Expiring Operating Agreements: Proactive Planning
Many housing providers across Canada are already living the reality of the end of their original operating agreements with the federal government. According to the Ontario Auditor General’s most recent report on affordable housing, 50 per cent of these agreements will have expired by the end of 2020, and the last by 2033.
Operating agreements were legislated to guarantee funding support and rent subsidies and are tied to the term of a provider’s mortgage payments. While the end of a mortgage is something celebrated by homeowners, social housing providers will see their funding dry up at a time when their buildings may need crucial repairs.
In order to maintain the viability of affordable housing post-operating agreement, it is important that organizations and providers begin to plan for the major changes ahead. This is particularly true given that a large proportion of tenants may require continued subsidies following the end of operating agreements (EOA).
The British Colombia Non-Profit Housing Association (BCNPA), in partnership with BC Housing, has a guide to explain the issue and assist providers through the process of planning for change.
The guide outlines a step by step process that breaks down key considerations for housing providers and looks at ways to overcome EOA challenges. Steps include:
- reviewing operating agreements
- determining financial viability
- reviewing internal and external factors
- assessing options
- consulting on plans
What kind of assessments have to be done to understand EOA planning?
- operating expenses
- capital reserve replacements
- physical condition
ONPHA worked with the Canadian Housing and Renewal Association (CHRA) and a number of other organizations throughout Canada to develop a Simplified Assessment Tool, which covers the first three areas. This tool is useful in determining how providers need to change or plan in order to continue to offer viable housing.
The Simplified Assessment Tool uses information such as revenue, number of units, and year of operating agreement termination, amount of subsidy, inflation rates, and cost of refinancing. This helps determine whether the current project is viable, or needs further adjustments.
In order to determine physical condition, BC Housing uses a facility condition index – this is an industry standard established by the US Federal Real Property Council. You can find the tool in their resource library here.
FCI = Total of Building Repair/Upgrades/ Renewal Needs ($)
Current Replacement value of building components ($)
This calculation can be applied to the following scale to determine the condition of assets:
0 – 5%: Good Condition
5 – 10%: Fair Condition
10 – 30%: Poor condition
A high percentage means more likelihood of failures, higher costs as well as challenges with staff and tenant morale.
Depending on the needs of individual housing providers, there are several options that providers can consider once operating agreements end:
- Adjust rents, or change the RGI-market mix of the portfolio
- Apply for grants or enter into new agreements with service managers (e.g. rent supplements)
- Pursue strategic partnerships, sell assets, refinance, or follow through with
- Share space, transfer assets
- Redevelop site, or intensify building site
Don’t underestimate the need to plan proactively and ensure your organization is prepared for these big changes ahead.