PSX' Affordable Housing Initiative

PSX is committed to promoting private sector initiatives to address the Affordable Housing deficit. Why rely on philanthropy and public sector subsidization? This combination has never worked. Historically, demand for Affordable Housing has always outstripped supply dramatically. Look out your window. Do you see people living on the street? If not, look harder. The Public Sector must provide the myriad services required but the Private Sector is equipped to supply the physical housing units. Since the public sector and philanthropy have never been able to meet the demand for the combination of Affordable Housing services and physical units that is required, we maintain that the public sector must act in collaboration with private real estate developers to meet the demand for Affordable Housing.

PSX' Proposed Affordable Housing Models

Supply-Side Model 

To supply housing units, the Private Sector portion, we propose a Hybrid, Break-even Model, with both for-profit and not-for-profit features. This is how it works:

• Form an Affordable Housing Corporation (‘AHC’) funded by approximately six (6) major Corporations with ten thousand employees, or more, each. This AHC underwrites a ONE HUNDRED MILLION ($100,000,000.00) DOLLAR Bond. 
• Apartment complexes would be built (or acquired) to offer a mix of For-Profit and Not-For-Profit (‘Affordable’) Units. New construction would feature Universal Design to accommodate the disabled and to enable aging in place. Profits from the For-Profit portion of each apartment complex (as well as for-profit services supplied to the Not-For-Profit portion) will subsidize the rent in the Affordable units so that each Complex breaks even. The number of Affordable Housing units created in each apartment complex will depend on the relationship of costs to basic rental revenues.
  • ‘Affordable’ means that rents in these units would be set at half the average ‘market’ rate.
• Shares in the AHC would be sold to the employees of the corporations composing the AHC, who would be encouraged to invest in AHC bond units. The bond units would provide marginally better returns than comparable financial instruments such as GICs. It would be guaranteed by the Sponsor corporations and secured by the assets of the AHC. The difference between the rates paid to the employees and current commercial mortgage rates help drive the Project.
• Over time, the Sponsors are expected to donate the equity created by the difference in the market value of the apartment untits and the Bond face value so that the Project becomes self-sustaining.

Demand-Side Model

 Alternatively, the Model could be flipped around to increase demand rather than supply.

• AHC participation would not be required.
• Any apartment owner or developer could participate.
• This approach would engage the participation of existing apartment owners and developers (who are typically opposed to any change that increases the supply of apartments). 

This is how that would work:

• Tenants would pay FIFTY (50%) PERCENT of ‘market rent’ for a limited number of units in each participating housing complex causing the entire housing complex to break even on an after-tax basis. The number of Affordable Housing units created in each apartment complex will depend on the relationship of costs to basic rental revenues.
• CRA would provide a tax credit to the participating apartment owner to offset the FIFTY PERCENT (50%) PERCENT discount on affordable housing units on an after-tax basis. After-tax, the impact on the bottom line would be the same as if the apartment owner charged full market rent on the affordable units.

Supply-side AHC Model

• Thousands of individuals participate in creating more Affordable Housing while profiting from their investment.
• Six Corporations can create Affordable Housing while generating tax deductions and good will to offset the cost of their investments.
• There is no significant ‘net out-of-pocket' cost to the private or public sector. 

Demand-side Taxation Credit-Driven Model

• There would be no arbitrary limit to the number of affordable housing units that could be created.
• One of the disadvantages is that many existing complexes do not incorporate Universal Design.
  • This could be mitigated by restricting participation to existing or new complexes that incorporate Universal Design.
  • Some developers may not support any model that increases supply, however, augmenting their existing inventory with units that conform to Universal Design shall make them more, not less, competitive over time.

Both Models

• Rather than attempting to supply physical untis and services, PSX' Models enable the public sector to focus on supplying the myriad of services required by the underhoused and homeless that the private sector is not able to tackle.
• The under-housed and homeless benefit from the additional supply of Affordable Housing.
• Especially in an era of rising income inequality, communities benefit because those who live in affordable housing are not ghettoized, but instead live in complexes alongside people in For-Profit units.

Bottom Line

This may not be the solution to the Affordable Housing deficit, but it could a part of the solution. (Clearly, the most needy can't afford to pay even half of market rent for accommodation). 

• Our Models address the current, inadequate physical supply of affordable housing units either directly by supplying physical housing units, or indirectly by stoking demand. In addition, funds that would have been spent on the supply of housing by the public sector can be reallocated and concentrated on supplying services. 
• On the supply side, since major, for-profit corporations limit CEO communication with ‘Not-For-Profits’, the public sector would have to make introductions as this hybrid model is relegated to not-for-profit status and access to CEOs, which is critical, is not available. 
• On the demand side, a change in tax law would be required. We do not underestimate the difficulty that this presents. Some would describe this prospect as impossible. That said, eliminating an important contributor to poverty (e.g. lack of Affordable Housing) requires unprecedented resolve. Either Canadians care about the homeless and underhoused, or we don't. The time to step up is past due. 

This Model is copyrighted but you may implement it at no charge. Attribution would be appreciated. Thank you for your interest.