1. The Economic Feasibility of Affordable Housing at UniverCity
Arminda L. Alexander
SFU Community Trust Summer 2012 Internship
Presented September 13, 2012

2. Objectives of SFU Trust Internship
“To examine the economic feasibility of developing more affordable housing at UniverCity; develop basic proformas for up to 3 affordable housing development models – reduced rate rental, co-housing, and reduced land lease. The proformas for these three housing tenure models will identify hard and soft costs, as well as the expected short and/or long-term return on investment.”
UniverCity Internship announcement dated March 26, 2012

3. Glossary of Terms Affordable Housing Economics
Macroeconomics
Microeconomics
Proforma
Housing Tenure
Shared Equity
Internal Rate of Return
Reduced Rate Rental
Rent to Own
Glossary terms will be explained during the course of the presentation.

4. Definition of Affordable Housing
“Affordable housing is generally considered to be housing that does not cost more than 30% of a moderate or low-income household’s gross income regardless of whether the housing is market or non-market.”1
Moderate income is 80% of median household income for the region.
Low-income is 50% of median household income for the region.
Median income in 2010 for all census families in the Vancouver Census Metropolitan Area was $67,090.2
______________________________________________________________________________________________
Metro Vancouver Housing Action Plan Resource for Municipalities, Sept. 2011, p. 24, retrieved from:
2. Statistics Canada. Retrieved from:

5. Definition of Affordable Housing, cont’d.
Affordable housing costs no more than $1,340 per month total shelter cost in Metro Vancouver.3
According to the Real Estate Board of Greater Vancouver, the average strata apartment price was $376,200 as of June For a detached house, it was $961,600. 4
Affordable mortgage translates to a strata condo price of approximately $167,000 for moderate income and $223,000 for median income (with current financing at 5% down, 4% interest and 25 years amortization). 5
____________________________________________________________
3. Calculated by Arminda Alexander at 30% total shelter cost (includes utilities) of moderate income household in Metro Vancouver.
4. Real Estate Board of Greater Vancouver. Retrieved from:
5. Calculated by Arminda Alexander

6. SFU Trust and UniverCity
SFU retains ownership of the land
Home buyers get ownership (strata title) of building improvements with a 99 year leasehold on the land.
It’s a unique ownership structure which is why the Trust has a vested interest in the longevity, health and sustainability of the UniverCity community.

7. UniverCity: The 4 cornerstones of Sustainability
Education, Environment, Economics and Equity.
Equity: Provide an appropriate mix of housing types and tenures that reflect the entire lifecycle. Affordable housing is part of the housing continuum that UniverCity can offer so as to be a complete and inclusive community.

8. UniverCity Re-Sales $385,000 ($418 psf) $449,000 ($386 psf)
1 Bed
1 Bath
624 sq.ft. Apartment
University Crescent
$385,000 ($418 psf)
2 Beds
2 Baths
922 sq.ft. Condo
University Crescent
$449,000 ($386 psf)
3 Beds
2 Baths
1,163 sq.ft. Townhouse
University Crescent
Retrieved from: Robert Crowe REMAX Real Estate Services on 4-Sep- 2012

9. UniverCity Pre-Sales Altitude Highland House 1 – bedroom $428 psf
1 – bedroom north $460 psf
1 – bedroom west $553 psf
2 – bedroom & townhomes north $441 psf
2 – bedroom & townhomes west $386 psf
2 – bedroom & townhomes south $449 psf
Price lists as of September 13, 2012, psf average

10. Macroeconomics
With more supply, prices will decrease because there will be more choices, demand will be satisfied and buyers will not raise the price through speculation.
However, the cost to produce new housing is the decisive factor. The cost of creating housing itself is prohibitive for those who earn less than above-average income.
_______________________________________________________________________________________________________________
Graphic retrieved from: Espinoza, J.J. Supply and Demand Partial Equilibrium Market Model in Matrix Form, on 13-Sep-2012

11. Housing macroeconomics
Factors that affect the cost of housing:
Availability and cost of labour and materials,
Availability and cost of financing capital,
Government policies and regulations that affect where and what can be built,
Market incentives generated by those policies – regulation of the market.
Government can direct resources and supply to the area of high demand through policies and regulations, such as inclusionary zoning, density bonusing and rent control.
Yet there is a huge shortage of affordable housing in this region because of the fundamental problem – the high cost of creating housing in relation to incomes. 6
____________________________________________________________________________________________________________________
6. Vancouver’s Housing and Homelessness Strategy , June 2011, Context, Ltd., p. 8

12. Housing microeconomics
Micro-economics is defined as the particular aspects of an economic firm or individual. The macro influences the microeconomics of housing creation because it affects costs.
Developers seek to maximize their profits, so they supply to the higher end of the market. Even with a high level of demand for affordable housing, the price point must be well above cost to realize enough profit for the developer.
To create more affordable housing the focus must be on direct costs associated with development and construction of housing, development cost efficiencies and lower production cost.

13. Proforma
Proforma: a standard presentation of data, typically a financial statement, where the data emphasize either current or projected figures.
A way of analyzing the microeconomics of housing production to determine feasibility.
The UniverCity objective is to produce affordable housing without using capital or operating subsidies from government or charitable sources, or other mechanisms typically associated with below-market or social housing projects.

14. Basic cost components of a Residential Construction Project

15. UniverCity Parcel 32

16. 4-storey Woodframe Apartment Building
UniverCity Parcel 32
4-storey Woodframe Apartment Building
35,521 sq. ft. gross buildable area
36 units
This example is Harmony at UniverCity

18. Housing Tenures and Affordable Housing
Housing tenures available for different phases of life or income levels:
Lease or rent (deemed insecure due to lack of occupant control),
Freehold, long-term leasehold or life lease (deemed secure as owner has the right to occupy).
Something to consider - low-income housing is subsidized by market units whether through taxes, levies or bonds.
The models analyzed herein provide a direct subsidy within the project itself, similar to HUD HOPE VI in USA and the City of Vancouver’s Woodward’s district.

19. Affordable Housing models analyzed
For sale
Mixed income – market and reduced land value
Shared equity
Rental and Rent-to-own
Co-housing is not a viable option due to financing restrictions.
Like-minded owners form an ownership entity and act as their own developers to construct private homes supplemented by common facilities.7
Savings usually achieved in hard costs due to moderate finishes in units; and in soft costs because there is no developer profit and no marketing cost.
This model has difficulty securing financing; lenders need to be able to foreclose and seize the asset of an individual homeowner.8
_____________________________________________________________________________________________________________
7. Canadian Cohousing Network. Retrieved on 4-Sep-2012 from:
8. From interview with Joffre Pomerleau, Innovative Housing Consultants, Inc.

22. Shared Equity Resale restricted, owner-occupied housing.9
Landowner and homeowner share in equity value of the property based on a formula and other restrictions set forth as covenants on title.
A vehicle for local jurisdictions and institutions with land banks to leverage and preserve social investment.
UniverCity’s Verdant is an example.
Options for Homes, Greater Toronto model since 1993: 10
non-profit owner develops project at 15 – 20% below market cost (low cost finishes and amenities, economies of scale construction, minimal marketing and admin costs).
Low-income homebuyer pays cost only; non-profit holds market differential as 2nd mortgage, payable at resale or anytime prior.
Proceeds of 2nd mortgage is reused for next low-income household or to fund other projects.
______________________________________________________________________________________
9. Dubb, S. (2011). Interview of John Emmeus Davis. The Democracy Collaborative at the University of Maryland. Retrieved
from:
10. Canada Mortgage and Housing Corporation. (Retrieved on 10 August 2012). Affordable Housing Project profiles, Options for Homes,
Greater Toronto Area, Ontario. Retrieved from:

25. Rental
Average market rent in Burnaby in 2011 was $1,103 for a 2-bedroom and $1,283 for a 3-bedroom.11
To be economically feasible, new purpose-built rental must have a positive investment return.
With an average rental rate of $1,103 and market financing for the parcel 32 project, each unit would have to cost no more than $95,000 in order to break even. 12
Units cost much more than that to build here, and will require much higher rents to realize a positive investment return.
This illustrates why purpose-built rental is not economically feasible in this region.
Internal Rate of Return (IRR): “An interest rate giving a net present value of zero when applied to the expected cash flow of a project. Its value, compared to the cost of the capital involved, is used to determine the project’s viability.”13
______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
11. Metro Vancouver. Retrieved on 4 September 2012 from:
12. Calculated by Arminda Alexander; interest at 4%, 25 years amortization, 25% equity investment for a 10 year term.
13. Dictionary.com Retrieved on 13-Sep-2012 from:

27. Rent-to-Own14
Lease with option to purchase after the term. A household pays rent plus an increment that goes toward the down-payment. There is also an option fee for the right to buy at an agreed-upon price.
Usually for households with poor credit history or no down-payment. Generally, only a portion of a project’s units convert.
This model was used in the U.S. during the subprime mortgage crisis when the condo market was soft.
_______________________________________________________________________________________________
14. Affordable Housing Institute, USA. Retrieved on 4-Sep-2012 from:

28. Although the rent rate is lower, this model is still not affordable and requires above market rent to be economically feasible.

29. 5 units
9 units
$57
$35 $0

30. 1.5 units
3 units
# of Parking stalls per unit
40 stalls
29 stalls
18 stalls
Total # of Parking stalls

31. Conclusion
Markets fluctuate and there is increasing market uncertainty; neither will demand be unlimited.
The developer who applies inputs and practices that have the most economic efficiencies/benefits (e.g. parking reduction) in projects undertaken will have a leading edge in an uncertain market.
There’s a market value for providing a social good and having the proven ability to supply a substantial segment of market demand.
The recommended project to pursue is the mixed-income model.
Will work whether at market or reduced land value,
Will provide the most units that meet affordable housing definition,
Economically feasible for the SFU Trust,
A “tried and true” model of affordable housing.

32. Sources Interviewed
Michelle Paquet, Development Manager, UBC Properties Trust, July 2012
Joffre Pomerleau, President & CEO, Innovative Housing Consultants, Inc., July 2012
Allan Carr, Senior V.P., Midwest Property Management, July 2012
Sharon Folkes, Housing Planner, City of Burnaby, August 2012
Karen Hemmingson, Director, Research and Corporate Planning, BC Housing, August 2012
Heather Tremain, Principal, Urban Fabric, August 2012
Ali Nimji, Robert Crowe Offices, REMAX Real Estate Services, August 2012
Dino Celotti, Trilogy Management Services Ltd., August 2012
Terry Lui, Sales & Leasing Manager, Trilogy Management Services Ltd., August 2012

33. Special thanks to Jesse Galicz, Dale Mikkelsen, Gordon Harris and everyone at the SFU Trust for sharing their expertise and assistance.

34. And they know how to have fun!!!