Articles

The Advantages of Mixed-Market Housing

Alan Wallace
November 18, 2020

Affordable housing, especially good quality affordable rental housing, is once again in short supply across Canada. The combination of stagnant incomes, lack of supply, disinterest from builders and a less-than-ideal business climate have all converged to create a problem that is growing with time. The response to such issues has typically been to increase supports for purpose-built affordable rental housing developments containing 100 percent affordable units. However, the main problem with concentrated purpose-built affordable housing is that no one will build it except government or government-supported social housing providers with large publicly funded capital grants.

There is another way to increase supply.

Cities can play a major role in enticing builders to consider the construction of more affordable rental units. Over the years, cities have been leaders in bringing creative housing solutions to meet specific housing needs.

The National Affordable Housing Corporation has been working hard in cities to plan, build, own, operate and combine affordable housing, including units dedicated to hard-to-house individuals, with market housing. NAHC has developed particular expertise and experience in projects that combine various points on the housing continuum together within single projects. The net result is a housing model which will increase the supply of market, affordable and special needs housing in good locations.

Mixed-market housing developments are desired by most municipalities. They have several advantages over fully concentrated affordable housing.

  1. The developments are self-sustaining, requiring only a relatively small amount of assistance from the municipality.
  2. They have the effect of de-concentrating affordable housing by providing units within market developments.
  3. They tend to be located in good locations in well-planned areas close to schools, shopping and community facilities and amenities.
  4. It removes the stigma and property value concerns which is often associated with cheaply developed affordable housing units that are concentrated into a single development.
  5. It provides for units that are dedicated to remaining affordable for a minimum of 10 years.
  6. It utilizes revenue from market units to assist in keeping rents for affordable units well below market averages, in many cases 10 to 70 percent below market levels.
  7. These types of developments meet CMHC’s criteria to qualify as affordable housing projects and underwriting assurance.

NAHC understands that cities have limited means to offer capital grant assistance for affordable housing.  This source of funding is scarce and therefore capital funding is usually allocated towards affordable housing units for those with the highest risk of homelessness.

Cities typically offer the following incentives for affordable rental projects:

  1. Capital grants – usually in the form of a specified dollar amount per door; and/or
  2. Incremental tax abatements – usually provided for purpose-built affordable housing.

How can cities encourage more mixed-market housing?

In the absence of available capital funding, housing providers are left with an incremental tax abatement as the only option for assistance. Further, it is often only available for 100 percent concentrated affordable housing developments.

Even when incremental tax abatements are available for mixed-market developments, it is often applied only on the percentage of units that are affordable. This results in an incentive with relatively small value compared with the overall cost of a mixed-market development.

NAHC believes there is a better way to offer incremental tax abatements for mixed-market housing developments. It is based on a system that provides higher levels of assistance in return for more affordable housing units.

Framework for a new, more effective mixed-market incentive:

  • Available only to mixed-market developments.
  • Available only when capital grant assistance is not available.
  • Affordable housing units could be dedicated for a minimum of 10 years.
  • Tax abatement could apply to the entire development, and the level of assistance could be determined according to a scale – the more units allocated as affordable, the higher the tax abatement.
  • The tax abatement scale could be applied to a number of other factors important to the city, such as the length of time dedicated affordable, or rent levels set below-market rates.

An incentive program built around this framework would provide a more meaningful level of assistance and encourage builders to provide affordable housing units within their market developments. Perhaps most importantly, it gives non-profits and private sector housing providers the ability to create flexible financial models that will accommodate each project’s unique needs.