Much ado about housing money

The newspapers last week were chock-a-block full of discontent regarding the Yukon government's plan to use federal funds in partnership with local developers to build fixed-rent units for low-income households.

The newspapers last week were chock-a-block full of discontent regarding the Yukon government’s plan to use federal funds in partnership with local developers to build fixed-rent units for low-income households.

Local realtors and the landlord association have come out strongly against the proposed plan, arguing the introduction of government subsidized rental units into the marketplace will give participating developers an unfair economic edge while also penalizing existing landlords by forcing rents to drop.

I am not usually one for direct intervention in the market by the government, but after looking into the issue I am inclined to agree that the government’s approach is, at least, logically defensible.

The underlying rationale for the initiative can be found in a March 31, 2013 report commissioned by the Yukon Housing Corporation entitled Comprehensive Review and Assessment of Housing Issues in Yukon. The writers of the report concluded that while migration to Whitehorse had resulted in pressure on the housing market, development had expanded stock to provide options for middle and high income households to purchase homes.

The concerns stemming from the report revolved around the lack of rental units available, and specifically the lack of rental units affordable to low-income households. “The two unmet challenges in Whitehorse are a general lack of new formal rental construction and an absolute lack of low-income rental units, which results in almost one in six households experiencing affordability problems,” the report states.

I don’t think much has happened in the Yukon since March 2013 to alter the above statement. No apartment complexes have gone up in the last year nor, for that matter, in the past 15 years. For whatever reason the market is not building apartments for rent; rather, the market is building condos and townhouses for sale.

The report’s findings were largely embraced by local employers who have long complained that they cannot find affordable housing for workers, a situation that was hurting productivity and profitability.

Armed with the report and calls from local employers I can see why the government moved to increase low-income rental stock outside of the social housing space. It makes some sense to intervene to spur growth in an area that the market is unable or unwilling to invest in.

I would normally argue that tax breaks or other economic carrots are the more appropriate way to encourage behaviour in the market, but in this case the government has a bag full of $13 million in federal dollars to spend.

Given the above (especially the bag of money) the government’s only options to create units in the low-income space are to either partner with the private sector or to build social housing through Yukon Housing Corp. Partnering with local developers allows the government to leverage the dollars into more units while also placing the units in the private market, which is where employers want them, as employers need housing for workers to rent, not social housing units.

With the above being said, I do hear the concerns of the landlords and realtors. The project must be managed correctly so as to target low-income households while also ensuring that participating developers do not reap huge windfalls from the government purse.

The key for the government in pulling off this build successfully is two-fold.

Firstly, the government must ensure that the build does not substantially encroach on the market space occupied by current landlords. The government can do this by tailoring the build to low-income households, creating smaller units that would not attract households who could afford more space.

Middle- and high-income households who rent recently built condos are not going to be chomping at the bit to downsize their living space. This should insulate current landlords from leakage of middle income households to the subsidized units.

The introduction of 75 units to the marketplace will, of course, bleed off some of the low-income households forced to live above their means, but so would construction of more social housing units by Yukon Housing. To mitigate this bleed, the government should ensure that the number of units is reflective of the need of the low-income space, both current and future, and not just picked out of the air.

Secondly, the government must ensure that any participating developer does not become unjustly enriched by the government contribution. The government must run the numbers and ensure the developer receives a decent rate of return, but not a financial windfall at taxpayer’s expense.

This is a fairly easy calculation that takes into account the fixed rents for 10 years and the depreciated value of the building after that same time. The government should make this calculation public, if they haven’t already, though a curious party could probably put the numbers together by looking at the original request for proposal.

Realtors worry that in a decade these units will be sold off as condos, leaving us in a similar position as today. But if the units are kept small enough, there probably wouldn’t be much of a market for sale. If they were sold, this small size would almost assuredly see the units being sold to low-income households.

If the government can accomplish the above, it may be able to walk the tightrope between the needs of current landlords, the needs of employers and the needs of low-income households.

There is no doubt that the current plan will see some shift in the local rental market, but hopefully the tailoring of the build will mitigate those negatives.

What the government cannot do is ignore a commissioned report that clearly identifies a hole in the local economy that affects both employers and low-income households, especially when the government is sitting on federal fund earmarked to address that very issue.

Graham Lang is a Whitehorse lawyer and long-time Yukoner.