RECOMMENDATION:
THAT the March
21, 2005 staff report entitled “Financial Incentives for Affordable Housing –
Request for Deferral of Development Charges and a Reduced and Deferred
Cash-in-lieu of Parkland Contribution by the Old Kennedy Co-operative
Development Corp. at 90-108 Old Kennedy Road” be received;
THAT Council
authorize a conditional deferred payment of the Town of Markham development
charges (equivalent to town-wide hard and soft services or approximately $700,000)
and a reduced and deferred cash-in-lieu of parkland contribution (equivalent to
5% of the land value or approximately $150,000), (collectively, the “deferred
charges”), estimated to be a total of approximately $850,000 relating to the
development of 135 dwelling units and 5 retail units at 90-108 Old Kennedy Road,
as a pilot project financial incentive in support of affordable homeownership
housing in Markham;
THAT the
short-term borrowing for the deferred charges be provided from the Corporate
Rate Stabilization Reserve, if required, until such time as the full deferred
payment owed is paid from the Home Ownership Alternatives Non-Profit
Corporation;
THAT the deferred
charges be conditional on confirmation by the Commissioner of Development
Services that the proposed development at 90-108 Old Kennedy Road has received
all necessary municipal approvals, and upon meeting the criteria outlined in
this report, to the satisfaction of the Town Solicitor, the Commissioner of
Development Services and the Commissioner of Corporate Services.
THAT the deferred
charges also be conditional on the execution of an agreement between the Old
Kennedy Co-operative Development Corporation, the Home Ownership Alternatives
Non-Profit Corporation and the Town of Markham, to secure the payment of
deferred charges, to the satisfaction of the Town Solicitor, the Commissioner
of Development Services and the Commissioner of Corporate Services including,
but not limited to, the following provisions:
a)
that the Town of Markham’s
contribution shall be combined with CMHC – Ontario Affordable Housing Program
Homeownership Pilot Program funding and concentrated to provide funding
assistance for a minimum of 25% or not less 34 of the dwelling units in the
development (the “funded units”);
b)
that the purchasers of the funded
units only be eligible if:
i)
their household income is less
than or equal to the 40th
percentile of household incomes for Markham; and
ii) for
not less than 30% of the funded units, the purchaser’s household income is less
than or
equal to the 30th
percentile of household incomes for Markham;
c)
that the funded units include a
mix of 1, 2 and 3 bedroom stacked garden apartments and 3 and 4 bedroom
townhouses to ensure affordable homeownership opportunities are provided to
both individuals and families;
d)
that for the funded units at
least 75% of the purchasers live or work in the Region of York, and at least
37.5% live or work in the Town of Markham, at the
date the unit purchase agreement is executed;
e)
that the Old Kennedy
Cooperative Development Corporation be required to submit a letter of credit,
to the satisfaction of the Town’s Treasurer, to secure the delivery of the funded
units in accordance with the above provisions and that the letter of credit be
reduced accordingly once the Town is satisfied that each of the funded units and
the purchasers have met the eligibility criteria;
f)
that payment of the deferred
charges, plus applicable interest or appreciation, to the Town be secured as
follows:
- Proceeds of the resale of each funded unit will be remitted to the
Town annually; and, in any event, the Home Ownership Alternatives Non-Profit
Corporation will pay 90% of the deferred charges within 15 years of the
condominium registration and 100% of the deferred charges within 20 years of
the condominium registration;
g)
that the Home Ownership
Alternatives Non-Profit Corporation agree to apply the proceeds of the shared
appreciation of their deferred deposit mortgages registered on all units of
the development to fund further Home
Ownership Alternatives non-profit housing developments, preferably in Markham and/or other municipalities in York Region, in
accordance with their Declaration of Trust; and
h)
that the Home Ownership
Alternatives Non-Profit Corporation will act responsibly in administering any
second mortgage related to the deferred charges, and failing to do so or in the
event that the Home Ownership Alternatives Non-Profit Corporation ceases to
exist, said second mortgage shall be forthwith transferred to the Town of
Markham as it relates to the payment of the deferred charges.
THAT the payment
of deferred charges also be conditional on the Old Kennedy Co-operative Development
Corporation providing written confirmation, that a CMHC - Ontario Affordable
Housing Program Homeownership Pilot Project funding allocation of not less $810,000
is available to apply towards the funded units, to the satisfaction of the Commissioner of Development Services and
Commissioner of Corporate Services;
THAT in the
event that the full CMHC – Ontario Affordable Housing Program Homeownership
Pilot Project funding allocation is not made available by the Province that the
Town of Markham’s contribution be reduced in
an equivalent manner;
THAT the
Province be requested to amend the provincial eligibility requirements relating
to the cost price of the dwelling units and the selection of eligible
purchasers in Markham, to permit the full funding allocation of $810,000 to be
used and to demonstrate the Province’s commitment to partnering with municipal
governments in support of affordable home ownership development in Markham and
York Region;
THAT the
Region of York be requested to make a similar contribution respecting deferral
of Regional development charges for this affordable home ownership pilot
project to demonstrate the Region’s commitment to partnering with senior and
local municipal levels of government in support of affordable home ownership development in
Markham and York Region;
AND THAT the
Clerk be directed to forward a copy of this report to the Minister of Public
Infrastructure Renewal, York Region MPPs and the Region of York.
PURPOSE:
In support of the provision of affordable
homeownership units in Markham, the purpose of this report is to obtain
Council’s approval to provide a conditional deferral of development charges and
a reduced and deferred cash-in-lieu of parkland contribution (collectively the
“deferred charges”) for the affordable home ownership pilot project being
developed by the Old Kennedy Cooperative Development Corporation at 90-108
Kennedy Road.
EXECUTIVE
SUMMARY:
The
Town of Markham has established a record of cooperation with the development industry,
government and community groups in the development of housing for Markham residents. Markham has benefited from participation in a variety of housing initiatives,
generally involving senior government funding support, for the delivery of
housing intended for residents with specific incomes or housing needs.
The
Town’s Strategic Plan identifies areas of focus in the Community Vision and
establishes priorities for the Town in decision-making and resource allocation,
relating to the provision of
“housing opportunities that meet the needs and expectations of different
age, income and ethnic groups.”
In
February 2003, Council adopted a strategy for Affordable Housing that defined
an advocacy/partnership, policy and financial role for the Town, in support of
the provision of rental and affordable housing.
In adopting the strategy, Council established a role for the Town
regarding affordable housing relative to other government, private sector and
community interests, and determined how the Town will respond to initiatives of
other stakeholders.
Establishing a Financial
Incentives Policy Framework for Affordable Housing
As
part of the Town’s role, and in particular, its financial role, Council
requested staff to report on a financial incentives policy framework to
encourage and promote affordable housing opportunities in the Town of Markham. There is considerable evidence to suggest
that fiscal policies and programs offer the single most effective contribution
that government at all levels may be able to make toward influencing the
production of affordable housing.
The Town and Region have already coordinated
efforts to introduce a new tax rate for multi-unit residential at the same
level as the residential rate. Recently,
Council approved a new Development Charges By-law definition for plexes and
stacked and garden apartments and requested the Region to follow suit to
demonstrate its support for increasing the supply of rental and affordable
housing in Markham and York Region overall.
In
accordance with Council’s direction, Finance staff are currently developing a
financial incentives policy framework for affordable housing which will, among
other things:
·
establish criteria for
selecting eligible affordable rental and homeownership projects for appropriate
financial incentives;
·
identify a preferred
approach and source of a financial incentive towards eligible projects; and
·
provide guidelines for
securing the Town’s financial incentives and interest in the provision of
rental and affordable housing over time.
The
policy framework will address financial incentives for both affordable rental
and affordable home ownership models.
Interim Requests for
Financial Incentives under Federal/Provincial Pilot Project Program
Pending
approval of a financial incentives policy framework, Council has received two requests
from community non-profit groups for financial incentives from the Town in
support of affordable rental and affordable home ownership pilot projects in
partnership with the Federal/Provincial government.
In September
2003, at the request of the Toronto Ling Liang Church and the Region of York, Council approved a conditional grant equal
to development charges and cash-in-lieu of parkland contribution for a 55 unit
affordable retirement complex in Milliken.
The grant is conditional on the private non-profit group obtaining
approval of a Federal/Provincial Community Rental Housing Program pilot project
funding allocation in the future.
In March 2004, the
private non-profit group Markham Community Homes Inc. (MCHI) provided a brief
presentation to Development Services Committee of the Options for Homes (OFH)
affordable home ownership financing concept and the Old Kennedy Cooperative
Development Corporation’s (OKC) affordable home ownership development proposal
on Old
Kennedy Road in Milliken. Staff
were asked to address the affordability aspects of the proposal and
specifically respond to the OKC’s request to the Town for financial incentives,
including deferring development charges, a cash-in-lieu of parkland
contribution, building permit fees, and all other application fees in support
of increasing the affordability of the development proposal. In November 2004, the proponents obtained
approval of a Federal/Provincial Affordable Home Ownership Program pilot
project funding allocation for the Old Kennedy development project.
Home ownership Proposal
consistent with Emerging Financial Incentives Policy Framework
Staff are prepared to support a reduced cash-in-lieu
of parkland contribution, equivalent to 5% of the land and deferral of payment
(approximately $150,000). Furthermore,
if the reduced cash-in-lieu of parkland contribution and all applicable town
wide development charges for the project (approximately $700,000) were combined
under a 15-20 year deferral arrangement (collectively known as the “deferred
charges”), the Town could make available a significant financial incentive of
$850,000 to increase the affordability for 25% of the total dwelling units for
low and moderate income households.
Staff are recommending that the Town’s pilot
project financial incentive be concentrated to provide
funding assistance for 25% or not less than 34 of the total 135 dwelling units
(the “funded units”). These funded
units will only be made available to eligible purchasers whose household income
is less than or equal to the low and moderate household income levels based on
2001 Statistics Canada data for household incomes in Markham. These funded units will also comprise a mix
of 1 and 2 bedroom stacked garden apartments and 3 and 4 bedroom townhouses to
ensure affordable homeownership opportunities are provided to both individuals
and families. In support of increasing
live/work opportunities in Markham and York Region, for the funded units, at
least 75% of the purchasers shall currently live or work in the Region of York,
and at least 37.5% shall live or work in the Town of Markham, at the date the
unit purchase agreement is executed.
The “deferral of fees” model for ownership developed
by Options for Homes and requested by the OKC was considered a financial
incentive option worthy of support in the financial incentives study completed
by the Town’s consultant, John Gladki of GHK International, last year. Although it is not anticipated that the
final staff report on “Financial Incentives Policy Framework for Affordable
Housing” will be presented to Council until April of 2005, the OKC proposal is
considered to be a unique pilot project with approved funding from senior
levels of government, consistent with the emerging recommendations in the
Financial Incentives Policy Framework for Affordable Housing report to Council.
Approval of Deferred Charges Conditional
on Execution of Deferral Agreement
Staff are recommending approval of the
deferred charges as a pilot project financial incentive
in support of affordable homeownership housing in Markham. The deferred charges are conditional on the
execution of a deferral agreement between the Old Kennedy Co-operative
Development Corporation, the Home Ownership Alternatives Non-Profit Corporation
and the Town of Markham, to secure all required arrangements as outlined in this report,
including, but not limited to:
·
ensuring that the
financial incentive provided as a result of the deferred charges is used to
make housing available to low and moderate income households;
·
secure payment of deferred
fees and charges; and
·
encourage reinvestment of
funds generated through the secured second mortgage in similar
affordable home ownership projects in, preferably,
Markham and/or York Region.
Staff are also
recommending that the approval of the deferred charges be conditional on a
Federal/Provincial Homeownership Pilot Project funding allocation of not less
$810,000 and that in the event that the full funding allocation is not made
available by the Province, the Town of Markham’s contribution be reduced in an equivalent
manner.
BACKGROUND:
Planning Permissions for
Development Proposal in Place
At
its meeting of September 14, 2004, Council received
the report entitled “Old Kennedy Co-operative Development Corporation” and
approved in principle, a zoning by-law amendment and site plan to permit a 140
unit townhouse/stacked townhouse mixed use development at 90-108 Old Kennedy Road. The unit mix consists of 12 one-bedroom,
45 two-bedroom and 33 three-bedroom stacked townhouse apartments; and 23
three-bedroom and 22 four-bedroom townhouses; and 5 retail units fronting on Old Kennedy Road.
The
zoning by-law amendment application and site plan application were approved on September 14, 2004. A Parking Study, to the Town’s satisfaction,
and a water and sewer allocation for the development are required. Staff are currently working with the applicant
to finalize a site plan. A copy of a
perspective and site plan for the development proposal is attached to this
report as Appendix “A.” Council approved
a water and sewer allocation on February 15, 2005 which is pending
confirmation by the Region. It is
anticipated that the zoning by-law amendment for the project will be enacted in
May 2005.
The
development proposal is located on a 1.57 hectares (3.88 acres) parcel of land on
the west side of Old
Kennedy Road north
of Steeles Avenue in the Milliken
Mills Main Street
study area. A draft Secondary Plan and implementing zoning by-law have been
prepared for the Milliken Mills streetscape study area and will be brought
forward for Council approval in the near future. The Secondary Plan area will also be
designated as a Community Improvement Area in the Official Plan. The development proposal is consistent with
the draft Secondary Plan.
A
financial strategy is being prepared to identify actions that the Town could
undertake to encourage the development of the Milliken Mills streetscape study
area, ie. front ending necessary infrastructure improvements, land assembly and
land remediation. Staff will bring
forward a draft financial strategy at the time the Secondary Plan is considered
for approval.
Development Proposal Represents A New Approach to Affordable
Home Ownership
On March
2, 2004, Markham
Community Homes Inc. (MCHI) provided a brief outline of their market affordable
home ownership development proposal and financing concept to Development
Services Committee. At that time, the
Committee requested staff to report on the affordability and other aspects of
the affordable housing proposal.
Subsequently, MCHI submitted a complete profile of the non-profit
corporation and its affordable housing proposal to Council at its meeting of March
9, 2004. Copies of the MCHI submission are attached to
this report as Appendices “B” and “C”. A
separate letter from the proponents requesting Council consideration of possible
incentives/ strategies, including deferring development charges cash-in-lieu of
parkland, building permit fees, and all other application fees in support of increasing
the affordability of the development proposal, is attached as Appendix “D”.
At the March 9th
meeting, Council accepted partial payment of the Development Services
processing fees for the MCHI project in the amount of $5,000 and deferred the
remainder of the processing fees in the amount of $47,000 until such time as a
final staff recommendation on deferral of development charges, cash-in-lieu of
parkland, and processing fees is presented to Council for consideration.
Community Sponsorship of Affordable Home Ownership
Markham Community
Homes Inc. is a community based non profit corporation organized to promote and
develop non-profit residential housing for members of the community with low or
modest income. MCHI will sponsor the Old
Kennedy Non-Profit Cooperative Development Corporation (OKC) who will act as
the developer for the proposed market affordable home ownership development
project at 90-108 Old Kennedy Rd.
MCHI will maintain an active role with OKC until such time as the
development has been completed and it is registered as a condominium. In particular, MCHI is responsible for
identifying potential purchasers that would be eligible for assistance in
purchasing units based on their affordability needs and household requirements.
The Old Kennedy
Cooperative has retained Options for Homes (OFH) as their development
consultant. OFH are non-profit
development consultants who advise cooperatives on how to access residential
land and pre-sell ownership homes to low and moderate income households. OFH have developed a unique affordable home
ownership model which provides:
·
a cost
effective, low capital cost, approach to housing development;
·
direct
access to a deferred payment/interest loan to non-profit cooperatives; and
·
assistance
to non-profits in applying for financial incentives from all level of
governments to increase the affordability of certain units.
An outline of the
Options For Homes concept is attached as Appendix “E” of this report. OFH has a proven track record with assisting
non-profit cooperatives in keeping development costs down by:
·
purchasing
a development site at a low cost;
·
reducing
marketing and soft costs;
·
excluding
certain upgrades and indoor recreational facilities;
·
eliminating
the profit margin requirement of private developers; and
·
co-ordinating
cost effective planning/architectural/contracted services.
This cost
effective, low capital cost approach to development can account for as much as
a 10% reduction in the cost of building a unit in Markham.
OFH has previously
secured low cost land purchase arrangements for market affordable home
ownership projects on redevelopment lands in Toronto, North York and Scarborough. For the Milliken Mills Main Street redevelopment, MCHI has a conditional
offer to purchase the lands until March
31, 2005 at a low
cost contingent on subsequent financing from TD Canada Trust or the Bank of
Montreal for development and soft costs.
PACE Credit Union will provide bridge financing in the event of an
earlier closing on the land prior to construction financing.
OKC has selected
Deltera, a member of the Tridel Group, as their general contractor. Deltera constructed a 430 unit townhouse and
apartment condominium, an OFH affordable home ownership project, at 650 Lawrence Avenue West, for the Shermount Cooperative in
2002. They are currently developing a
250 unit townhouse and apartment condominium at Kingston Road and Eglinton Avenue (the Village at Guildwood) for the
Pentland Cooperative. Deltera has
entered into a memorandum of understanding with OKC to provide a loan for 50%
of the development and soft costs until financing is arranged – thus reducing
borrowing costs to the cooperative.
MCHI has previously
been awarded CMHC seed funding in the amount of $20,000 to cover initial soft
costs. These soft costs include the OFH
development consultants, and architectural and engineering services required to
obtain necessary design and development approvals for the project.
The sales and marketing
of the OKC affordable home ownership project will be similar to other OFH
developments with no model suites or sales commissions proposed. A low cost marketing campaign of flyers and
free information sessions is proposed to attract eligible homeowners. Ultimately, the individuals and families
that will form the condominium corporation will be identified by MCHI and the
OKC. Owners will be required to a have a
proven track record of their ability to make monthly payments.
Investors will be
discouraged from speculating on the units as:
·
only
one unit will be sold per household;
·
a
condominium membership fee is required
to become a prospective purchaser;
·
the
purchase and sale agreement will require that 10% of income generated goes to
the condominium corporation if the unit is rented out;
·
and
the limit for renting is two years before repayment of the alternative mortgage
is required.
As proposed, OKC
units will not contain luxury upgrades or expensive indoor recreation
facilities. Also, OKC will be in a
position to reduce capital costs significantly by limiting Deltera’s profit and
construction management and contingency fees to 5% in a fixed price contractual
agreement for the OKC, and having Options For Homes coordinate planning and
development soft costs using a tried and tested format.
Cooperative Deferral
OFH has direct
access to a unique deferred payment/interest loan to non-profit
cooperatives. Home Ownership
Alternatives Non-Profit Corporation GTA (HOA) is a trust foundation established
to provide deferred payment/ interest loans to qualifying non-profit
cooperatives to develop affordable homeownership projects. Options for Homes will assist the OKC in
accessing an HOA loan. The second
mortgage provided by HOA is designed to increase the affordability of housing
for first time purchasers while discouraging speculation flipping and renting
of suites.
The HOA mortgage
represents the difference between the market value of the suite and the cost to
create it or the equivalent of approximately 10% of the purchase price as a
contribution to the purchaser’s down payment.
No payments are required on the HOA mortgage for either principal or
interest until the condominium owner sells or rents out the unit (for a period
of >2 years), at which point the entire amount of the loan is due, plus
interest. Interest is based on the
appreciation in the value of the suite. The owner is required to enter into an
agreement with HOA and ultimately the condominium corporation to secure this
requirement. A detailed outline of how
the Alternatives Mortgages work is outlined in Appendix “F” to this report. The
key component of the concept is the HOA deferred deposit loan in the form of
the second mortgage.
Augmenting Affordability of Development Proposal through
Partnership Funding
OFH has been
assisting the Old Kennedy Cooperative in obtaining additional financial
incentives from all levels of governments to increase the affordability of
certain units in their project. The
funding requests outlined in this report are not required for MCHI to move
forward with the OKC market affordable homeownership development project. However, if additional grants or deferral of
funding arrangements were achieved with the Federal/Provincial and/or Municipal
governments, OKC would be in a position to ensure up to 25% of the project
would have a direct income related ownership (ie. eligible purchasers must meet
income criteria) and increase the affordability aspect to those individuals or
families with low and moderate income funding needs. Additionally, this report proposes that a
fixed proportion of these purchasers reside or work in Markham and/or York
Region.
Federal/Provincial Affordable Housing Program Funding
Approved
Home Ownership
Alternatives has received approval of pilot project funding under the
Affordable Home Ownership Program of the Canada Mortgage and Housing Corporation
(CMHC) – Ontario Affordable Housing Program Agreement. The Affordable Housing Program is a five
year Federal-Provincial cost-shared initiative.
The Program has three components: Community Rental Housing, Remote
Housing and Home Ownership.
The Province and
HOA have developed a pilot project under the Home Ownership component of the
program. The objective of the pilot
project is to ease the demand for rental housing by assisting rental households
to purchase newly built affordable homes.
Through the pilot project, up to $2.3 million was made available to fund
up to 90 units at $25,470 per unit to create increased affordability.
HOA has received
approval for up to $810,000 to apply to the Old Kennedy Cooperative development
proposal which, when concentrated, can be made available to assist low and
moderate income households in purchasing not less than 25% or not less than 34 units
in the OKC development proposal (the “funded units”). To secure the pilot project funding HOA
entered into an agreement with the Province on November 15, 2004. The Community Organization Administration
Agreement sets out the terms for administering the pilot project funding and
specific criteria HOA is responsible for in identifying eligible units and
selecting eligible purchasers under the Home Ownership Funding Pilot. A copy of the Provincial Backgrounder and the
Pilot Project Program Description is attached as Appendix “F”.
Among other
things, HOA is responsible for ensuring that the new units are located in a
designated Community Improvement Area (ie. Milliken Mills Main Street) and the
purchase price of the new units must be at or below the average market selling
price for the housing market area and not more than what is affordable to
households in the 60th percentile of income.
For the Markham
OKC development proposal to be eligible for pilot project funding the maximum cost
price per unit based on Statistics Canada and Bank of Canada data must be no
more than $204,000. HOA is responsible
for submitting a list of eligible units for which the pilot project funding can
be applied to the Minister of Public Infrastructure Renewal. Although for Markham, given the cost of land and construction,
this maximum cost price would limit most eligible purchasers to smaller
apartment unit construction.
HOA is also
responsible for ensuring that each purchaser meets the provincial eligibility
requirements, ie. has a low income (below the poverty
line) to moderate income (can’t afford average rent level for their area for
the size unit appropriate for their household).
Under the new 2005
Provincial Policy Statement, low and moderate income households means in the
case of ownership housing, households with incomes in the lowest 60 percent of
the income distribution for the regional market area. The provincial definition does not
distinguish between low and moderate income and should be more specific with
household incomes in the lowest 30 percent
of the regional market defined as low income. For Markham in 2001, approximately 60 percent of the
total household incomes were less than $92,000 and approximately 30 percent of
the total household incomes were less than $51,600. See Appendix “G”.
Notwithstanding
these Statistics Canada figures, for the Markham OKC development proposal, the Province has established a moderate income
level requirement for eligible units based on a CMHC calculation of the Markham average household income of $45,160 and a low
income requirement for eligible units based on a CMHC calculation of the Markham average household income of $31,952.
This CMHC calculation
is based on an average household income required to afford the carrying costs for rental or
ownership of a 3 bedroom unit in Markham.
The CMHC uses the average annual rent as determined for the Toronto CMA
and mortgage rates calculated on an annual basis. It does not appear to account for
fluctuations in market conditions over time.
Furthermore, in comparison to the
Statistics Canada 2001 percentiles of Markham household incomes, the Provincial
income eligibility requirements currently restrict eligible purchasers to those
with the lowest income in the Town (< 25% of households with incomes less
than $45,160) rather than those in the lower and moderate income range defined
by the census or less than 60 percent as defined by the Provincial Policy Statement.
Municipal Government Funding Increases Affordability
Aspect
If OKC were to
obtain approval of deferred charges from the Town of Markham and/or the Region
of York, OKC could increase the second mortgage available to low and moderate income
earners as defined by the Provincial Policy Statement. This would
also allow low income earners, currently not eligible, to access units and more
federal/provincial funding. An
Affordable Housing agreement under the Region’s Municipal Capital Facilities
By-law or an appropriate alternative legal arrangement is required to secure
the use of municipal deferred charges and the subsequent payment of any monies that were deferred, within a
specified time period.
Home Ownership
Alternatives has obtained a legal opinion that the Municipal Act does not
prohibit a loan in the form of deferred charges by virtue of HOA’s non-profit
status. HOA has a proven track record of
legal agreements with the City of Toronto and other municipalities to secure the
proper administration and recovery of financial incentives at the municipal
level. Deferred charges are paid to the
municipality with appreciation within a specified time period. The remaining proceeds of the
shared-appreciation mortgage are to be used by HOA to fund further non-profit housing
developments based on their Declaration of Trust. On this basis HOA and OFH are proposing that
the legacy of the provision of affordable home ownership in Markham will live on beyond the resale of the
initial affordable unit.
Markham’s Financial Role in
Support of Affordable Home Ownership
In
February 2003, Council adopted a strategy for Affordable Housing that defined
for the Town an advocacy/partnership, policy and financial role in support of
the provision of rental and affordable housing.
Among other things, Council has requested staff to report on a financial
incentives policy framework to encourage and promote affordable housing
opportunities in the Town of Markham.
At
the June 28, 2004 Development Services Committee meeting, the Town’s consultant, John Gladki of GKI
International, outlined the financial
tools available for supporting the provision of rental and affordable housing
in Markham. At that time, the Committee
received the presentation and referred the matter to staff for a report. Finance staff are currently developing a financial
incentives policy framework for affordable housing based on the consultant’s
final report and recommendations.
The
financial policy framework will, among other things:
·
establish criteria for
selecting eligible affordable rental and homeownership projects for appropriate
financial incentives;
·
identify a preferred
approach and source of a financial incentive towards eligible projects; and
·
provide guidelines for
securing the Town’s financial incentives and interest in the provision of
rental and affordable housing over time.
The
financial incentives policy framework will address affordable home ownership
models such as the Options for Homes model proposed by the OKC. The financial incentives policy framework is not
anticipated to be brought forward earlier than April of this year. In general, the study findings support the
Town offering deferred fees and charges for eligible homeownership projects,
provided the Town can:
·
ensure that the loan is
used to make housing available to low and moderate income households;
·
secure payment of deferred
fees and charges with appropriate appreciation or interest; and
·
encourage reinvestment of
funds generated through the secured second mortgage in similar affordable home
ownership projects in preferably Markham and/or York Region.
DISCUSSION:
Request for Deferral of Fees
and Charges
The Old Kennedy Cooperative Development Corporation (OKC)
has requested that the Town consider financial incentive/strategies, including
deferral of development charges, cash-in-lieu of parkland, building permit
fees, and other application fees, in support of increasing the affordability of
their market affordable home ownership development.
For the affordable homeownership pilot project at 90-108 Kennedy Road, the OKC is requesting deferral of:
· Town wide development charges for the 135
dwelling units and 5 retail units which are estimated to be $701,243;
· Cash- in-lieu of parkland contribution
based on a 1 ha per 300 unit requirement which is estimated to be $736,811;
· Building Permit fees which are estimated to
be $125,000; and
· Planning Application/Approval fees which
are estimated to be $52,000.
Staff do not support deferral of building permit fees
and planning fees beyond issuance of a building permit and execution of a site
plan agreement, respectively, as these fees are based on a cost recovery
principle for real costs incurred for staff review of the project plans.
However, staff are prepared to support a reduced cash-in-lieu
of parkland contribution, equivalent to 5% of the land and deferral of payment.
The reduced cash in lieu of parkland
contribution, at approximately $150,000, would result in a potential reduction
in development costs of $587,000 when
compared to the higher 1 ha per 300 unit (Planning Act alternate requirement)
that would be normally be applied.
Furthermore, if the reduced cash-in-lieu of parkland
contribution and all applicable town wide development charges for the project
(approximately $700,000) were combined under a 15-20 year deferral arrangement,
the Town could also make available a significant financial incentive of $850,000
to increase the affordability for 25% of the total dwelling units for low and
moderate income households.
Achieving Affordable Home
Ownership In Markham
A financial incentive by the Town will assist rental
households in Markham and York Region to purchase newly built affordable
homes. In order to ensure that Markham’s
financial incentive is used to make housing available to low and moderate
income households only, the Old Kennedy Cooperative and Home Ownership
Alternatives will be required to enter into an agreement with the Town to
secure a minimum number and mix of affordable units as well as eligible purchasers based on household income.
Low and Moderate Income Access
to a Range
of Housing Unit
Types
Staff are recommending that the Town’s deferral
financial incentive be concentrated to provide funding
assistance for 25% or not less than 34 of the total dwelling units (the “funded
units”). These funded units will only
be made available to eligible purchasers whose household income is less than or
equal to the moderate income level or 40th percentile of household
incomes for Markham, approximately $65,000 based on 2001 Statistics Canada data
for household incomes in Markham. Also,
for not less than 30% of the funded units the purchasers will only be eligible
if their household income is less than or equal to the low income level or 30th
percentile of household incomes for Markham, approximately $51,600, based on
2001 census data for Markham. These
funded units will also comprise a mix of 1 and 2 bedroom stacked garden
apartments and 3 and 4 bedroom townhouses to ensure affordable homeownership
opportunities are provided to both individuals and families.
Accessing Full
Federal/Provincial Contributions
The maximum cost
price threshold of $204,000 in the Federal/Provincial contribution agreement is
considerably less than the starting prices of the majority of the units in the
development proposal. At present only fifty-six units have a cost price at or
below this threshold but these units are all smaller 1 and 2 bedroom apartment
units.
Also, the
Federal/Provincial eligible purchaser income threshold of $45,160 is
considerably less than the Provincial Policy Statement threshold of 60 percent
income distribution for the market area or less than $92,000 based on the 2001 Statistics Canada household
incomes for Markham. At present the majority of purchasers in Markham within the moderate household income
(approximately $65,000), and within the low household income (approximately
$51,600) levels are not considered eligible to purchase a unit with
Federal/Provincial assistance.
A financial
incentive from Markham, in the form of deferred charges, has the potential to enable more eligible
low and moderate income earners to access more assistance for their down
payment and afford a greater number and mix of unit types. However, these funded units will only be made
available to eligible purchasers if the approved federal/provincial pilot
project funding contribution of $810,000 is available for use and fully applied.
Therefore to
increase the range and type of units eligible units for federal/provincial
funding and allow more low and moderate income purchasers to be eligible for
Federal/Provincial funding, the Province must relax or remove the current
funding threshold.
The Province
must amend its current agreement with Homeownership Alternatives for the
homeownership funding pilot project to increase the range of identified units
that are eligible for the pilot project funding and increase the selection of
eligible purchasers for the Markham project to better reflect household income conditions in Markham. These amendments will allow full access to
the approved federal/provincial allocation and demonstrate the Province’s
commitment to partnering with municipal governments in support of affordable
home ownership development in Markham and York Region.
Markham’s financial
incentive should be conditional on written confirmation by the Province that
the full $810,000 federal/provincial funding allocation can be applied to the
funded units of the Old Kennedy Cooperative pilot project. In the event that the full funding allocation
is not made available by the Province then
the Town of Markham’s contribution should be reduced in an equivalent manner.
Request for Similar Contribution from the Region of York
The Province
has designated the Region of York as the Consolidated Municipal Service Manager
(CMSM) responsible for the policy, planning and financial management and
service delivery of housing in Markham and York Region. The Region’s Housing Supply Strategy
establishes the Region as lead and sponsor, but in partnership with the area
municipalities and other stakeholders. Markham has the
option to engage with the Region in pursuing /implementing affordable housing
opportunities, as Council deems appropriate.
On February 4, 2003, Council confirmed its role in support of the provision of rental
and affordable housing by, among other things, endorsing the Region’s Housing
Supply Strategy and working in partnership with the Region on the application
of policy and financial incentives encouraging rental and affordable
housing. In September 2003, at the
request of the Region, Council made a conditional grant equal to development
charges and cash-in-lieu of parkland for the Toronto Ling Liang Church,
similar to the Region’s conditional grant equal to Regional Development Charges.
If the Region
were also to provide a financial incentive to the Old Kennedy Cooperative by
way of deferring payment of Regional development charges for the project and
allowing the contribution to be concentrated and applied to the funded units,
then a substantial number of eligible low income earners would have greater
access to affordable home ownership. A
similar financial contribution from the Region would almost triple the number
of eligible low income purchasers. Council
should therefore, request the Region to make a similar contribution respecting
deferral of Regional development charges for this affordable home ownership
pilot project to demonstrate the Region’s commitment to partnering with senior
and local levels of government in support of affordable home ownership
development in Markham and York Region.
Providing Live/Work Opportunities in Markham/York
Region
A higher
live/work ratio for Markham will help address traffic congestion, support rapid transit and
compact urban development, preserve the Town’s diverse employment base, and
improve the quality of life for Markham residents. Currently there is a mismatch between jobs and housing
availability. There are not enough affordable housing opportunities in Markham to house a
substantial portion of the workforce. Entry level prices for new housing in
Markham and York Region are among the highest in the Greater Toronto Area and
there is no sign of overall improvement in housing affordability. To encourage
housing and employment opportunities in close proximity, the Town will need to,
among other things, encourage diversity in the forms of available housing and
tenure.
The Old
Kennedy Cooperative provides an opportunity to secure not less than 34 new
affordable homes in Markham, on a pilot project basis, with a potential for a corresponding increase
in the rental housing vacancy rate in Markham and York Region. For example, if a family with a low or
moderate income currently residing in a 2 bedroom rental apartment were
eligible to purchase a 3 bedroom townhouse in the development proposal, there
would be a rental housing vacancy made available for a new low or moderate
income family to occupy.
In support of
increasing live/work opportunities in Markham and York Region, for the OKC
units receiving financial assistance from the Town of Markham, at least 75% of
the purchasers shall currently live or work in the Region of York, and at least
37.5% shall live or work in the Town of Markham, at the date the unit purchase
agreement is executed.
Establishing a Legacy of Affordable Home Ownership In Markham/York
Region
Options for Homes is proposing that the deferred deposit money paid from the sale of a
sponsored unit will be used to build four (4) more affordable home ownership
units in the community and will therefore, expand the availability of affordable
housing in Markham and York Region over time.
Unlike rental housing agreements, the proposed approach does not
guarantee that the sponsored unit will remain affordable over time, but it does
provide a mechanism for reinvesting the proceeds of a second mortgage held by
the HOA on all units into more affordable ownership housing in Markham and/or
York Region.
In accordance with
the Declaration of Trust for Home Ownership Alternatives, the proceeds of the
shared-appreciation on the second mortgage are required to be used to fund
further non-profit housing developments based on the OFH model. On this basis, Markham Community Homes Inc.
and Options for Homes are confident that the legacy of the provision of affordable
home ownership in Markham will live on beyond the resale of the
initial affordable unit. OFH proposes
that the money repaid will be used to build four (4) more affordable home
ownership units in the community and will therefore, expand the availability of
affordable housing in Markham or York Region.
As a condition of
the Town’s financial contribution to this project, the Home Ownership
Alternatives Non-Profit Corporation shall agree to apply the proceeds of the
shared appreciation of their Alternatives mortgages registered on all units of
the 90-108 Old Kennedy Road development project to fund further Home Ownership
Alternatives non-profit housing developments preferably in Markham and/or other
municipalities in York Region, in accordance with their Declaration of Trust.
FINANCIAL CONSIDERATIONS:
Proposal Consistent with
Emerging Town Financial Incentives Policy Framework
As noted earlier in the report, in February 2003
Council adopted a strategy for Affordable Housing that caused Council to direct
staff to report on a financial incentives policy framework to encourage and
promote affordable housing opportunities in the Town of Markham. As a result, in June of 2004, the Town’s
consultant, John Gladki of GHK
International outlined the financial tools available for supporting the
provision of affordable rental and ownership housing opportunities in Markham.
The “deferral of fees” model for ownership developed
by Options for Homes and requested by the OKC was considered an option worthy
of support in the work done by John Gladki. In addition, Gladki identified in his review
of financial incentives the reduced parkland dedication standard of 5% of the
land area to be less onerous for affordable housing in general when compared to
the higher standard of 1 hectare per 300 units.
Although it is not anticipated that the final staff
report on “Financial Incentives for Affordable Housing” will be presented to
Council until April of 2005, the Options for Homes proposal is considered to be
a unique pilot project with approved funding from senior levels of government,
consistent with the future recommendations in the Financial Incentives Policy
Framework for Affordable Housing report to Council.
Impact of Deferral
The deferral of development charges and cash in lieu
fees are a cash flow issue rather than a shortfall of revenues or a budget
issue. These deferred fees would be
recognized as revenue on the Town’s financial statements in the year in which
they should be received (e.g. 2005), but an accounts receivable entry would
track the future receipt of the cash payment. During the period in which
the fees are deferred, it is possible that the development charges reserve fund
or the cash in lieu reserve fund could be in a cash shortfall position as a
result of the deferred fees. Under these
circumstances, short term borrowing from the Corporate Rate Stabilization
reserve may be necessary. The Corporate Rate Stabilization reserve
would be repaid when the deferred charges are paid.
Impact of Lower
Parkland Dedication
The Planning Act (Section 42) sets out two options for
the conveyance of land for park purposes, those being:
1. 5%
of the land in the case of residential development (Section 42(1)) or
2. one
hectare for each 300 units (Section 42(3))
The cash in lieu of parkland that would be payable to
the Town of Markham for the Old Kennedy Coop under the 5% option would be
approximately $150,000, whereas the amount payable under the “one hectare per
300 units” option would be $736,811, a difference of almost $587,000. Although the $150,000 deferred cash in lieu
will eventually be collected, the lower standard will result in a permanent
loss of potential revenues ($587,000) in the Cash-in-lieu Reserve funds.
Compensation for Inflation
(Interest)
The future value of the deferred charges will be tied
to the market value appreciation of the unit in the agreement with the Town,
Old Kennedy Co-operative Development Corporation and Home Ownership
Alternatives Non-Profit Corporation.
The agreement states that the interest payable on the deferred fees will
be the lesser of 8% compounded annually or a proportionate share of the
increased market value of the unit at the time it is sold.
Risk of Non-Payment
The value of the Town’s deferred charges is included
in a second mortgage on the property, together with the subsidy from Home
Ownership Alternatives, the Federal/Provincial grant and any additional
deferred fees from the Region of York. The
new property owner does not make principal or interest payments towards this
mortgage, as it is this second mortgage that bridges the gap between what the
property owner can afford to pay, and the market value of the unit when it was
built. The deferred charges and
accrued interest are paid to the Town when the property is sold. If the property is not sold, 90% of the
deferred amount will be paid to the Town not later than 15 years after the date
when the Development is registered as a condominium, and any balance remaining
will be paid at the 20 year mark.
Execution of a Deferral Agreement
to Secure Markham
Interests
The proponents have provided a draft agreement
intended to secure the deferred charges which provides for the payment of the
deferred charges on the earlier of the resale of the funded unit or within 15
years of the condominium registration (90% of the deferred charges) with the
balance due and payable within 20 years of the condominium registration. The agreement, when finalized, will ensure
that payments to the Town will be first in priority after the unit owner’s
purchase financing. The deferred charges
will be secured against the funded unit by means of a second mortgage in favour
of HOA.
The agreement with HOA will ensure that only units and
purchasers satisfying the criteria described herein will be eligible for deferred
charges funding. As development charges
and cash-in-lieu of parkland are typically payable prior to the sale of
individual units, HOA and OKC will be required to secure the payment by a
letter of credit. As eligible purchases
are closed and deferred charges are secured, instead, by mortgages registered
against the units, the letter of credit will be reduced accordingly.
It is anticipated that the bulk of the deferred
charges will be paid to the Town on the resales of funded units. However, the deferred charges attributable to
funded units still owned by the eligible purchasers at the 15 and 20 year marks
will be paid by HOA.
CONCLUSION:
As an affordable home ownership pilot project, the Old
Kennedy Cooperative affordable homeownership development proposal provides an
opportunity for the Town to demonstrate to the
development industry, other senior levels of
government and community groups its commitment to the development of
affordable ownership housing for Markham residents.
Providing
the OKC with a financial incentive of deferred charges will increase the
affordability of a minimum of 25% or not less than 34 dwelling units in the
development for low and moderate income Markham households.
It is
recommended that the deferred charges be approved as a pilot project financial
incentive in support of the provision of affordable homeownership housing in Markham subject to
the proponents executing an agreement with the Town to:
·
ensure the funded units are
made available to low and moderate income households;
·
secure payment of deferred
fees and charges with appropriate appreciation or interest; and
·
encourage reinvestment of
funds in similar affordable home
ownership projects in preferably
Markham and/or York Region.
ATTACHMENTS
Appendix A - 90-108 Old Kennedy
Road Development Project Site Perspective/Site
Plan
Appendix B - Markham
Community Homes Inc. Development Project Profile
Appendix C - Markham
Community Homes and Options for Homes Presentation
Appendix D - Old
Kennedy Co-operative Development Corporation Deferral Request
Appendix E - Options
for Homes – Frequently Asked Questions
Appendix F - Provincial
Backgrounder/Pilot Project Program Description
Appendix G -
Statistics Canada Household
Income Percentiles for Markham
__________________________________ _________________________________
Jim Baird, M.C.I.P., R.P.P Andy
Taylor
Commissioner of Development Services Commissioner of
Community Services
___________________________________ _________________________________
Valerie Shuttleworth, M.C.I.P.,R.P.P Barb Cribbett, Treasurer
q:development\planning\MISC\MI476\okc-gcmarch21-2005
