business Employers
AFFORDABLE HOME OWNERSHIP PROGRAM
• Program began in 2004
• 275 families and individuals have realized their dreams of owning a home
QUALIFYING CRITERIA
• Applicants must:
• Be a resident of Fort McMurray for at least one year
• Have a gross family income less than maximum
• Be a first time homeowner in Municipality;
• Be able to qualify for the first mortgage amount from a lender.
AFFORDABLE HOME OWNERSHIP PROGRAM
• Financing – Purchase price is based on appraised market value;
– Purchase price divided into two parts:
• First Mortgage
– This amount is provided by a conventional lender and effectively recovers WBHDC’s costs to construct.
• Second Mortgage – Used to assist in the purchase
– Held by WBHDC and further divided into the Equity Loan and Affordability Loan;
AFFORDABLE RENTAL PROGRAM
• In partnership with essential services – Nurses, Teacher, RCMP and Municipal Employees.
• Partners put up $20,000 per door for access to affordable rents.
AFFORDABLE
• 1060 Units, apartments and townhouses
CURRENT WAIT LIST
• Affordable Housing 520
PARTNERS
• Canada Mortgage & Housing (Grants)
PUBLIC SECTOR PARTNERS
• Fort McMurray Catholic School Board
• Fort McMurray Public School Board
• Northern Lights Health Region
• Province of Alberta (Grants)
• R.C.M.P
• Although WBHDC receives grant funding from the Province for its GAP rental developments, the Corporation continually strives to become self-sustaining.
• Prospect Pointe
• 100 acre parcel which was divided into 330 +/- lots
• Profits on sales were used to build The Shores and Cascades – a total of 78 new affordable rental units
• WBHDC developed an eco-industrial park just north of Fort McMurray. Monies gained from the sale of the serviced lots is being used to create additional affordable housing units for residents of the RMWB.
SUSTAINABILITY
SUSTAINABILITY
• TaigaNova Eco-Industrial Park
• 65-acre parcel subdivided into 27 commercial and industrial lots, ranging in size from1 to 5 acres, incorporating green initiatives.
• Profit from sales will be used to build a Maintenance Shop for the Corporation and for future affordable housing.
• WBHDC looks for future viable sustainability opportunities.
THE REVITALIZATION EQUATION AND OTHER LESSONS FROM AN
INNOVATIVE JOURNEY… JOHN FOX
Bumps on the Road…
Nobody’s Journey is seamless or smooth.
We all stumble, we all have set backs. Its
just life’s way of saying: “Time to Change
Course”
- Oprah
62
Agenda
1. The Revitalization Equation
2. Layering Resources for economic development
3. Considerations when Partnering with the Private
Sector
• Getting the Vocabulary Right
4. Public Builders and Accountability
5. Corporate Models
• Some Pros and Cons
6. Some Key Questions for Deliberation
Profile: John Fox
• Partner, with expertise in:
– Housing
– Financing
– Construction
– Procurement
– Brownfield development
• Former VP Development and General Counsel
(Development), Toronto Community Housing
• Former CEO, Batawa Development Corporation,
industrial revitalization in the Belleville-Trenton Area
• Chair, Laidlaw Foundation
The Revitalization Equation
project revenues ≥ project costs
The Revitalization Equation: Regent Park
The Vision
• Revitalize 2,000 units of housing on 70 acres of land
– Using excess density as a source of revenue
Other Objectives
• Stimulate economic activity
• Reduce energy consumption in TCH buildings
• Maintain good relations with stakeholders
• Diversity of Architecture
• Build partnerships – Developer
– Commercial tenants
– Arts and culture
• Similar to London’s “strong economy, sustainable infrastructure, and vibrant and diverse communities”
The Revitalization Equation: Regent Park
The Revitalization Equation
project revenues ≥ project costs
subsidy + (market units * profit per unit) ≥
rental units * cost per unit
or
subsidy + land sale ≥ rental units * cost per unit
The Revitalization Equation: The Variables
• What influences these variables?
• Over which variables does the builder have
control?
Market units = Density (Planning Policy objective)
Profit per unit = Land value (location, location, location)
Rental units = What you need to replace (Housing Policy objective)
Cost per unit = Construction cost per unit
Subsidy = Other revenues (e.g. AHP subsidy, borrowing against energy savings, cancelled or deferred taxes, etc.)
• Rental units * cost per unit = money you need to do
what you want
• Different policy objectives have different costs:
– Replacement of existing social housing
• $200,000 per unit
– Affordable rental (defined as a function of CMHC average
market rent for the area)
• $120,000 per unit
– Affordable ownership
• $50,000 per unit, depending on depth of ownership
The Revitalization Equation: Policy Objective
• Profit per market unit = fair market value
• Determined by local factors and local market
• Needs an analysis of comparable buildings or land
sales in the area
• Limited control: a well-articulated program can, in
theory, increase market value
• Equally critical for private builders
The Revitalization Equation: Land Value
• Market units = density
• Whether staying “in” or doing a land sale, the
amount of buildable area impacts the revenue
• Often the last variable determined because the
others are set, resulting in the question:
– How high is my building?
• A natural tension between planners and housing
officials
72
The Revitalization Equation: Density
• Objective: replace 40 social housing units using only
density
• Assumptions:
73
The Revitalization Equation: Application
Profit per market unit = $25,000 (to public partner)
Rental units = 40
Cost per unit = $200,000
Subsidy = $0
subsidy + (market units * profit per unit) ≥
rental units * cost per unit
$0 + (market units * $25,000) ≥ 40 * $200,000
market units ≥ 40 * $200,000/$25,000
market units ≥ $8,000,000/$25,000
market units ≥ 320
74
The Revitalization Equation: Application
Community Economic Development: Layering
Resources
Multiple Partnership and development opportunities
brought together and focussed…
- City: Employment Counselling
- Post Secondary Institutions: Continuing learning
- Commercial Tenants: Local Employment
- Construction Partners: Local Employment
- Province: Affordable Housing grants
- Restaurants: Many possibilities (Example: Paintbox –
a B- Corporation Restaurant)
- Developers: Expanding the pie
75
Partnering
• Financial reasons – Create value you could not create on your own
– Increase profit per unit
• Pool talents – To be able to leverage combined assets, skills, and
knowledge to achieve your goal
• Mutual respect – Each partner sees value in the contributions of the other
• Risk management – Spread the risk
• Values – A shared purpose at the partnership level
76
Partnering: Agreement
The Partnership Agreement Establishes…
• Land value: transfer if required
• Proportionate share of ownership
• Equity investments: get credit for advance work
• Responsibilities of partners:
– May differ according to expertise
– May include fees
• Management of the partnership:
– Typically a committee with set responsibilities
• Distribution of proceeds
77
Partnering: Agreement
Key Items to Remember
• Understand the role you are playing in the
partnership
• Understand how the money flows
– Value of land
– Fees
– Distribution of proceeds
• It’s all negotiable!
– Proceeds, for example, can “waterfall”
– Partners may retain some unilateral rights
78
Public-Private Partnerships in Housing
“A cooperative venture between the public and private sectors, built on the expertise of each partner which best meets clearly defined public needs through the appropriate allocation of resources, risks, and rewards.” (CCPPP)
79
The Case For…
• Private sector innovation and expertise
• On time
• On budget
• Alignment of interests
But…
• Cost • Finance cost: not cheaper in the private sector
– Brampton Hospital cost $200M more per AG
• Profit: adds a private cost
• Complexity: partnering and sharing risk is always complex – This is a multi-party negotiation
• Failure: what happens really if the private sector fails? – The service must still be delivered
80
Public-Private Partnerships in Housing
The I/O Value for Money Approach
81
Public-Private Partnerships in Housing
Key Points To Remember
• For the private sector partner, it’s about the return
• There is a cost to transferring risk
– This is where “value for money” calculations come in
• Most 3P in Canada relate to:
– Health care (Brampton Civic Hospital)
– Recreation (arenas)
– Transportation (Confederation Bridge)
– …Not a lot of housing!
• The legal structure is a means to an end, not an end
in and of itself
82
Public-Private Partnerships in Housing
Partnering: A Brief Roadmap
What you Should Consider Before Partnering
• Know your objectives – E.g. replace units, economic development, etc.
• Assemble your team – Financial, legal, etc.
• Consider existing community – How will they benefit?
• What risks will you take? – Environmental, construction costs, market risk, etc.
• Decide on the role the public wants to take – E.g. will the public stake ride to the end of the development process?
• Know the internal approvals you will need and when
• Design the RFP competition for a partner carefully – Once it’s done, it’s done!
• Consider including the full contract in the RFP
• Consider whether a “Fairness Advisor” is warranted
83
Housing Development: Procurement
Development has unique procurement issues…
1. Contracting for Construction
• The lowest price should not be the law
– “If you pay peanuts, you might get monkeys.”
• General contracting vs. construction management
– “One procurement moment vs. countless procurement
moments
• The dangers of due diligence
– The “haircut”
84
Housing Development: Procurement
2. The Holy Trinity of Public Procurement
Accountability, Transparency, and Value for Money
• Do they walk together?
• If not, how are these to be balanced?
85
Housing Development: Legal Structures
Many possible legal structures for carrying out development… 1. Housing Development Corporation
2. Local Housing Corporation
3. Not For Profit Development
4. Co-Ops
5. Community Land Trust
6. Municipal Contract Out and Turnkey
7. “Build” Model
8. Others?
• Caution: legal form follows function; it is premature to settle on organizational models
86
Housing Development: Legal Structures
Housing Development Corporation
• A subsidiary of the municipality
• Governed by a knowledgeable board of directors
• Restricted by the shareholder through a direction or unanimous shareholder agreement
• Attracts specialized development talent
• Creates some liability barrier
Issues • Is it a commercial enterprise under the Municipal Act?
• Is there enough work to keep a full development complement occupied?
• If disconnected from the provider, will units delivered meet housing specs?
87
Housing Development: Legal Structures
Local Housing Corporation
• Established in accordance with the Housing Services Act
• Not a commercial activity for Municipal Act purposes
• Business Corporations Act Company
• Minister may intervene in setting by-laws, etc.
• Creates some liability barrier
Issues
• Is there enough work within the Local Housing
Corporation?
88
Questions that Caused Debate
1. Are you willing to be a partner in a real estate development, or do you want to get land value out of excess land immediately?
1. Risk/return evaluation
2. How much accountability is appropriate in the tendering process
3. Are we keeping construction risk?
4. Are we keeping subsurface risk?
5. Are you willing to provide an HDC with cash or land as an equity
infusion?
6. How much latitude is afforded for non-housing investments, such as an arts and cultural centre for example?
7. Are you willing to create a pay structure that reflects private development firms?
8. Are you willing to put a municipal guarantee in place to assist the HDC?
9. If the HDC is owned by the City, is there an impact on the City’s ability to borrow?
10. How much political control?
89
PANEL DISCUSSION QUESTION AND ANSWER PERIOD
LUNCH
GUIDED STAKEHOLDER ROUNDTABLE DISCUSSIONS
Discussion Questions
93
REPORT BACK
WRAP UP NEXT STEPS
Upcoming Webinars
1. Housing Development Corporation Model 1 – Friday, September 27th – Primer to housing development corporations and case studies
from the US and Canada
2. Housing Development Corporation Model Two – October – Overview of available tools, include brief overview of social
finance, plus a summary of some of the other tools
3. Project Update and Draft Model Presentation - November – This webinar will take place after the November 25th CPS
meeting
4. Implementation of HDC - January – This webinar will focus on HDC implementation
96
Evaluation Form
97
THANK YOU!