Homeownership creates wealth. With rising prices, property owners can pretty much sit back and watch their equity grow.
It’s a system that produces winners but leaves others behind.
As Keir Macdonald observes, “The property market today has just become an absolute windfall for people fortunate enough to be in it.”
Macdonald is the CEO of the Phoenix Society, a charitable organization that helps low-income people dealing with addictions. Founded as a nonprofit in 1989, the organization provides a range of services, from recovery programs to transitional housing and homeownership.
When Macdonald spoke to the Straight by phone, he said that Phoenix Society was arranging the sale of one of its condo units.
The single-occupancy property is one of 23 affordable-homeownership units at the group’s 72-unit Rising Sun Villas development in Surrey.
“We’re in the process of a sale right now of $120,000, which is unheard of,” Macdonald said.
If an equivalent unit were bought elsewhere in today’s market, the CEO said, it would easily fetch between $300,000 and $400,000.
Macdonald said that a $120,000 price is possible because of the shared-equity model that was adopted in the project.
Rising Sun is a six-storey development, with its two upper floors devoted to homeownership units. The lower floors are used for transitional and supportive housing.
Under the shared-equity model, a purchaser who eventually sells walks away with only a percentage of the increase in market value of the property.
“We’re largely preserving the affordability for the next in line,” Macdonald said.
How it works is that the buyer and Phoenix Society share the title. A resale framework limits the maximum resale price. The organization buys the unit or arranges the purchase by a qualified individual.
At Rising Sun, the resale price is the sum of the original purchase price plus 25 percent of the value appreciation (which goes to the seller) and a one percent fee.
A background paper prepared by Phoenix Society shows the math for a unit with an original purchase price of $117,000.
The paper assumes that at the time of the purchase, the fair market value of the same property was $128,000. At the time it was resold, the market value has increased to $162,000.
The difference between the current and previous market values is $34,000. This means that the seller’s share, 25 percent, of the appreciation is $8,500.
Put together $117,000 and $8,500, and this comes to $125,500. Next, add the one percent fee by Phoenix Society, or $1,255. This results in a maximum selling price of $126,755, which is not far from the original price of $117,000.
Monthly mortgage and maintence fees of $800
Macdonald said that such an “exit formula” has to be in place, otherwise it would become “impossible for people to buy in affordable levels thereafter”.
Without this resale framework that preserves gains in the units, affordability is limited only as a “one-time benefit”.
Macdonald, who became the Phoenix Society CEO in 2018, credited the founders of the organization, Michael and Ann Wilson, for their vision.
He also said that affordable homeownership became a reality because of partnerships with Vancity credit union, the City of Surrey, B.C. Housing, and the federal government.
Online, Vancity describes the affordable-homeownership component of Rising Sun as the first shared-equity development in the province.
“In many ways, it was a social-policy experiment,” Macdonald said.
Macdonald said Phoenix Society wanted to prove that homeownership was “possible for marginalized populations or people no one thought had the opportunity or the ability to own their own homes”.
He said most of the original purchasers are still at Rising Sun, and only a few have moved on.
The person who recently sold was in a relationship. “They wanted to buy something bigger that’s suited to their needs,” Macdonald said.
For the residents, the executive noted that their monthly mortgage payment plus maintenance fees come to only about $800 a month.
“They’re really paying, in some cases, half of what you’d pay for rent for a one-bedroom, for instance, in Surrey,” Macdonald said.
In June this year, Statistics Canada reported that the average selling price of a home increased by 87 percent during the past decade. This has resulted in a similar increase in the average minimum down payment.
In the same report, the federal agency noted that because of rising home prices, Canadians who owned their homes collectively added more than $730 billion to their net worth in the first quarter of 2021.
Meanwhile, renters saw their net worth increase by only about $43 billion.
“On a per household basis, the average owner-occupied household increased their net worth by approximately $73,000, while the average renter household’s net worth rose by about $8,000,” Statistics Canada reported.
Macdonald said that Phoenix Society’s experiment can be replicated.
He said the key lies in retaining most of the equity in the home in order to sustain affordability in the long run.