1. End of an Era: Does Social Housing have a Future? Keynote Presentation to the Manitoba Non- Profit Housing Association Annual Conference Nov 22nd, 2013 Steve Pomeroy Focus Consulting Inc. & Carleton University Centre for Urban Research and Education Steve Pomeroy Focus Consulting Inc 1

2. Key Observations Past decade has been a period of fundamental change in the housing market and this has important consequences for the way governments (re) shape housing policy What happens in housing markets has impacts and implications for the affordable-social housing part of the housing system The scheduled termination of substantial federal housing subsidy similarly has profound implications for social housing This creates both challenges and opportunities for social housing providers and advocates Can you envision and reinvent a more sustainable future? Steve Pomeroy Focus Consulting Inc 2

3. Steady Rise in Winnipeg Home Prices Steve Pomeroy Focus Consulting Inc 3

4. Housing Bubble? Steve Pomeroy Focus Consulting Inc 4 No, because fundamentals support prices

5. Fundamentals drive prices Demographics: Natural growth and migration Labour market: number of workers in labour force Income of workers (households) Cost to finance: interest rates Underwriting: mortgage insurance policy Steve Pomeroy Focus Consulting Inc 5

6. Growing Population- Migrants Steve Pomeroy Focus Consulting Inc 6 Net migrants predominantly families and international

7. More people working, earning Steve Pomeroy Focus Consulting Inc 7 Since 2000, yr-yr % change in wages has exceeded yr-yr change in pop = growing economy

8. Corroborating impacts: income gains and low interest Steve Pomeroy Focus Consulting Inc 8 Average earned income of “economic families”

9. Policy Changes - Amortization Federal policy change to increase maximum amortization on insured loans 2006: reduced DP to 0% 2008: LTV 75% to 80%; reintroduce min 5% DP Maximum LTV on refinancing reduced from 85% to 80% Steve Pomeroy Focus Consulting Inc 9

10. Ownership affordability Steve Pomeroy Focus Consulting Inc 10 Amount that average family income can borrow at prevailing 5 yr. mortgage rate Added effect of new borrowing rules, at 40 yrs increases leverage by about $40k

11. Dramatic improvement in ownership affordability Steve Pomeroy Focus Consulting Inc 11

12. Demand stimulates construction Emerging condo; strong rental Steve Pomeroy Focus Consulting Inc 12 Note approx 15% new condo starts are investors = rental

13. Different pattern in starts Winnipeg vs. National Steve Pomeroy Focus Consulting Inc 13 Smaller condo sector; high volume rental

14. Different pattern in starts Winnipeg vs. National Steve Pomeroy Focus Consulting Inc 14 Since 2001, 19% starts are rental; but renters = 33% all HH Starts not significantly impacting total rental stock = mainly replacement

15. Homeowner market growth Steve Pomeroy Focus Consulting Inc 15 Census data: No net growth in number renter households

16. Migration impacted rental, but only partly Steve Pomeroy Focus Consulting Inc 16 Rental vacancies below 2% since 1999, but not as tight as expected Key factor in changing vacancy rate was migration, not starts

17. Migration impacted rental, but only partly Steve Pomeroy Focus Consulting Inc 17

18. Tightening Rental Market Steve Pomeroy Focus Consulting Inc 18 But again, less than might be expected Vacancies down, rents up

19. Easy access to ownership key factor releasing pressure from rental market Released potential pressure on the rental market Steve Pomeroy Focus Consulting Inc 19

20. Will this continue? Key policy question is whether this ownership “release value” will remain in effect Suggest it will not Will place new pressure on rental sector with further tightening of vacancies and more upward pressure on rents Main variable is how migration trends as we go forward If city economic development wants growth, and province wants to attract international migrants, need to manage impacts (invest in housing supply) Steve Pomeroy Focus Consulting Inc 20

21. Rental and Affordable Housing Overlooked sectors during ownership boom Will now emerge as critical policy issues Minimal growth in rental (mainly replacement & some 4,000 affordable) Serious erosion of lower rent part of rent stock And federal subsidies now starting to expire Steve Pomeroy Focus Consulting Inc 21

22. Rent increases exceed inflation Steve Pomeroy Focus Consulting Inc 22

23. Rental Sector Size Winnipeg : Total occupied rental stock (census occupied units 2011 =92,140 2/3 private (20% all) 1/3 social (incl. affordable) Social = 8% all Small sectors, vulnerable to high migration if ownership options diminish (e.g. 6,000-10,000 pop 2,000-5,000 new hh) Steve Pomeroy Focus Consulting Inc 23

24. Erosion of lower rent units Steve Pomeroy Focus Consulting Inc 24 Reducing availability of low rent units impacts most vulnerable What are policy options? Nominal rent categories, not adjusted for inflation

25. And declining federal subsidies on existing social housing Steve Pomeroy Focus Consulting Inc 25 To date subsidy expired on 3,900 units, reducing federal spending by $14 million; Next 6 years additional 8,500 units with $21 mill in subsidy will end Federal subsidy linked to mortgage amortization: 50 yrs on PH and early NP; or 35 years on NP & Co-op since 1978

26. Is the sky falling? Steve Pomeroy Focus Consulting Inc 26 Federal subsidy ending, but so are mortgages Some projects will face a challenge – Province may help Many will have new opportunities (more details in separate workshop to follow)

27. End of an Era: opening of a new one? As Federal subsidies end & market trends continue to evolve, the social/affordable sector will be impacted Need to have a strong presence and role – but what is it? 50 years of activity Some ownership and management capacity Some assets & some liabilities New provincial association – setting a new course, new strategic direction, a new era? Steve Pomeroy Focus Consulting Inc 27

28. Is the existing social housing sector sustainable? I think not : Amalgam of individual providers vs. strong sector Fragmented ownership – many small providers Highly dependent on public subsidy (and renewal thereof) Limited capacity to revitalize and redevelop properties Limited capacity to leverage existing assets (credibility to lenders, strength of security, professionalism and expertise) Perverse subsidy and rent system that: Undermines sustainability Creates disincentives to work and fails to support better outcomes for residents Steve Pomeroy Focus Consulting Inc 28

29. A new vision: a sustainable sector Characteristics of sustainable sector: Capable – professional, human resources /expertise Less reliant on government – a partner not a dependent Investible – attractive partner for lenders, philanthropic investors, government to achieve their goals Resourceful and entrepreneurial – able to leverage existing assets Compassionate but business focused – with a social mission Exist to preserve and expand opportunities for low-income and vulnerable households to secure appropriate and affordable housing Steve Pomeroy Focus Consulting Inc 29

30. Apologies to JFK Ask not what government can do for the social housing sector; ask what the sector can do for government How do we reinvent ourselves as a strong vibrant effective professional sector that government will WANT to invest in How can we position social/affordable housing as a platform to create better outcomes for low income families and children? Health, education labour market outcomes Steve Pomeroy Focus Consulting Inc 30

31. Learn from Mistakes of Past Build cheap inexpensive housing for poor people or build sound good quality, but modest housing? MUPs to control cost (utility and maintenance impacts) Can’t create affordable housing – create housing then add assistance so it can be affordable (e.g. early sec 15/27 no subsidy, then added RS) Project based subsidy highly inefficient (admin oversight) RGI model (especially with income assist minimum rents) robs the asset of viability Cannot build equity, cannot build reserves cannot be sustainable Wrong type of government support (became dependent) Steve Pomeroy Focus Consulting Inc 31

32. Create Opportunity: International examples UK housing associations Netherlands Housing Companies South Africa Social Housing Institutions US “vouchering out”/moving to opportunity with gov’t, but lever their accumulated assets Steve Pomeroy Focus Consulting Inc 32

33. Lessons in International examples What makes them different and inspiring? All separate asset from rental support Use their asset base and corporate balance sheet to lever financing for expansion Partner with gov’t, but lever their accumulated assets (i.e. not wholly dependent on govt $) Steve Pomeroy Focus Consulting Inc 33

34. Insights and options Create capacity to build equity for reinvestment (long term sustainability and increased self reliance) With low rents, valuations are low or negative (but can rectify) What’s necessary to optimize potential financial leverage? Reform subsidy model, separate personal rental assistance from project based Reform social assistance minimum rents Post expiry, not social, so max shelter component Need scale to be professional and investible Explore consolidation of single project providers Explore group structures, land trusts to hold assets Steve Pomeroy Focus Consulting Inc 34

35. Insights and options (cont’d) Examine existing assets and opportunities to intensity/redevelop Benefit of rising house prices Your property values have increased (underlying land values) Selection disposition of valuable assets to reinvest elsewhere? Value of NP ownership in in preserving long term affordability Break-even costs rise slower than market rent (Ekos/Ottawa) At low end market rent achieve leverage but can also offer government some competitive advantage (e.g. cost of stacked rent supplements) Steve Pomeroy Focus Consulting Inc 35

36. Role of Government(s) Fundamentally housing affordability is an income issue Income redistribution remains important Provide subsidies to household not projects (province?) Argument for some capital funding for retrofit (e.g. under CEAP) = federal role EOA maturing mortgages creates federal direct financing room Use to for low cost financing for renewal and expansion Responding to declining federal subsidies Some important issues (especially underfunded capital renewal) But pursue as opportunity, create attractive proposition for investment (political win win) Steve Pomeroy Focus Consulting Inc 36

37. A Bold New Social Sector Don’t settle for just preserving what you have Set the bar higher – dream and think big Create new opportunities for low income and vulnerable people to live and succeed Become more self reliant and sustainable Challenge yourselves and government Together you CAN DO BETTER! Steve Pomeroy Focus Consulting Inc 37

38. Thank you Steve Pomeroy Focus Consulting Inc Additional background reports available at www.focus-consult.com 38