How to design an effective municipal affordable housing incentive program
NAHC’s experience in affordable housing has identified some of the most effective ways to offer incentive programs to increase supply of affordable housing.
Not surprisingly, affordable housing incentive programs and how they are administered varies widely and is far from standardized across Western Canadian cities. The typical incentives that cities are able or willing to offer include land cost reductions, fee rebates, grants and temporary property tax relief.
An effective municipal incentive program is much more than simply offering a financial incentive and hoping that the business case will work.
Developing an effective affordable housing incentive program requires an understanding of the entire mix of programs (municipal, provincial, federal), supports, authorities and organizations who all play a role in nearly every affordable housing project. The first question to ask is, “Who is the incentive program designed for?” so you may understand who you are trying to attract. This question is important since each type of applicant often needs different levels of support.
It is also important to understand that municipal incentive programs are not “give-aways.” They are a tool to help achieve a public policy objective. There is always an exchange of interests which should be rooted in meeting a clearly understood public goal.
Does council want to be involved in housing?
First, you must know the attitude and level of understanding of your local council towards incentives. For example, do they understand why they are offered, how incentives work and would they support incentives directed towards increasing affordable housing supply?
What can the municipality offer?
Secondly, it is important to understand what your municipality can offer. For example, all municipalities can offer property tax abatements, but only a few municipalities have a land bank which helps to bring land into the mix of incentives which can be offered.
Set goals and targets
Thirdly, set an affordable housing goal and set targets.
Answer questions like:
- Where are the pressure points and gaps in the housing market?
- What is an incentive program designed to achieve?
- Who will it be offered to and how?
- What are the demographics of those in most need?
Normally, these types of questions are answered with an engagement or consultation with stakeholders in the community. The engagement usually leads to the creation of a Housing Business Plan or Affordable Housing Strategy.
Develop a general framework
Start to develop the incentive program with a general framework. Leave out the details at this stage and focus on the big pieces and who is responsible for them.
At this stage, it is important to be familiar with what your municipality can offer within the confines of the provincial legislation. For example, municipalities usually cannot offer loans, or offer tax abatements beyond a specified time frame. Furthermore, it will be important to have support from other municipal departments needed to administer the program, including finance, building, planning, etc.
Some of the more common financial incentives offered by municipalities include:
- Incremental property tax Abatements
- Property tax exemptions
- Fee rebates
- Discounts on land cost
- Development levy waivers or reductions
All the above can be effective, however, NAHC would recommend a more standardized approach to application intake, review and administration of various incentives offered.
Using a matrix is one way to standardize administration and calculation of incentives to maximize their effectiveness. Incentives should be based on the principle of the more an objective is met, the higher the level of incentive offered. An incentive matrix can be used to determine the level of support when combined with defined criteria.
For example, the following criteria may help to meet municipal goals:
- Increase the length of time units are committed to being held affordable;
- Encourage a higher percentage of rent below market rent; and
- Increase the overall number of affordable dwelling units.
These three criteria can be used to determine the level of incentive provided. An illustration of the how these might work together in a program is provided below.
Each of the criteria could be weighted as well. For example, you might attach a higher weight to the Rent Charged Below Market if your municipality needs a deeper reduction in rent.
One of the best ways for municipalities to offer an incentive program is to look at the available programs offered by higher levels of government and provide additional meaningful support which unlocks the funding in those programs.
The largest challenges that affordable housing providers face are:
- Land: Suitable land is usually in scarce supply, especially when affordable housing is needed most.
- Time: It can take a lot of time for housing providers to put all the pieces of an affordable housing project together to make a business case work.
- Timing: Timing the necessary approvals to meet a short construction season window.
- Partnerships: In many cases, affordable housing projects require multiple stakeholders who have specific requirements.
Incentive programs that help alleviate these challenges are bound to be successful.