Housing Assessment Resource Tools (HART)
Acquisitions for Affordable Housing
Creating non-market supply and preserving affordability
A report from the Housing Assessment Resource Tools (HART) Project
Joseph Daniels & Martine August 2023
University of British Columbia Principal Investigator: Prof. Alexandra Flynn Contact : Craig E Jones, Project Coordinator [email protected] Peter A. Allard School of Law University of British Columbia Allard Hall, 1822 E Mall, Vancouver, BC V6T 1Z1
Excerpts
Executive Summary
Canada has long suffered a crisis in housing affordability, particularly affecting renters. Tenants experience high levels of housing need compared to owners, and marginalized populations are disproportionately impacted. The loss of existing affordable rental housing has contributed to this crisis, driven by the financialization of rental housing and public sector withdrawal from social housing provision since the 1990s.
This report explores acquisitions programs as one part of the solution to Canada’s affordable housing crisis, drawing on current research, interviews with stakeholders, and the examination of our database of 107 programs. Our definition of an acquisition program is one that supports the purchase of existing multi-family rental housing to preserve its affordability or transform it into affordable housing. Typically, this involves funding (from government and other sources) to enable the acquisition of privately-owned buildings by non-market owners, such as non-profits, land trusts, co-ops, charities, or governments.
This report examines four promising examples of existing acquisitions strategies in Canada that provide the foundation and inspiration for developing systematic and expansive programs in the future: Nova Scotia’s Community Housing Acquisition Program (CHAP); Toronto’s Multi-Unit Residential Acquisition Program (MURA); Montréal’s Right of First Refusal program; and Vancouver and British Columbia’s Rooming Housing programs.
Right of First Refusal to Purchase Multi-Family Properties:
Montréal’s Right of First Refusal Program
A Right of First Refusal program gives a state entity (or other actor) the first option to purchase rental housing that becomes available for sale, preventing the loss of key affordable properties. On March 26, 2020, the City of Montréal adopted a by-law to exercise its right of first refusal to buy certain properties, and currently applied it to 350+ pre-selected sites across the city (Gouvernement du Quebec, 2023). The City’s goal is to provide an opportunity to create or maintain affordable rental housing in areas where it was scarce, to maintain diversity in neighborhoods, and combat gentrification-induced displacement in areas facing market pressure.
The right of first refusal applies to pre-selected properties for ten years. If one of these properties is put up for sale and finds an interested buyer, the seller must notify the City, which has the right to buy the building at the same price. Upon receipt of an offer, the owner of a designated property must notify the city of the offer and purchase agreement, and must send the city all reports created to establish the value of the property including its non-monetary considerations. The City of Montréal has 60 days to indicate its intention to purchase (on the same terms and conditions of the buyer purchase agreement), and must reimburse the unsuccessful buyer’s expenses incurred when negotiating the deal.
HISTORY
A supportive ecosystem for acquisition programs: Montréal’s program evolved from a policy ecosystem that has long supported acquisitions for affordable housing. In the 1980s and 1990s, the City’s municipal housing corporation, SHDM (Société d’habitation et de développement de Montréal), used two acquisitions programs to identify, purchase and renovate buildings for affordable housing. SHDM acquired 3,080 apartment units and 398 rooming house dwelling rooms, which today rent at 70% of market rates. The City later created the Fonds d’Investement de Montréal in 1997, a fund providing temporary loans to non-profits to buy and renovate projects before finding conventional financing – supporting 746 units.
The Province of Quebec through its provincial housing agency, Société d’Habitation du Quebec (SHQ), is also supportive of acquisitions. Most recently, Quebec introduced Bill 121 in 2016, which granted more legislative autonomy to the City of Montréal, including new powers to preemptively acquire property for municipal purposes and expropriate neglected properties, paving the way for the Right of First Refusal program.
WHAT WORKS
Proactive protection of vulnerable areas: Montréal’s Right of First Refusal is unique in that it has pre-selected ‘at-risk’ sites in the city that should be protected for affordable housing to prevent displacement, curb gentrification, and maintain neighbourhood diversity. This is the only Canadian program that has a systematic approach to identifying buildings to acquire in advance, rather than buying properties reactively. The program has the potential to prevent the erosion of affordable housing by stopping the sale of affordable buildings and acquiring them for social ownership.
CHALLENGES
Despite a recent announcement of approximately $10 million annually for acquisitions (Ville de Montréal, 2021), the main limitation of Montréal’s program is the lack of funding to make its aspirations (covering 350+ properties) real. The City has an excellent framework in place to pre-identify affordable housing and protect it from loss, but without substantial resources for acquisitions, properties that come up for sale will not be purchased through the program.
Right of First Refusal in the US and Sweden
San Francisco’s version of a Right of First Refusal gives community organizations the first right to buy properties that come up for sale. The Community Option to Purchase Act, 2019, requires sellers of at-risk properties to give notice to approved community partners, who can match or exceed private offers to purchase.
Washington, DC’s Right of First refusal program grants tenants the right to purchase buildings, via the 1980 Tenants Opportunity to Purchase Act. This act applies to all multi-unit buildings (over five units) where 50% of tenants are low- to moderate-income. Tenants may form a condominium or limited equity rental cooperative to acquire the property or assign their right to a community or non-profit developer. Upon notice of sale, tenants have 120 days to form an association and make an offer on the property. The program is funded by city-provided loans up to 49% of the project’s value (or USD$95,000 per unit), which can be used for association start-up costs, development, acquisition, and rehabilitation. Buildings are required to maintain affordability for 40 years. Available funding has grown to $USD100 million per year, with $10 million set aside for acquisition financing. From 2002-2018, the program has preserved over 3500 units. Of the 49 projects completed between 2002-2013, 90% remain affordable for tenants making between 30-80% of AMI.
In Sweden, the 1970s Acquisitions Act went a step further in requiring the sale of all multi-family buildings to be subject to the approval of local rental committees, an approach that succeeded in “curtailing short-term rental speculation”. This active intervention is a precedent for recent regulations that have emerged in multiple countries, including required notice of sales, right of first refusal, and even bans on ownership by certain types of investors.
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Comment:
Throughout North America, institutional investors are buying up single-family homes and multifamily apartment buildings, rents are rising, and hopeful home buyers are squeezed out of the market. In Portland, Oregon, since 2010 an increasing percentage of multi-family building sales are going to institutional investors. Recently, Wall Street LLCs have also been scooping up single-family rentals in Portland by the hundreds.
Portland didn’t used to be the kind of market where big, national pension funds came hunting for real estate. But low interest rates – which make it hard for funds to make money on traditional investments – and the Portland area’s tight rental market have shifted the landscape. Investors’ unceasing quest for yield puts upward pressure on rents.
The solution to this won’t come from demonizing the corporations; they are doing what businesses do by legal means – maximizing returns on investment.
The solution will have to come out of public policies that yield both prudent regulations and financial incentives. Here we offer three remedies to consider: land value taxation, opportunity to purchase, and community land trusts.
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Land Value Taxation, a split-rate reform version of the conventional property tax, shifts the tax rate off a parcel’s building value onto its land value. This will incentivize the development of properties to their maximum zoned potential and boost production of housing, especially higher density. It will simultaneously discourage land speculation or the holding of property for windfall gain.
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With deep pocket corporate investors jumping into the housing demand market, it becomes more difficult to compete in land and property purchase. Some Portland officials and community leaders have called for a “tenant opportunity to purchase”, requiring landlords to give tenants 90 days’ notice and the right of first refusal on a property sale. This anti-displacement measure has been taking root in cities such as San Francisco and Washington, D.C. Local nonprofit corporations are given the legal right to purchase residential buildings and keep the tenants in their existing units.
HB 2002, passed in the 2017 Oregon legislative session, requires property owners subject to an existing affordability contract or new rent-restricted projects to extend the right of first refusal to qualified non-profit and government purchasers. Now it is time for legislators to expand the pool of residential properties to include all properties with long-standing code violations or tax delinquencies.
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Progressive economists are calling for residential ownership models that remove dwelling units from the private market, claiming that affordability over the long run can only be sustained by intentionally holding down land values. Practically this can be done through the transfer of affordable multifamily properties to public or quasi-public owners. Community Land Trusts are a prime example of social housing… perpetual ownership of land titles by a non-profit corporation. CLTs like Portland-based Proud Ground, offering a more stable form of tenancy, could be in a better position to purchase homes via the extended right of first refusal.
Summarizing: If a local option LVT becomes a reality, the incentive effects will undoubtedly help increase the total housing supply, discourage land speculation, and exert a downward pressure on land prices. Tenant opportunity to purchase programs will not necessarily create new housing units, but they will serve to slow the process of displacement. Community land trusts are an important player in urban land markets because of their role in removing housing from the speculative market. All three mechanisms mutually contribute to the expansion of affordable housing.
Tom Gihring, Research Director
Common Ground – OR/WA
