TCHC fire sale?

[archanfel]

The Sun seems to be crying foul about a deal in which TCHC will "sell" 20 houses worth about 8.4 million for less than $400,000.

JOE WARMINGTON wrote "You don’t need a business background to know this is just nuts. It makes bunny suit rentals look like a shrewd investment."

Well, Joe, my suggestion is that you get some business background before you calling this nuts. Businesses let go their non-performing asset with huge discounts all the time.

TCHC didn't "sell" the houses, they "transfered" it. The difference is that if TCHC had sold the houses, they needed to purchase the another 20 houses by law, according to TCHC at least. Now, they don't have to.

This is an interesting case because you really do need some background in business and perhaps some in legal to fairly evaluation the transaction. We will see how Ford perform on this one.

In the mean time, do you think this was a good deal (economically, not ideologically)?

 

[fiendishlibrarian]

If you're asking whether TCHC should sell off *all* its properties and cease to be, then my answer is yes. I think Ford was talking about giving individual residents rent subsidies so that they could afford to move out of TCHC complexes, and I think that's definitely an idea worth exploring. The present system doesn't seem to be helping anyone.

 

[Observer Walt]

Without getting into legalistic nitpicking about the difference between "sell" and "transfer", the economic fact of the matter is that they are apparently letting these assets go at a price well below their true value. That is hardly the same as your example of a business selling non-performing assets at a discount. Even if every one of these houses is derelict and ready to be torn down (doubtful), how much do you think the bare land would be worth? I'm not sure how any buildable land, anywhere in the city of Toronto, could be considered "non-performing". It has value.

Archanfel, before telling others that they should be more familiar with business concepts, perhaps you should take that advice yourself. Does the board of directors of the housing corporation have a fiduciary duty to manage its assets in the most productive manner? I'm not a lawyer, but "fiduciary duty" is a pretty well understood business concept, and it looks like it's being forgotten here by those who may have a very different agenda.

I wonder if this is an example of a certain type of train that a certain politician wants to see stopped ...

 

[archanfel]

Without getting into legalistic nitpicking about the difference between "sell" and "transfer", the economic fact of the matter is that they are apparently letting these assets go at a price well below their true value. That is hardly the same as your example of a business selling non-performing assets at a discount. Even if every one of these houses is derelict and ready to be torn down (doubtful), how much do you think the bare land would be worth? I'm not sure how any buildable land, anywhere in the city of Toronto, could be considered "non-performing". It has value.

Archanfel, before telling others that they should be more familiar with business concepts, perhaps you should take that advice yourself. Does the board of directors of the housing corporation have a fiduciary duty to manage its assets in the most productive manner? I'm not a lawyer, but "fiduciary duty" is a pretty well understood business concept, and it looks like it's being forgotten here by those who may have a very different agenda.

I wonder if this is an example of a certain type of train that a certain politician wants to see stopped ...

The problem is TCHC can't sell it to anybody who is not a social housing organization without replacing the unit. They estimate that it would cost them $11M to replace the houses if they had sold them on open market. Therefore, by "selling" it for $400,000, they came out $3M ahead. I'd say that's a very good business decision.

Having said that, as noted in my original post, this was according to TCHC. I don't know whether it's true or not. Could TCHC have got around the rule? If not, could TCHC just defy the provincial government? That's why I want people's opinion on this.

 

[GraphicMatt]

I think your reading of this is correct. TCHC is provincially mandated to maintain a certain number of housing units. The market value of these properties is irrelevant because they had to remain social housing.

As far as TCHC in general goes, I think their newer projects look rather spectacular - they seem to be doing a much better job with them. Rent subsidies might work as a way to get some of the people on waiting lists into housing, but I doubt it would be effective as the only solution - subsidies would drive up the cost of market rent and you'd see private developers start building substandard rental buildings for subsidy tenants.

 

[Peepers]

The problem is TCHC can't sell it to anybody who is not a social housing organization without replacing the unit. They estimate that it would cost them $11M to replace the houses if they had sold them on open market. Therefore, by "selling" it for $400,000, they came out $3M ahead. I'd say that's a very good business decision.

I don't see how TCHC comes out ahead. If they can sell these homes for $11 Million dollars then they have $11 Million to build replacement housing.

The Native housing organization that would be receiving the homes is Federally funded. Let the Federal government come up with a fair market value for these homes. Why should the Toronto taxpayer be on the hook?

This is really just the tip of a much bigger problem. The second biggest budget item - after policing - is Housing and shelter. Almost $900 Million per year!. If you take a drive around some of these public housing developments - Regent Park being a very good example - you will note that many residents appear to be recent arrivals to Canada - mostly refugees I suspect (despite a waiting list of 70,000 somehow we manage to find immediate placement for refugees?). What this means is the Toronto taxpayer is paying hundreds of millions $ on what can best be described as refugee resettlement costs. Why should we? Shouldn't this be a Federal responsibility?

Of course this is a political "third rail" that I doubt even Mayor Ford would want to touch.

 

[archanfel]

I don't see how TCHC comes out ahead. If they can sell these homes for $11 Million dollars then they have $11 Million to build replacement housing.

The Native housing organization that would be receiving the homes is Federally funded. Let the Federal government come up with a fair market value for these homes. Why should the Toronto taxpayer be on the hook?

This is really just the tip of a much bigger problem. The second biggest budget item - after policing - is Housing and shelter. Almost $900 Million per year!. If you take a drive around some of these public housing developments - Regent Park being a very good example - you will note that many residents appear to be recent arrivals to Canada - mostly refugees I suspect (despite a waiting list of 70,000 somehow we manage to find immediate placement for refugees?). What this means is the Toronto taxpayer is paying hundreds of millions $ on what can best be described as refugee resettlement costs. Why should we? Shouldn't this be a Federal responsibility?

Of course this is a political "third rail" that I doubt even Mayor Ford would want to touch.

They can only get $8.4 million (likely less since these are run down houses whereas assessments are usually done based on location), not $11 million. It would have cost them $11 million to buy replacement houses.

I actually didn't notice a lot of refugees. Consider that the average waiting time is 2-3 years for social housing, I would be surprised that refugees get immediate placements. However, that beg the question, how effective is social housing? Social housing is suppose to help people with short term needs. If somebody has to wait for 2-3 years to get a place, that does not sound like short term needs to me.

Yes, it would be sweet if we could cut that $900 million. However, I doubt the province would let it happen even if Rob Ford is willing to touch it. All the more reason to get a new provincial government.

 

[Peepers]

They can only get $8.4 million (likely less since these are run down houses whereas assessments are usually done based on location), not $11 million. It would have cost them $11 million to buy replacement houses.

Yes, it would be sweet if we could cut that $900 million. However, I doubt the province would let it happen even if Rob Ford is willing to touch it. All the more reason to get a new provincial government.

Even if it is $8 Million the city should be able to build 20 replacement units for this amount. $8 Million / 20 is $400K per unit!

As for cutting the $900 million budget the money should come from the Federal level not Provincial since the Feds are responsible for Immigration and Refugees.

If I was Ford I would tally up the cost of all of the refugees occupying Toronto housing and send the Bill to Ottawa. This burden should not be on the Toronto taxpayer.

 

[archanfel]

Even if it is $8 Million the city should be able to build 20 replacement units for this amount. $8 Million / 20 is $400K per unit!

As for cutting the $900 million budget the money should come from the Federal level not Provincial since the Feds are responsible for Immigration and Refugees.

If I was Ford I would tally up the cost of all of the refugees occupying Toronto housing and send the Bill to Ottawa. This burden should not be on the Toronto taxpayer.

Toronto's average house price is above $400K and probably higher for semi-detached and detached homes and probably much higher for these neighbourhood. As I said, TCHC estimated that to replace these units, they would have to spend $11M.

It really depending on the law. Does the law say that the units have to be the same type, the same size and in the same neighbourhood?

I doubt Ford will get any sympathy from either the provincial or the federal government since both are in worse shape than Toronto. It is also kind of hard to argue it's federal responsibility since the federal government is clearly against refugees at this point. There are international laws and public opinions (likely from Toronto and Ontario) that stop the government from going too far. The only thing Toronto can do is make itself less attractive.

 

[CN Tower]

I think your reading of this is correct. TCHC is provincially mandated to maintain a certain number of housing units. The market value of these properties is irrelevant because they had to remain social housing.

As far as TCHC in general goes, I think their newer projects look rather spectacular - they seem to be doing a much better job with them. Rent subsidies might work as a way to get some of the people on waiting lists into housing, but I doubt it would be effective as the only solution - subsidies would drive up the cost of market rent and you'd see private developers start building substandard rental buildings for subsidy tenants.

Building subsidized housing is a fatally flawed plan. It only perpuates the ghetto cycle. As nice as Regent Park looks today in 20 years it will revert to a ghetto.

Instead, increase the housing subsidies TODAY and integrate subsidized tenants into private rental housing. There is space and interest for them and they have a much better chance of escaping the poverty trap in the private sector than in the future slums that new subsidized housing inevitably turns into.

Not to mention it probably costs 50% less to subsidize rent that build new housing. it's a no brainer really but with TCHC in bed with connected developers like Daniels Corp. the photo ops that the City gets from ribbon cutting ceremonies seems to outweigh common sense and the interests of the broader community of low income tenants.

 

[GraphicMatt]

You're oversimplifying the issue greatly - if there was space available in private rentals invariably market rental pricing would decrease to the point where low-income people could afford to live in them. There is not a glut of rentals available, just waiting for rent subsidies to kick in.

I think integration is important, and evidently so does TCHC - their whole strategy as of late has been integrating market housing with subsidized housing.

The poverty trap is important to consider, but one of the major needs for social housing we're facing and are going to face even more over the next few decades is from seniors. For them, the only escape from the poverty trap is dying.

 

[Saturnine]

With zero expertise, I've always felt diversifying the approach to affordable or social housing is best. Having TCHC properties, rent subsides, etc... you need to work in all these arenas such that in different markets and conditions you rely more heavily in different areas and can juggle priorities as problems arise in different areas.

Ideologically, I'm fine with building affordable housing (but I will say Rob has been as his most persuasive in council sessions when he describes the problems with affordable housing in his ward, even if saying so makes me a lefty-traitor),.

I do think you have to be careful to build what you can manage, not what you can get funding to build, which (and again I'm totally not knowledgeable) has appeared to be a legitimate concern with TCHC and the city. I don't think you should explore rent subsidies at the cost of halting all HOT and stimulus affordable housing projects or the 1,000 per year targets, but do both and spend more focus and effort on how to have a staff that can manage and maintain those properties (here's the kind of area that I'm not afraid of investigating the dreaded "public-private" ideas, with emphasis on the word investigate).

And I cannot speak to the legalese of transfer vs. sell or whatever, but I do think it's a very tough sell to the people that you have properties estimated to be worth 8M and it's a better use of assets to lose 7.5M on the sale price to avoid replacing them. Complex problems do have complex solutions, but they very often run awry of simple political or headline bulletins and this one seems particularly ripe from that perspective.

If there's a law that stops TCHC from selling 8M in assets with the full intention and goal to reinvest that money into housing, then the number of units it creates should be a factor, but not the whole governing principle. If you've got x rundown assets, why on earth isn't selling y rundown assets to fix up z (less than x-y) assets a legal option? Surely, quantity can not be the only measuring stick for success in affordable housing (although it is assuredly the safest political ground)?

Sure the target should be to eventually rejuvenate the stock and hit targets, but this smells like political BS is at least partially to blame. No one wants to campaign on a decrease in affordable housing under their term, whether or not it was a reasonable use of finances and assets. I think, if the restrictions mentioned are how they are presented, TCHC probably is following its best fiduciary path, but the law sounds like its written to protect someone's political well-being rather than ensuring quality and plentiful affordable housing, 'cause putting it in those absolute 1-for-1 terms almost ensures that when a deficit is created the problem can only be compounded and remedies will require large new capital expenditures on maintenance rather than new developments (another tough sell politically). If I overextend myself and cannot decrease my reach to correct the error, then I have to let things degrade until it totally collapses or give it away to divest myself and if there are laws in place that enforce such a position, then that's just moronic in my opinion, but I'm basically going off the info in this thread, so I'm very open to being proven 100% wrong.

 

[CN Tower]

You're oversimplifying the issue greatly - if there was space available in private rentals invariably market rental pricing would decrease to the point where low-income people could afford to live in them. There is not a glut of rentals available, just waiting for rent subsidies to kick in.

I disagree. There are 400,000+ rental units in Toronto and 3%+ vacancy. That represents 12,000+ vacant rental units in the city that could be filled, *INSTANTLY*, if a politician had the balls to do the right thing and not the politically right thing and fill those units with eager low income tenants. With subsidized private sector rental the City typically cover about 75%-80% of the rental cost so a tenant would only be required to pay a couple hundred bucks a month for a modest apartment. Most sophisticated landlords would gladly accept the credit of the City of Toronto for vacant units. Integration is the answer, not new housing that costs 2x as much as private sector buildings and invariably degrades into slums over time.

As far as the fire sale, were it my decision, I would sell those houses for $8,000,000 and rent 12,000 units in the private sector for 666.67 months and put 12,000 smiles on little homeless kids faces in time for Christmas. Call me that a heartless capitalist though, please.

 

[Peepers]

I agree that you can do a lot more good by giving out rent subsidies directly. A good example of how money is wasted by the various social housing agencies is Fife House. Its mandate is to provide affordable housing for persons living with HIV. They currently have a grand total of 143 housing units (mostly at their Jarvis and Sherbourne sites) and annual expenses of $3,123,184.

If you do the math $3,123,184 divided by 143 units = $21,840 per unit per year or just over $1800 / month for these mostly 1 bedroom and bachelor units.

Clearly a lot of money is going to cover a bloated overhead that includes 7 Directors! Of the $3.1 Million in expenses $2.1 Million is going towards Salary and Benefits (an average $140K /year for its 15 member staff) ! Keep in mind this organization provides housing for only 143 people! This is the very definition of a gravy train.

If you were to take the $3.1 Million and hand it out in $600 / month rent supplements 439 people living with HIV could be helped instead of 143.

 

[archanfel]

The problem with rent subsidize is that there bonds to be abuses. If we suddenly have tons of people needing special diet subsidize, you can be sure that some landlords will work with tenants to milk as much from the government as possible.