METRO VANCOUVER REGIONAL DISTRICT FINANCE AND INTERGOVERNMENT COMMITTEE AND HOUSING COMMITTEE SPECIAL JOINT MEETING Wednesday, July 19, 2017 1:00 p.m. 2 nd Floor Boardroom, 4330 Kingsway, Burnaby, British Columbia The purpose of this meeting is to consider two reports related to funding for MVHC affordable housing development projects. R E V I S E D A G E N D A 1 1. ADOPTION OF THE AGENDA 1.1 July 19, 2017 Special Meeting Agenda That the Finance and Intergovernment Committee and Housing Committee adopt the agenda for its special meeting scheduled for July 19, 2017 as circulated. 2. REPORTS FROM COMMITTEE OR STAFF 2.1 MVHC Housing Development Reserve Fund Designated Speaker: Carol Mason, Commissioner/Chief Administrative Officer and Phil Trotzuk, Chief Financial Officer/General Manager, Financial Services That the MVRD Board approve the transfer of $6,500,000 from the Regional District Sustainability Innovation Fund, under Section 176 of the Local Government Act, to the MVHC Development Reserve to fund the future re development project at Kingston Gardens; and That the MVHC Board approve up to $400,000 to be funded in 2017 from the MVHC Development Reserve for the project design process for Kingston Gardens Phase 1. Updated 2.2 Affordable Housing Function Development Contributions Designated Speaker: Carol Mason, Commissioner/Chief Administrative Officer and Phil Trotzuk, Chief Financial Officer/General Manager, Financial Services That the MVRD Board direct staff to include in the 2018 Affordable Housing budget a $1,000,000 tax requisition for the purpose of funding MVHC affordable housing development projects. 1 Note: Recommendation is shown under each item, where applicable. July 19, 2017 FIC - HOU - 1
Finance and Intergovernment Committee and Housing Committee Special Joint Agenda July 19, 2017 Agenda Page 2 of 3 3. ADJOURNMENT/CONCLUSION That the Finance and Intergovernment Committee and Housing Committee adjourn/conclude its special meeting of July 19, 2017. Membership: Finance and Intergovernment Louie, Raymond (C) Vancouver Moore, Greg (VC) Port Coquitlam Brodie, Malcolm Richmond Clay, Mike Port Moody Corrigan, Derek Burnaby Deal, Heather Vancouver Mussatto, Darrell North Van City Steele, Barbara Surrey Stewart, Richard Coquitlam Walton, Richard North Van District Housing Clay, Mike (C) Port Moody Read, Nicole (VC) Maple Ridge Buchanan, Linda North Van City Coté, Jonathan New Westminster Jackson, Lois Delta Jordan, Colleen Burnaby Long, Bob Langley Township MacKay Dunn, Doug North Van District McNulty, Bill Richmond Meggs, Geoff Vancouver Stevenson, Tim Vancouver Stewart, Richard (M) Coquitlam Villeneuve, Judy Surrey FIC - HOU - 2
2.1 To: From: Finance and Intergovernment Committee and Housing Committee Carol Mason, Commissioner / Chief Administrative Officer Phil Trotzuk, Chief Financial Officer / General Manager Financial Services Date: July 13, 2017 Meeting Date: July 19, 2017 Subject: MVHC Housing Development Reserve Fund RECOMMENDATION That the MVRD Board approve the transfer of $6,500,000 from the Regional District Sustainability Innovation Fund, under Section 176 of the Local Government Act, to the MVHC Development Reserve to fund the future re-development project at Kingston Gardens; and That the MVHC Board approve up to $400,000 to be funded in 2017 from the MVHC Development Reserve for the project design process for Kingston Gardens Phase 1. PURPOSE To seek MVRD Board approval for transferring $6,500,000 from the Regional District Sustainability Innovation Fund to the MVHC Development Reserve Fund and MVHC Board approval to authorize up to $400,000 from the MVHC Development Reserve to provide project design funding for Kingston Gardens Phase 1. BACKGROUND At its February 24, 2017 meeting, the GVRD Board adopted the following resolution: Approve, in principle, $6,500,000 in equity funding for the redevelopment of the MVHC Kingston Gardens site to increase affordable rental units and direct staff to prepare loan authorization documents for the purpose of MVHC housing redevelopment; and Staff are now ready to proceed to the next stage in the approval process with BC Housing for the Kingston Gardens Phase 1 project. Staff will require authorization to spend up to $400,000 on project design to complete this step. Currently, there is insufficient funding available in the MVHC Development Reserve Fund for this project. Funding was committed by the Board, in principle, in February 2017 and was proposed to be funded through a loan authorization bylaw. However, the opportunity exists to either loan or grant funds from the Regional District Sustainability Innovation Fund (SIF). Staff are bringing forward a recommendation to consider a grant to the MVHC through its regional district authority under Section 176 of the Local Government Act. To proceed to the next step, this report seeks Board approval to formally transfer $6,500,000 to the MVHC Development Reserve Fund to enable this MVHC housing project to proceed. 21449358 FIC - HOU - 3
MVHC Housing Development Reserve Fund Page 2 of 4 KINGSTON GARDENS PHASE 1 REDEVELOPMENT PROJECT The MVHC Kingston Gardens site sits on 10.7 acres of land located on two parcels in Surrey. The existing housing development is currently a mixed income rental community that houses low to moderate income families, and comprises 192 two-bedroom and three-bedroom townhouse units in four housing enclaves. MVHC originally submitted the Kingston Gardens redevelopment proposal to BC Housing under the Provincial Investment in Affordable Housing (PIAH) program and had received preliminary acceptance under the Investment in Housing Innovation (IHI) program. The submission received a preliminary commitment of $8.3 million. Since that time, MVHC has revised the original concept to create a concept that capitalizes on a reduction in existing units and reduces future deferred maintenance costs. Subsequent to these changes, BC Housing has reallocated the proposal under its commitment through the PIAH program. The proposed Phase 1 Redevelopment project is for an 83-unit, four-storey wood frame building. The construction of Phase 1 will require the deconstruction of 24 existing townhouses; however, resulting in a net gain of 59 units. The proposed Phase 1 Redevelopment is characterized by the following features: Deconstruct 24 existing units on site; Maintain target of affordable low to moderate mixed-income housing; Respond to market and family demographic trends; Provide for affordable MVHC equity contributions; Assume equity contribution from BC Housing; Ensure realistic capital costs and manageable operating costs in the future; Align with the City of Surrey s Official Community Plan; Assume contribution by the municipality; Ensure a meaningful gain of units from redevelopment. The table below highlights the building project concept which has been submitted to BC Housing for provisional project approval. Comparison of Redevelopment Proposals Existing Units Deconstructed Net New Units Constructed Total New & Replaced Units Constructed Redevelopment Proposal 24 units 59 units 83 units Estimated Capital Budget $27,550,000 The capital cost includes the cost estimate for construction performed by the cost estimator and an allocation for land value. The total amount of equity required is $17,800,000. MVHC will contribute $9,500,000 in equity, comprising $3,000,000 in land value and $6,500,000 in cash contribution. BC Housing has granted provisional approval for PIAH funding of $8,300,000. The project amount to be mortgaged is $12,750,000. FIC - HOU - 4
MVHC Housing Development Reserve Fund Page 3 of 4 As noted earlier in this report, staff are now ready to proceed to the next stage in the development process, which includes all requirements for submission to BC Housing for Final Project Approval. Initial financial support of $400,000 is required at this point to cover project design expenses and related soft costs. ALTERNATIVES 1. That the MVRD Board approve the transfer of $6,500,000 from the Regional District Sustainability Innovation Fund, under Section 176 of the Local Government Act, to the MVHC Development Reserve to fund the future re-development project at Kingston Gardens; and That the MVHC Board approve up to $400,000 to be funded in 2017 from the MVHC Development Reserve for the project design process for Kingston Gardens Phase 1. 2. That the Finance and Intergovernment Committee and Housing Committee receive for information the report dated July 13, 2017, titled MVHC Housing Development Reserve Fund and provide alternate direction. FINANCIAL IMPLICATIONS Under alternative one, $6.5 million would be transferred from existing MVRD reserves to the MVHC Development Reserve and would satisfy the MVRD Board s approval, in principle, to provide this funding to MVHC. This transfer would have no direct impact on the average regional household and only be available to spend with specific MVHC Board approval. The overall project budget for Kingston Gardens Phase 1 redevelopment is currently estimated as follows: Funding Source Amount BC Housing $8,300,000 Conventional Mortgage $12,750,000 MVRD Cash Contribution $6,500,000 Total Estimated Funding Required $27,550,000 Subject to the MVRD Board approving the transfer of funds, MVHC Board approval of $400,000 in new 2017 budget funding is being requested from the MVHC Development Reserve to proceed to project design during which the estimated costs associated with the project will be further defined. Under alternative two, the Board has the option of either proceeding with a loan authorization bylaw to borrow funds externally, or alternatively, to loan $6.5 million from the Sustainability Innovation Fund to the MVHC to be paid back over time. The Regional District Sustainability Innovation Fund is the largest general MVRD reserve with a balance at the end of 2016 of $19.9 million. This reserve was established in 2003 with an annual budget contributions equivalent to the operating savings resulting from a GST rebate granted to municipal entities by the federal government. This reserve has increased steadily since that time with $8.5 million from annual budget contributions and $11.4 million from contributions of budget surpluses from the MVRD General Government function. FIC - HOU - 5
MVHC Housing Development Reserve Fund Page 4 of 4 While it is recommended that this funding be transferred from the MVRD to the MVHC Development Reserve, the monies would be under the control of the MVHC Board and cannot be expended from the reserve without specific MVHC Board approval. SUMMARY / CONCLUSION Staff are now ready to proceed to the next stage in the approval process with BC Housing for the Kingston Gardens Phase 1 project and require authorization to spend up to $400,000 on project design to complete this step. Currently, there is insufficient funding available in the MVHC Development Reserve Fund for this project; however, the MVRD Board has previously committed in principle to provide $6.5 million in funding towards this project. As presented under alternative one, it is recommended that the MVRD Board approve the transfer if $6,500,000 to the MVHC Development Reserve from the existing MVRD Sustainability Innovation Fund Reserves. If the Board approves the transfer of this funding to the MVHC Development Reserve, the approval of $400,000 for the next stage of the Kingston Gardens project (project design), is also being requested to allow for detailed definition of all aspects of the project and provide the necessary project refinement for submission to BC Housing for final project approval. Staff recommend approval of alternative one. 21449358 FIC - HOU - 6
2.2 To: From: Finance and Intergovernment Committee and Housing Committee Carol Mason, Commissioner / Chief Administrative Officer Phil Trotzuk, Chief Financial Officer / General Manager Financial Services Date: July 7, 2017 Meeting Date: July 19, 2017 Subject: Affordable Housing Function Development Contributions RECOMMENDATION That the MVRD Board direct staff to include in the 2018 Affordable Housing budget a $1,000,000 tax requisition for the purpose of funding MVHC affordable housing development projects. PURPOSE To seek MVRD Board approval to establish annual funding for MVHC housing development projects using the MVRD Affordable Housing function. BACKGROUND In 1971 the MVRD (formally GVRD) requested the function of public housing and was granted that authority under Supplementary Letters Patent (SLP). The function was established to include all member municipalities as participants in the service with the purpose to undertake affordable housing pursuant to the provisions of the Housing Act and the Elderly Citizens Housing Aid Act. With that function came the authority to raise funds to deliver this service. In 1974 the Board was also granted the authority to establish a Housing Corporation as a separate legal entity. The powers under this Supplementary Letters Patent included being: empowered to take or cause to be taken all such actions as it shall deem necessary to cause the incorporation of one or more of such corporations and to invest in, expend on and lend to one or more of such corporations such moneys as it shall deem necessary. The commencement of the re-development at the Heather Place complex and the re-development project at Kingston Gardens, along with new initiates to develop affordable housing on vacant Metro Vancouver land and potentially at other MVHC housing sites, has intensified the need to explore sustainable funding options for the MVHC affordable housing redevelopment program. This report explores the option of using Metro Vancouver s MVRD Affordable Housing function to assist in funding MVHC redevelopment projects through the authority granted in the 1971 SLP. MVHC DEVELOPMENT FINANCIAL MODEL The current financial model for Metro Vancouver Housing Corporation (MVHC) is based on rental revenues, net of subsidies, generating sufficient funding for all financial needs regarding the existing 21449358 FIC - HOU - 7
Affordable Housing Function Development Contribution Funding Page 2 of 4 MVHC housing portfolio. The revenue potential within MVHC is restricted as housing is considered affordable housing when rent paid by a family does not exceed 30% of family income. As such, the MVHC overall rental structure is 60% market and 40% subsidized where net rent received is 30% of the tenant s family income. Even in the situation where rent received is considered market, it is market rent for affordable housing which, by definition, is at the lower end of market. The current MVHC net rental revenue is currently only sufficient to meet the direct operating, maintenance and debt service requirements associated with the existing 49 housing complexes and, therefore, does not allow for any significant funding of the capital costs of any new affordable housing development or re-development. Based on the current cost of development, in order for a re-developed affordable housing complex to be financially sustainable where net rental revenues generated from that complex cover all costs of operations, maintenance and mortgage financing, there must be a capital contribution to the project to reduce required mortgage financing to a sustainable level. In the case of Heather Place, that contribution is expected to be up to approximately $20.0 million or 75% of the cost of the project excluding any land cost. The financial model for a particular project will vary depending on the number of housing units and the expected net rental revenue; however, the capital contribution will be significant, 55 to 75 percent of the project cost. While the MVHC has sufficient development reserves to make the required contribution to the Heather Place project, there is in the near term, no MVHC funding available for other affordable housing redevelopment. As a result, in order to increase the region s housing stock through either development or re-development, an alternative source of funding is needed to provide capital contributions to new projects. PARTNERSHIPS WITH OTHER LEVELS OF GOVERNMENT The provincial and federal governments have both pledged to provide financial support for the expansion of affordable housing. The Province, through BC Housing, has followed through on this pledge by granting the conditional approval to provide financial support for two redevelopment projects, $8.3 million for Kingston Gardens in Surrey. The financial support through BC Housing only represents part of the capital contribution required. MVHC will be required to also make a similar contribution in order to make this project financially sustainable. While financial support will continue to be sought from both the provincial and federal governments, it is likely that any financial support received would be under a partnership arrangement, with required capital contributions from both the other level of government and the MVHC. At best, the expectation would be a funding model for the 50 to 75 percent project contribution of one-third Federal Government, one-third Provincial Government and one-third MVHC. MVRD AFFORDABLE HOUSING FUNCTION Through the 2017 budget process, the Board directed new resources and established a more concentrated focus on affordable housing. The Housing Policy and Planning program was established as a stand-alone program under the Regional Planning function. With the recognition that Metro Vancouver has an existing Affordable Housing function established in 1971 for this purpose, it FIC - HOU - 8
Affordable Housing Function Development Contribution Funding Page 3 of 4 is deemed more appropriate the Housing Policy and Planning program be delivered under this function rather than under the Regional Planning function. This function also provides the Board with the legislated mechanism to raise funds for affordable housing through annual MVRD tax requisitions. Although a long term financial plan is still under development for renewing and re-developing aging MVHC housing complexes, it is known that there are insufficient funds under the current MVHC model to raise sufficient equity funding for redevelopment. As a means of implementing new funding that could be combined with MVHC surplus funds to provide 1/3 funding towards redevelopment projects, one option for Metro Vancouver is to use its authority to raise money through the Affordable Housing function. For example, a $1.0 million annual requisition would have a regional impact of $1.00 per household. ALTERNATIVES 1. That the MVRD Board direct staff to include in the 2018 Affordable Housing budget a $1,000,000 tax requisition for the purpose of funding MVHC affordable housing development projects. 2. That the MVRD and MVHC Boards receive for information the report dated June 23, 2017, titled Affordable Housing Function Development Contribution Funding and provide alternate direction. FINANCIAL IMPLICATIONS If the Board approves alternative one, staff will include in the 2018 annual budget an amount of $1.0 million under the Affordable Housing function that could be used as a potential funding source for housing projects. This funding could be combined with MVHC surplus funds to leverage opportunities for federal and provincial affordable housing grant programs. A $1.0 million tax requisition through the Regional District Affordable Housing function would have a $1.00 impact on the average regional household. It would be proposed to allocate costs on the basis of population to member local governments. Municipalities would then have the option on how to requisition this funding within their communities. Under alternative two, the Board may wish to provide alternate direction on pursuing funding opportunities. SUMMARY / CONCLUSION The commencement of the construction at the Heather Place complex and initiation of the Kingston Gardens re-development project, along with new initiates to develop affordable housing on vacant Metro Vancouver land and potentially at other MVHC housing sites, there has been an intensified need to explore sustainable funding sources for the MVHC affordable housing redevelopment program. The provincial and federal governments have pledged funding and work continues to pursue access to this funding, however, such funding is available on a partnership basis, requiring the MVHC to also provide an equity contribution. As the MVHC is unable to generate sufficient partnership funding, its sole shareholder, the MVRD, could assist in this regard. It is recommended that beginning in 2018, an amount of $1.0 million be raised through MVRD affordable housing function requisition for this purpose. This requisition would represent a contribution of approximately $1.00 FIC - HOU - 9
Affordable Housing Function Development Contribution Funding Page 4 of 4 per regional household towards the development of affordable housing in Metro Vancouver. Staff recommend support for alternative one. 21449358 FIC - HOU - 10
HOUSING On Table Item 2.2 - Additional Information Affordable Rental Housing Heather Place Redevelopment Project The region s population is growing quickly, with an additional 35,000 people each year settling in Metro Vancouver. To meet this population growth, a minimum 5,500 new rental housing units are needed in the region each year for the next ten years. The Metro Vancouver Housing Corporation (MVHC) is a non-profit entity that has provided affordable mixed family housing for decades to over 9,000 people in almost 3500 rental units throughout the region. MVHC currently operates housing on 49 sites. In order to house more people in affordable rental units, the MVHC, along with its sole shareholder the Metro Vancouver Regional District (MVRD), has a renewed strategic focus on redeveloping both existing MVHC housing sites and on developing other sites owned by local government (including MVRD). Redevelopment of MVHC s Heather Place site in the City of Vancouver is currently underway. The project offers a significant opportunity to replace 86 aging housing units with 230 new units oriented to a diverse population of families, couples, singles and seniors with a mix of incomes, and includes disabled-accessible units. The operation of the housing complex is funded 100% by subsidized and below-market affordable rental income without provincial or federal grants. Heather Place will be renewed in three phases. In preparation for Phase 1, municipal approvals are in place and all tenants have been relocated with care. The construction tender is imminent but has not yet been awarded, so the project is still eligible to meet provincial and federal infrastructure grant funding requirements prior to contract award. While the original budget for Phase 1 was $19.9 million, a competitive construction market has resulted in current cost estimates being higher than originally anticipated. The project is to be financed through equity capital, a mortgage, and possible proceeds from a prepaid lease for one of the parcels on the site. Unlike the shared funding model in place for MVHC s Kingston Gardens Redevelopment, in which the combination of MVRD and BC Housing PIAH funding lessens the burden on existing rental revenue (which is used to maintain existing housing units), Heather Place Redevelopment currently has no senior government funding support. Partnerships are key to successful affordable housing projects. Heather Place is a shovel-ready project that offers the new provincial leadership a unique opportunity to translate its commitment to 114,000 new affordable rental housing units into built homes that can be occupied in a short timeframe. Metro Vancouver seeks financial support. MVHC requests provincial funding of $6,700,000 to support the Heather Place Redevelopment project and help make additional affordable rental housing a reality for local residents. FIC - HOU -11