Gov’t gets poor bang for buck with housing cash

I wrote previously about Yukon Housing Corporation's so-called "affordable housing program" that was recently and abruptly cancelled by the government. Had it proceeded, the affordable housing program may have accompli

COMMENTARY

by Kyle Carruthers

I wrote previously about Yukon Housing Corporation’s so-called “affordable housing program” that was recently and abruptly cancelled by the government. Had it proceeded, the affordable housing program may have accomplished its stated goal of increasing the stock of affordable housing in Whitehorse, but it would have done so in a manner that on its face appeared extremely lucrative for participating developers.

To recap, the government was going to provide half the construction costs for new units while the developers would maintain ownership, collect all of the rents (up to 95 per cent of median market rent) and after 10 years could do as they please with the units.

For some supporters of the program, the fact that it would have increased affordable rental stock in Whitehorse was good enough. After all, the money for the program came from Ottawa and was just sitting there in a bank account waiting to be spent.

This type of cavalier attitude towards the spending of taxpayers’ money (even taxpayers’ money from Alberta and Ontario) is disturbing and far too common in Yukon. Even in a small jurisdiction like Yukon where our territorial government receives more than a billion dollars in federal transfer payments, we should still expect that government attempt to maximize the benefit of each dollar that it spends.

Proponents of the affordable housing program defended it on the basis that if it were not so lucrative that no developers would care to get involved. Call me skeptical.

What about the option of Yukon Housing building affordable housing units itself? It may have resulted in fewer units or more expense, but at least the rental income would be collected by the government and there would be guarantees beyond 10 years.

Unfortunately, Yukon Housing’s record of obtaining “bang for its buck” when engaging in new construction projects itself is every bit as depressing as the details of the now cancelled affordable housing program.

In its 2013 Social Housing Report, Yukon Housing highlighted some of the social housing projects it has undertaken between 2010 and 2012. While social housing and affordable housing are different, it is reasonable to expect that the cost of constructing affordable housing would be at least as expensive as constructing social housing.

One of Yukon Housing’s projects was the construction of a 30-unit seniors housing apartment building with a capital cost of $11,822,317, or $394,077 per unit. Meanwhile, units in a relatively high-end downtown condominium complex are being listed for sale for significantly less – between $279,000 and $359,000.

Granted, some of the upgrades to make the units more “barrier free” for seniors may have cost extra money, but that must be set off against the high-end fixtures that are built into the price at the condominiums I am referring to.

In its report, Yukon Housing also highlighted the construction of “six units of family housing in three duplexes” at a capital cost of $2,427,837. This works out to $404,640 per unit. This high price is strange, as it is rare to see a duplex in Whitehorse to sell for more than $300,000.

Another project involved the creation of six units of three-bedroom row housing for families at a capital cost of $2,198,574, or $366,429 per unit. For comparison, a local developer is currently selling three-bedroom townhouses for $299,900. A friend of mine purchased a three-bedroom townhouse for $277,000 in the fall of 2011. There is even a local developer that is selling brand-spanking new detached homes for prices starting at $349,900.

In other words, Yukon Housing is paying significantly more for the constructing houses than you or I would for comparable housing in the local market. Granted, we have seen a modest downswing in the local real estate market since 2010-2012, but that alone cannot explain the gap.

The disconnect between what Yukon Housing has been paying and what you and I may have paid is all the more puzzling because it turns basic economic principles on their head. The Yukon government is by far and away the largest economic actor in the Yukon, with the deepest pockets. Typically such a large purchaser would have more clout to demand a discount from its suppliers than you or I.

Moreover, the developers themselves should be in a position to offer the government a discount, because unlike with sales to the public, they can save on realtor fees, and direct advertising expenses. The Yukon government also has the luxury of not having to pay GST on new houses (unlike you or I), which should result in a further discount as the GST is often (partially) built into the advertised sale price of a new home and absorbed by the developer.

Perhaps it is time for the Yukon government and its arms-length housing authority to do some soul searching and explore why housing is so much more expensive whenever it is involved. Providing citizens with social housing and affordable housing should not require large giveaways or the payment of inflated prices. The government should insist that it pay no more than you or I for comparable properties and if anything it should pay less.

Kyle Carruthers is born and raised Yukoner who lives and practices law in Whitehorse.

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