Takeaways from CUR’s Seminar on Leveraging Public Land and Public-Private Partnerships to Provide Social Housing
By: Diana Petramala
September 19, 2019
Last week, CUR held a seminar showcasing how governments have been leveraging public lands and public-private partnerships to regenerate affordable housing in three case studies from Toronto, Boston and Cape Town. Speakers involved in these initiatives compared their experiences and offered lessons learnt from their perspectives. This blog highlights key takeaways from the event.
(The presentation materials and a videorecording of the seminar are included at our event page: Leveraging Public Land and Public-Private Partnerships to Provide Social Housing.)
Our speakers included:
· Vincent Tong, Chief Development Officer from Toronto Community and Housing Corporation (TCHC), who discussed the impact of this strategy on the redevelopment of Regent Park.
· Joe Bamberg, Director of Planning and Development at the Boston Housing Authority (BHA) who shared his perspectives on the use of public-private partnerships in light of the redevelopment of housing projects in Boston, including One Charlestown and McCormack.
· Adi Kumar, Executive Director Development Action Group (DAG), who shared his experience in working with the City of Cape Town to build social housing in the Woodstock Community.
The stock of social housing is aged, stressed and expensive to fix. According to the speakers, the cost to redevelop aging social housing ranges between $430,000 CAD (Toronto) to $500,000 USD (Boston). Leveraging public-private partnerships allows municipalities to share these costs with private developers in return for equity in the final project. The idea is to lease the city-owned land on which the obsolete social housing sits to a developer partner. They will then replace the current social housing units and get higher density allotments, allowing them to also build private market housing as part of the development. Thus, the market units subsidize the redevelopment of the social housing units.
The seminar offered several key takeaways on managing the use of public land and public-private partnerships to redevelop social housing:
You must engage the community from the beginning of the project
Big on the list of engaging the community was ensuring that the existing social housing tenants were involved in the planning process from the beginning. For example, TCHC put together a selection committee to help choose the developer partner for the Regent Park redevelopment, 50% of whom were social housing tenants. The developers then had to pitch their proposals to the whole community, giving them the opportunity to ask questions and share their opinions.
Part of this process also includes bringing market and non-market tenants together from the beginning to build relationships through community and help ease stigmas both parties may have.
The Boston case study provided an example of why this is important. The full community had not been on board with the original plans, partly due to NIMBYism concerns, which led to an onerous building permitting process. The City, developer partner and community were still debating the building permitting two years after BHA had picked a developer partner. These lengthy delays caused the developer to lose their funding and they had to back out of the project. In response, the BHA put together a tenant taskforce that liaises between the community and management, and provides feedback on social programs, policies and procedures at the BHA.
The redevelopment must also help improve the socioeconomic outcome of the tenants of social housing
In other words, the development must also improve the lives of the tenants.
As part of the Regent Park redevelopment, TCHC negotiated with the developer partner, the City and retailers to get services, jobs and scholarship opportunities for the existing tenants. TCHC received $17 million in benefits, including 2,600 jobs, 110 scholarships (donated by developers and community organizers) and a number of gathering spaces.
The City of Boston already had a considerable amount of services available for tenants of social housing, however access to these services had been difficult - they were often located far from the neighbourhoods designated for redevelopment. The BHA therefore invested in helping link social housing tenants in the One Charlestown neighbourhood to services they needed.
The presenters pointed out that there was not a magic answer to whether market and non-market units should be located in separate or mixed-income buildings. TCHC separated market and non-market units into different buildings during the redevelopment of Regent Park so far. BHA, however, wants buildings to be truly mixed-income and is aiming to have the same feel and look to both market and non-market apartments.
Developers should be engaged in the planning early on as well
Pre-zoning did not mean the redevelopment of Regent Park proceeded any faster. Private developers are better able to judge what markets will bear and what densities will make the project work for them financially. Therefore, even if a municipality pre-zones, it will likely have to re-zone again anyways. It is better to develop the plan with the developer from the beginning.
In the case of One Charlestown, the BHA has finally been able to find a developer able to accommodate the city’s needs. Still, even though it is collaborating with a not-for-profit developer who specializes in social housing, the developer partner required a deal where the pro forma meets their profitability target. This again, involves working with a developer partner from the start of a project.
Governments and public sector entities should be willing to take on costs and risks
These social housing projects must make dollars and sense for the developer partner in order for them to want to get involved in the project. Redevelopments are expensive – costing TCHC $430,000 CAD per unit and BHA $500,000 USD per unit.
TCHC found that to make the pro forma work and to get the capital costs of the redevelopment of existing social housing units covered by the developer, the deal in Regent Park had to include 2 market units for every 1 replacement non-market unit. However, that ratio has now become 8-to-1 for future projects in the City of Toronto.
BHA found that roughly 20% of the units can be replacement non-market units, while the other 80% should be market units. This ratio worked as developers need to sell 80% of their pre-construction inventory before they can secure construction financing. In contrast, BHA has a clause that allows them to redirect units built offsite for cost-saving reasons to be built on-site if the developer sees higher profits than expected.
The speakers pointed out that the optimal mix of market and non-market rental units has yet to be determined. This highlights the need for municipalities and their housing organizations to undertake and understand analysis of pro formas and cost-benefits when negotiating these public-private partnership deals.
Governments must also be willing to heavily subsidize redevelopments. Capital costs are a very small part of the cost of the redevelopment, which includes the costs of relocating current tenants, community engagement and providing services and amenities. TCHC and the City of Toronto are responsible for all of these costs in the case of Regent Park, and the success of the redevelopment of the BHA projects hinged on a $30 million investment by the City of Boston.
Governments must also willing to take on risk. The success of Regent Park required that the government partner had some skin in the game early on. For instance, TCHC secured loans for Daniel’s Group, and in return shared in the profits of market housing, allowing Daniel’s to start construction before they reached their target pre-construction sales. However, by Phase 3 of the project, TCHC had become more risk adverse as concerns that the real estate market would cool increased. As such, TCHC only participated in the redevelopment through the sale of land, and when the market boomed again, which meant TCHC did not benefit from the uplift.
In the case of the redevelopment projects in Cape Town, the government made significant upfront investments - but the project stalled once it became highly political and the municipality became risk adverse. It has now been several years without any progress on the redevelopment.
Municipalities should look at ways to capture revenues to create new social housing:
· TCHC has used profit sharing
· Boston has used the granting of 99 year leases
· Cape Town is looking at the granting of 99 year leases
Overall, the success of leveraging public land and public-private partnerships requires three key ingredients:
· The engagement of all key stakeholders from the beginning – including developer partners, current social housing tenants, and the broader community;
· All stakeholders must benefit from the deal. The deal needs to make dollars and sense for the developer, but it also should to help improve the lives of current social housing tenants, in ways beyond just upgraded housing units; and
· A significant commitment and investment by government. As well, governments would be more effective at managing these projects if they themselves were better at understanding pro formas and cost-benefits analyses. This would also aid them in capturing revenue from the developments to be earmarked to create new social housing.