[homeles_ot-l] CCPA - expiration of operating agreements in social housing

[Lynne Browne]

FYI . .  Lynne Browne

Coordinator, Alliance to End Homelessness 

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147 Besserer St., Ottawa, ON K1N 6A7

 

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>From The Canadian Centre for Policy Alternatives Manitoba Office


PDF attached and at 


http://www.policyalternatives.ca/publications/commentary/fast-facts-expi
ration-of-operating-agreements-social-housing 


 


Fast Facts: The expiration of operating agreements in social housing


The beginning of the end?


July 5, 2011

One of the most pressing issues facing social housing providers is the
on-going expiration of long-term operating agreements. These subsidies,
created by the federal government in the 1970s in light of the high
operating costs of various housing projects, were meant to give social
housing providers some breathing room while they paid the debt on their
mortgages. These agreements were struck for periods between 25 and 50
years depending on each situation. Some subsidies also assisted with
operating deficits. When the program was designed, it was presumed that
once mortgages matured, cash flow requirements would fall and housing
projects would be able to continue operating with affordable rent
levels, without subsidies. While the presumption that projects would
become viable at expiry may be true for some housing providers, it has
not been the case for all.

A study of the operating agreements was commissioned by the Canadian
Housing and Renewal Association (CHRA) in 2005. It found that most
social housing projects implemented after 1986 were most likely to be
non-viable once the agreement expired. This was the year federal
subsidies began to decline in Canada, leading to many shifts in social
housing policy, including a gradual adoption of neoliberal economic
ideals and Ottawa's retrenchment from housing in 1993. While social
housing providers were experiencing funding cuts, the number of homeless
people in Canada was also increasing. More importantly, the needs of
households living in poverty deepened, as did the needs of
rent-geared-to-income (RGI) households, especially urban Aboriginal
households.

The end of operating agreements means that once the mortgages expire,
housing providers must survive on their rental revenues alone. This is
especially problematic for agencies who serve a majority of people on
RGI who, by definition, cannot pay full market rents. Most worrisome,
however, is that even with subsidies, some agencies are experiencing
yearly deficits because inflation is increasing operating expenses
faster than revenues. In their case, the annual subsidy they need is
greater than their mortgage payments, a defining characteristic of
non-viable housing projects.

Housing providers serving urban Aboriginal households with a high
proportion of people with very low income levels and in need of deep RGI
subsidies - in most cases, 100% of their tenants - are especially
vulnerable when their operating agreements expire because the rental
revenues they can realistically collect are insufficient to cover the
operating costs of the housing projects. The assumption underlying the
operating agreements, that once mortgages were paid off projects would
become viable, does not account for this reality.

The purpose of the CHRA study was to help social housing providers,
funding agencies and governments understand the implications of expiry,
and to adopt some corrective measures before the agreements expired.
Here is a list of possible solutions offered:

a) Increase market revenue

b) Explore opportunities to transfer surplus from one project to another

c) Increase RGI revenue

d) Increase rents for social assistance tenants

e) Increase the RGI ratio charged to tenants to a higher percentage of
income

f) Move RGI units to market rent - raise the num-ber of market units

g) Negotiate a new rent supplement agreement with funders

h) Reassess the need to retain non-viable projects also in poor state of
repair

While these possible remedies were presented to protect the availability
and viability of social housing assets over the long term, they have a
definite neo-liberal flavour in that the overriding concern is to
increase revenues with market-based mechanisms. Without the financial
support offered by operating agreements, and with limited rental
revenues, some Aboriginal housing providers are now being forced to look
at these options to create more revenue. Some have had no choice but to
replace their RGI tenants with tenants who can pay full market rent
values - a solution that deeply contradicts their mandate to provide
affordable housing for all. More to point, the lack of governmental
support will only increase the number of homeless people, and create an
even greater need for affordable housing.

The CHRA study calculated that once all the operating agreements expire,
around 2040, federal, provincial and territorial governments would
economize about $3.5 billion annually. This raises questions about what
to do with the dollars in reduced expenditures. The study called for a
reinvestment into housing projects experiencing viability issues, or
assisting them with capital replacements, given that these housing
assets are paid for and it would be less expensive to reinvest in them
than replace them. Given the current homelessness issue, another use
would be to expand the affordable housing stock, especially where the
need is greatest. So far, there has not been any movement by the federal
government. Housing activists are also raising questions about what to
do with the CMHC surplus, which could be used in a similar manner since
it was collected through housing activities in Canada.

Given the new federal political landscape, housing activists will need
to redouble efforts to sensitize politicians into developing housing
policies that reflect the real affordable housing needs of all
Canadians. The argument that government programs and taxes are effective
methods of redistributing wealth and creating social justice may,
however, fall on deaf ears for at least the next four years. In
frustration, some housing activists are looking at other courses of
action, such as seeking donations from the private sector to set up
trust funds targeted for housing. Will corporations be more amenable to
the argument that all Canadians have a right to housing than all three
levels of government? It will be a sad day in Canada if, and when,
social housing solutions become dependent on that.

Carole O'Brien is a student in the Master of City Planning program at
the University of Manitoba.

 

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