City council made some changes Monday to its affordable housing arrangement with Nelson Commons in an attempt to increase the affordability of three designated “restricted resale units” that were offered to sell at a reduced sale price.
The changes involve tying future selling prices for the three units to the consumer price index rather than a percentage of market value, and extending the restricted resale status from 25 years to “in perpetuity.”
Restricted resale: the background
Two years ago, Nelson Commons offered to contribute to affordable housing by planning to sell three units at 75 per cent of market value. Each time one of them is sold in the future, it would still be priced at no more than 75 per cent of the assessed value at the time.
These restricted resale units are governed by a covenant under the Land Title Act signed by the city, Nelson Commons, and the Commons’ mortgage holders. The covenant, along with an additional housing agreement, would bind Nelson Commons and future buyers of the housing unit to the 25 per cent discount.
The city, not Nelson Commons, would administer any future sales and the maintenance of the covenant and the agreement.
Unit 201, a one-bedroom unit with a market price of $265,000 would sell for $198,750, and Unit 200, a one-bedroom plus den with a market price of $269,000, will sell for $201,750. Those units are both now sold.
Unit 302, a two-bedroom unit with a market price of $369,000, still for sale, would sell for a discounted price of $276,750.
The down payment on restricted resale units is minimum of five per cent.
To qualify for this discount a buyer must be a family of no more than two people, have a maximum gross household income of not more than $65,000 (or $85,000 in the case of the two-bedroom unit), a pre-approved mortgage, and residence in Nelson or the Regional District of Central Kootenay for a minimum of two years as an adult.
Also, applicants may not be a member, or a relative of a member, of the Kootenay Co-op’s board or management staff. And they must provide references. The purchaser must be permanent residents of the unit.
The changed agreement
The original concept for restricted resale was first agreed to by council in May, 2015. A draft version of a housing agreement bylaw was presented to council on August 4 of this year.
At that meeting, Councillor Michael Dailly said he was concerned that the units were not particularly affordable and he wanted the price of the units, if they are sold in the future, to be tied to the consumer price index rather than 75 per cent of market value. This would mean lower prices for buyers, and not so much profit for the seller.
He also wanted to see the restricted resale agreement extend in perpetuity, rather than a 25-year term.
This created extensive discussion at the council table, leading to some changes.
Since the two one-bedroom units are already sold, it was too late to make changes this time around. So council decided to make it negotiable in the event of a future sale: future buyers of those units may negotiate to tie the price increase to the consumer price index and have a term that is perpetual rather than 25 years.
A different decision was made for the two-bedroom unit because it is not sold yet. Council directed management staff to look into the pros and cons of making the first sale of the unit based on the consumer price index and making it in perpetuity. Because this will take staff up to two months, and it was agreed that if the unit sells within that time, the terms of the original arrangement (75 per cent of market price, for 25 years) will prevail.
These changes were passed by council with Councillors Janice Morrison and Bob Adams voting against.
They didn’t agree with having one arrangement for two of the units and another for the third.
“Let’s have them all the same,” Morrison said. “Two units under one mandate, a third under a different one, and that one may end up being the same, this is a lot of work. It’s a large utilization of staff time, and it leaves it uncertain for the proponent and the buyer. It is not a good way to do business.”
As for whether the reduced sale prices are actually affordable for low income people, Mayor Deb Kozak told the Star, “in the grand scheme of things there is a spectrum of housing affordability. This definitely is not social housing, but it might work for a young couple entering the housing market.”