Shared-equity plan an option for city
Ideas on how housing affordability issue can be tackled could be taken from other Canadian cities
Homebuyers with moderate to low incomes in other Canadian cities are getting a mortgage booster through shared-equity programs that proponents see as one solution to the housing affordability problem in B.C.
Shared equity offers cash-strapped buyers a chance to buy into the market in exchange for a future share of equity they can normally expect to earn in a rising market, participants at the Housing Affordability Symposium in Richmond heard on Friday.
But attempts by a non-profit model successful in Toronto for almost 20 years have yet to work in B.C.
In Calgary, however, those earning between $53,000 and $80,000 can apply to the city-run Attainable Housing Calgary Corp. for a free down payment, said spokeswoman Tara Cooney.
Homebuyers who qualify for a mortgage and have a $2,000 down payment would receive, in one example, a five-per-cent down payment of $11,000 as a forgivable loan for a $220,000 home in an Attainable Housing complex, leaving them with a $207,000 mortgage.
When they sell, they would forfeit one-quarter to three-quarters of any earned equity to Attainable Homes, said Cooney.
For instance, if they sold after four years and the home rose to $254,700, the couple would keep 75 per cent of the $45,700 equity, or $34,275.
The remaining 25 per cent of the equity would remain with Attainable Homes, which uses it to fund down payments for other homebuyers.
Options for Homes, a non-profit in Toronto, offers shared equity under a complicated formula that prevents speculation and provides even those living below the poverty line a chance to own a unit in their housing co-operatives with no down payment, president Mike Labbe told the conference.
"It's using the problems of housing affordability to solve the problem of housing affordability," he said in an interview with The Province.
Options has since 1994 built nine developments in Ontario and has three more in the works, some in trendy downtown Toronto areas.
Some 75 per cent of the suites are bought by people with enough money to afford a regular mortgage, while 15 per cent is reserved for the working poor and another 10 per cent goes to those below the poverty line.
It reduces construction costs, mostly by slashing traditional high marketing costs and cutting costly features such as pools or saunas, making high-end finishes optional and by negotiating for cheaper land or other deferred developer construction costs from the municipality.
The non-profit corporation in essence subsidizes the down payment for the low-income buyers and it is only repayable when they sell. That repayment in theory will be paid for by the equity built up over the years, considering the market rises in value.
"There is some risk," said Labbe. But he said shared equity is a good way to turn renters into owners, freeing up rentals for others.
"Seventy-five per cent of people who buy into our developments used to be renters," he said.
Labbe said the model could work here but needs to be spearheaded locally by someone with knowledge of housing development. He said one local gave up after five years because he was unable to secure the land for a development. A second attempt is in the works.
University of B.C. business professor Tsur Sommerville challenged Labbe for boasting his model doesn't receive government subsidies when its success relies on below-market land and deferral of development costs.
Vancouver urban planner Michael Geller said the "concept of shared equity definitely has a place in Vancouver" and can be as simple as a relative or friend agreeing to lend a down payment or portion of the house price for a percentage of the eventual gain, a kind of "silent second mortgage."
Geller said Verdant, at Simon Fraser University's UniverCity, offered nofrills lower-cost housing to faculty and staff with the proviso they sell only to other staff and at 20 per cent below market value at the time of the sale.
He suggested Vancouver could offer the North False Creek land for a shared-equity community.
He acknowledged there are risks if owners are forced to sell during a market downturn.
"But that's the same risk with any form of home ownership," he said.
And, he said, if the programs are city-run, such as in Calgary and in Saskatoon, cities have to guard against favouritism in the selection process.
Shared equity was included in a list of 17 suggestions he presented to the conference to increase housing affordability in Metro Vancouver, most based on the solution of building "smaller houses on smaller lots."
More than half the 150 participants raised their hands when asked if they grew up sharing one bathroom. None could remember the last time they saw a single-family home with one bathroom.
"Our families are getting smaller and we're building bigger houses," said Geller.
And more expensive ones. He said homebuyers have to be prepared to lower expectations and cut costs by living without granite countertops, fireplaces, frameless shower doors, double paved driveways and other costly fixtures.
His solutions and those of most speakers at the two-day symposium included calls for higher density neighbourhoods, including more row housing, semi-detached houses, secondary suites, suites within suites and laneway houses, to name a few.
Even in Surrey, where community planning manager Don Luymes said there exists relatively affordable housing and plenty of land on which to build, the city was turning from a car-dependent low-density model to prevent a problem of a lack of affordability in future.
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