A new study demonstrates how non-profit development can generate new and affordable rental housing.
The model demonstrates that this approach will provide “break-even” rents of $1,273 per month for a one-bedroom unit, $1,641 for two bedrooms, and $2,009 for three bedrooms.
The rents will cover upfront costs of development.
In addition, this type of project will not require ongoing government subsidies to keep rents affordable.
Moreover, it pays for itself over time.
Marc Lee, a senior economist of the B.C. office of the Canadian Centre for Policy Alternatives (CCPA), did the math.
CCPA released Lee’s ‘How to build affordable rental housing in Vancouver’ on Tuesday (March 16).
“Ultimately, we need to break away from a dominant mindset that sees private sector property developers as the primary builders of housing,” Lee wrote.
According to the author, for-profit developers build “with the expectation of reaping current market prices for their units”.
For rental units, that means monthly rents of $1,800 to $2,400.
Lee cited an analysis by Coriolis Consulting for the Metro Vancouver regional government about for-profit development of rental units.
The Coriolis study indicated that this model results in a developer requiring a break-even rent for a one-bedroom unit of between $1,942 and $2,970 per month.
The rent covers costs for land, construction, and financing, plus a 15 percent profit margin.
For a two-bedroom, the break-even rent is $2,528, and three bedrooms, $3,869.
Lee makes a number of assumptions for a non-profit housing development to work.
One is that the development will be made on land either owned by the government or a nonprofit, which means it’s free.
Two, construction cost is estimated at $320 per square foot for a wood-frame building.
Three, underground parking requirements are eliminated, which Lee noted costs $42,000 to $63,000 per space.
Four, municipal development fees are waived.
Fifth, nonprofits get low financing costs at or below two percent per year.
Sixth, federal GST on completed housing is waived.
Seventh, a five percent administration fee is assumed for the non-profit, replacing the standard 15 percent profit margin for private developers.
“Wood-frame construction, with free land and a non-profit development model, can produce breakeven rents that are much more affordable than current market rents,” Lee noted.
For more details, you can read Lee’s study here.