Thirteen months ago, a message to the faculty was sent on my behalf as Chair of the UBC Community Planning Task Group, announcing the UBC Housing Action Plan as approved by the Board of Governors. The plan addressed –among other things– the problem of housing affordability for tenured and tenure-track UBC faculty and its impact on the university’s recruitment and retention effort of high-caliber scholars. Last week, the UBC faculty received another message, this time from the Acting Associate Vice President, Campus and Community Planning, calling for consultations on a possibly revised plan. And as anyone could have anticipated, my inbox started filling up with puzzled queries from colleagues: “What is this all about?” and “What’s really happening?” and “What do you think about this?” My task group has already been dissolved, but here are my personal comments on this new development.
First, what are the proposed changes!
The original UBC Housing Action Plan called for the development by UBC-Property Trust of up to 10% of all new housing units built on campus for faculty purchase. Sale and re-sale of these homes would be restricted to tenured and tenure-track faculty. The initial price would be no higher than 33% below market value, and re-sale values will be indexed to faculty salaries to a maximum price no higher than 33% below market value.
The UBC-PT and the administration are now proposing an alternative home ownership option which would provide zero or nominal interest second mortgage loans to approved tenured and tenure-track faculty for up to 33% of the purchase price of a home (to a maximum of $330,000) in “specified new market housing projects on campus.” Units will be purchased at market price and can be sold to anyone (including those non-affiliated to UBC) at market price.
Addendum: This new proposed option is not to be confused with the currently available $50K housing assistance program for new faculty (and a similar though uncapped one for senior administrators), which can be used towards the purchase of housing anywhere in the city. The repayment of the second mortgage under the new program is still to be determined, though will likely be similar to the Princeton model.
I guess the idea of a restricted market was too much to ask from those who oversee the UBC-PT. Still, there are some advantages to the alternate plan: Easier and quicker to implement, it offers more flexibility, possibly more choices and less dealings with the taxman. I am sure we will be hearing more about these advantages during the open houses on November 12 and 13. There will also be presentations of the draft policies guiding eligibility, distribution and repayment triggers of the available second mortgages.
It is also important to be cognizant of the drawbacks. For one, it is clear that by doing away with the restricted ownership clause, the university may be irreversibly losing the option of sheltering at least a piece of south campus from the open market in order to keep it connected to its academic mission. Will we be repeating the historical mistake of “losing” the endowment lands, or the more recent co-development blunder?
Many of our colleagues will be focused –and rightly so—on their immediate housing needs and those of their families. To them, I say that they should pay close attention to the draft policies guiding taxation, joint ownership, mortgage loan insurance, and the repayment triggers of the available second mortgages. Will the new developments take into consideration the needs and preferences of the faculty? For example, will there be enough desirable 3-bedroom suites to entice UBC families to stay at UBC?
Other issues are less obvious. Will eligible faculty feel pressured to buy into a market that was made hotter by the very same enabling scheme? (Keep in mind that this might apply to either option). Could the cost of buying only new units in designated buildings offset the advantage of “an interest-free” second mortgage? How will these second mortgages affect the assessment for affordability by the primary mortgage lender who will determine the maximum mortgage that a faculty member may hold? Will the upper limit of $330K for the second mortgage withstand the pressures of another wave of price increases in Vancouver? In other words, is the new proposal too sensitive to the market, when the whole point of the housing plan is to use UBC land endowments to help secure affordable units for faculty members by making the price less sensitive to the market?
Other colleagues will hopefully be thinking about the long-term impact of the new proposed plan and its sustainability considering that the units can eventually be sold on the open market. How will we make sure that the appropriate stock of housing for UBC faculty grows in size, scope, and scale? How to sustain it and protect it for the future generations of UBC scholars? After all, no one wants to see a worst case scenario, where a future administration halts the program after cashing back its loans from faculty members who had sold their units on the open market.
The emails I have received raise many other questions about the new option. It is important to pose these to the administration and weigh their answers. I therefore urge you to attend the meetings on November 12 or 13 and help to determine whether the new scheme is net positive or the pitfalls too deep. And if the latter, is it possible to find ways to improve it and resolve these issues?
The proposed change is more like a minor revision of the current UBC way that helps the faculty purchasing their home by either giving a lump sum of money toward their down payment or giving a low interest loan for the mortgage. The difference is the amount of money and the limitation to a selection of housing units inside the campus. In this option, UBC essentially gives the faculty extra salary for their housing, which is taxable, and the benefit will not return to UBC or flow to other faculty. Thus it is not sustainable. Furthermore, like the current way, the proposed amount of money will soon lose power under the constant increase of Vancouver housing market. The proposed change is far inferior to the original 2012 plan with restricted ownership.
The second mortgages are supposed to be returned (and hopefully recycled to other faculty members) according to a formula to be determined.
Having a “market restricted to faculty” had three main goals: to insulate the faculty from the Vancouver real estate market, to preserve the housing stock in the hands of faculty, and to be a long-term solution. This proposal breaks all these properties. Even worse, I would expect these loans to mainly increase apartment costs rather than help faculty buy them.
First, under the new proposal prices will be determined by market. If market prices go up, the units will become unaffordable to faculty even supposing the subsidy worked. In particular, note that the price cutoff ($1M) is set at nominal dollars. If the university intends a long-term solution this amount should be pegged to a real-estate price index. Also, under naive analysis (the availability of the loan doesn’t change prices), once prices go up apartments will be quickly sold to non-faculty members and lost to the system. Like the previous co-development this will be a one-time solution giving a large windfall to a lucky few.
But the real weakness of the proposal is that the new loans will not help faculty at all. Suppose I own one of the relevant units. Knowing that faculty can get a subsidy of 1/3 the price, my asking price will be 1.5 times the market price (minus epsilon). I’m giving up on the possibility on selling to non-faculty, but faculty will still prefer to buy from me rather than in the general market (after the subside the price is less than market price). In other words, apatment owners and not faculty members will be able to capture the loans. Even if in equillibrium owners only capture half the loan amount it’s still a disaster.
A final point regardin taxation: at the housing form last year the university claimed that the reduced price in the “restricted market” plan creates tax liability for faculty. This should not be so. Since under that plan the faculty are not buying the full (unrestricted) value of the apartment (the asset they buy has strong limitations on resale prices and on who they can sell to), it is worth less. The difference in price between that an a “free market” apartment is irrelevant because that’s not what the faculty member is buying.
Fundamentally the problem is probably that the university doesn’t want to commit the needed resources. Instead of selling units to faculty at 2/3 the price, they are proposing to sell to us at full price. After all, we will also have to repay the extra loan. The only benefit of the proposed scheme is that the extra loan is interest-free — and that benefit is definitely taxable, and therefore worth less than its nominal value.
Thank you very much, Nassif, for the informative post.
This new proposal makes me lose my trust in the administration’s determination to improve the housing situation for the UBC faculty. After one year of almost no progress on the implementation of the housing plan, we now get this new proposal out of the blue. The administration needs to explain what is wrong with the original plan, and why the progress has been so slow. Let me add a few comments (some of them overlap with what the others wrote):
1. I think the new proposed option would not work well in the case when housing prices increase, which is exactly when faculty members need housing assistance most. The newly proposed option to provide 33% second mortgage up to 330K per unit does not seem to be sustainable. For example, if the housing prices keep going up, then this upper limit can quickly become inconsequential. If the price for a 3-bedroom unit goes up from 1 million dollars to 1.3 million, then this is still out of reach for a typical faculty member with 2 kids. Moreover, if the units are allowed to be sold on the open market, then UBC will eventually lose most units on campus to non-UBC personnel, especially when housing prices go up.
2. It would be better to make a closed market for faculty members only, as in the original plan. However, the original plan can still be improved. In a closed market, the price can be set well below the outer market price.
Why is the reduction in the original proposal set at 33%? It seems to me that a 33% price reduction in the closed market would still not be enough for many faculty members. My point is that in the closed market, which is more or less independent of the outer market, the price does not need to be indexed by the open market price. The price in this closed market should be in proportion to the faculty salary level at UBC, not the open market price.This can be possible in the form of co-ownership with UBC. Also, in a closed market, it should be easier to avoid/deal with tax/legal issues for reduced prices. I don’t understand why the second mortgage option would be better for taxation issues.
3. About housing prices: the reason why Vancouver has very high housing prices is not because of the construction cost, but mostly because of the land and high demand.This is exactly what UBC can control, because they have land, and by making a closed market (only to faculty members), they can reduce the demand. So, I think the price can be reduced by much more than 33%.
4. Also, it is crucial to focus on three bedroom units. First, I think the people who are most desperate for housing are those with children.They will mostly want three bedroom or larger units. Second, three bedroom and larger units (on/near campus) are exactly those units whose prices are well out of reach for most faculty members.
5. To actually provide the housing units, UBC can start building new units, but, to accelerate the plan, they can simultaneously buy some existing units on campus and make those available to faculty members. Another option is to let faculty members buy the current rental units in the faculty/staff housing, but, one problem I see with this is that they are mostly two bedroom units.
One of the main motivations for the housing action plan is to keep and recruit excellent faculty members to UBC, to maintain and improve the quality of the university. This requires investment. Fortunately, UBC has a huge piece of land. It has been leasing this land to developers in return for funds to be used for new initiatives and buildings for the university. The point of this is to improve and maintain the quality of UBC. I think the most effective and direct way to improve the quality of the university is to improve the quality of the faculty: strong faculty attracts strong students and then will attract more external funding, and on and on. Housing has been maybe the most crucial obstruction to achieving this goal; thus it should be the first priority when the university uses its precious land. Of course, the university should be willing to use its land for this. This is an investment in the present and the future of UBC.
I’m going to risk violating very good advice I usually try to follow: never attribute to malice what can be explained by simple stupidity. Others have clearly articulated the many ways in which this alternative fails to achieve desirable objectives. A cynical reading is that this is an attempt to buy-off a large fraction of the presumed most interested supporters of the Housing Action Plan (faculty members currently looking to buy housing), in a very cheap manner (zero-interest loans cost very little when mortgage rates are still near record lows). And if this plan effectively takes the wind out of the sails of a true, long-term plan, it will be easy to pull the plug on the program whenever interest rates go up and it becomes more expensive to provide for future faculty members. But, that would be an excessively cynical interpretation. A more likely interpretation is that the new program is cheap and easy to implement. All the legal structures are already in place to offer reduced interest loans. UBC does that already, so it has institutional know-how to expand the program. And it actually will help a few faculty members purchase a few units in a few buildings for a little less money for a little while. Who could ask for more?
Nassif and his committee worked long and hard to create a plan with a vision for the UBC faculty housing that was sustainable in the long run. The Board showed good judgement originally by approving this plan. The revised plan throws the long-term vision out of the window by focusing on the near term, temporary solutions that will do nothing to address the big issue.
The key thing to remember is that UBC lands are nearly built up. After South Campus developments are completed there will be essentially no land left to develop. According to the revised plan all the new housing will eventually return to the open market with prices prohibitively high for most UBC faculty. Following the original plan might be the last chance to create a pool of affordable housing dedicated to the UBC community in perpetuity. It is very sad that such a plan has not been enacted 10 years ago or earlier. It is an outrage to see that the Administration is now backing away even from this last ditch effort to save some fraction of the UBC lands from being sold to the highest bidder. It shows remarkable lack of strategic vision, completely contradicting all the rhetoric about sustainability and commitment to being a world-class institution.
I just have completed the online consultation that the administration provided.
This is very disappointing. There are no clear and detailed explanations by the administration, regarding why the new proposal came up, and why the original proposal does not work.
Even worse, there is almost no room in the online survey for discussion of comparing the new and the original proposals.
UBC needs more rental units that meet the needs of families. Rent them below market value, and faculty can invest the remaining in whatever way they wish to complement their meagre pension when they retire. Very simple. Is UBC interested in committing to its own staff? This is the real question.
I just had a chance to read through a more detailed description of the “alternative” proposal. BEWARE! The proposal is NOT a 30-year interest-free loan, as it is pitched! If you click through a couple layers of salespitch, you get to this summary:
Click to access UBCPT%20Second%20Mortgage%20Program%20Summary_0.pdf
Be sure to read the fine print! What looks like a 30-year interest-free loan on the surface also carries:
1. UBC has a pro-rata share of any property appreciation. E.g., you buy a $990,000 dollar condo with UBC “loaning” you $330,000. Ten years from now, you sell it for $2M. UBC Properties Trust gets $666,666. (No, I hadn’t picked that number deliberately!) So, if all goes well, they get all the benefits of an equity stake. This isn’t a “loan”.
2. If things go poorly, UBCPT claims a certain amount of seniority, as if they had a debt stake. E.g., returning to the previous example, suppose you bought the $990,000 condo with $330,000 down, $330,000 first mortgage from Massive Canadian Bank, and $330,000 “loan” from UBCPT. Suppose after a year, there’s a major economic shock, your spouse loses his/her job, so you have to quit, move away, and sell your condo at $500,000. Massive Canadian Bank gets their $330,000 back first, leaving $170,000. UBCPT graciously agrees to accept only $500,000/3 as payment in full. (This isn’t completely clear, but I believe this is what they mean when they say that they are cushioning your loss if the market goes down.) That leaves you with $170,000-$166,666 or about $3,333 left from your $330,000 down payment. Oh, BTW, UBCPT’s claim is senior to any closing costs. I don’t recall local real estate commission rates anymore, but I think it’ll be on the order of about $10,000 or so. So, in order to complete the sale, you’d end up not only with nothing left, but actually PAYING thousands of dollars.
3. Oh, and since UBCPT pretends this is a loan when you lose money (versus having an equitiy stake when you make money), the amount they “forgave” you $330,000 – $166,666 = $63,333 is taxable to you as income in that year! So, you’ll pay Revenue Canada roughly another $30,000. Also, since UBCPT claims this an interest-free loan, they believe that the amount of interest you would have paid had you gotten a real loan at Revenue-Canada-set rates is also a taxable benefit. Given that this is clearly not a normal loan, you might be able to get a good tax lawyer to win a ruling over Revenue Canada that the “interest-free” here carries so many costs that it’s not really a benefit.
4. BTW, I’m not a lawyer, but my understanding is that with a normal mortgage, if you end up too much in the hole, you can lose everything in foreclosure, but at least you can walk away. With UBCPT’s new alternative “interest-free” “loan”, they have the right to garnish your wages until they get their pound of flesh, er, second mortgage repayment. It’s not clear what happens if you quit UBC and flee to the hills.
5. When you want to sell, UBCPT has the right to approve/deny any price or selling conditions you ask for.
6. UBCPT has the right to buy your property before it hits the market. Coupled with #5, this gives UBCPT the theoretical power to steal your home if you’re ever forced to sell. They could simply refuse to allow you to list for any reasonable price, and when you drop your price low enough, they swoop in and buy before it hits the market. Of course, I could never imagine UBCPT treating faculty members in such a one-sided, exploitive manner. Could you?
BTW, this proposal is always presented in the passive voice “… has been proposed”. The more detailed documents finally add the “… by UBC Properties Trust.” This explains a lot. UBC Properties Trust includes some truly superb, highly skilled, visionary real estate developers, with the mandate of maximizing the financial benefit to UBC of the land that we are fortunate to have. They are really good at what they do, and I am very grateful to them for the large amount of funding they have raised for UBC. To a skilled real estate developer, taking some prime land and crippling its market value (by restricting ownership to faculty and staff, for example) in perpetuity, is utter madness. The goal is to make as much money as possible. Their proposal continues to allow maximum profit from real estate development (which benefits UBC), and it’s also very well structured to minimize downside risk for UBCPT and maximize upside potential. They are very good at doing what they do, and they’ve done their job extremely well here. It’s the job of the larger UBC leadership and community, though, to balance UBCPT’s profit-maximizing objective with other objectives needed for UBC to flourish as a world-class university into the future.
Prompted by the survey I also read through the “eligibility rules”, and found out this new schem radically changes the spirit of the original housing action plan. The original (market among faculty) plan was obviously simply freely available for all faculty — who had to sort things out between themselves. Under the new plan (and unlike the current loans), the new “loans” (really equity shares) are only given the those the administration selects, being either “retension” cases or “recruitment” cases. In other words, only those deemed likely to leave (or not come) due to housing will get the extra help.
Now, unlike the other issues, this change isn’t wrong in principle. UBC’s goal is to conduct research, and from this point of view is challenge to this is with top faculty who will leave or not come because of housing, not for faculty who are willing to stay / come anyway. Such a change will increase the effective salary disparity between faculty, but this isn’t something I oppose (unlike the union, who might very well object). That said, for this to work we must trust the administration to have good priorities (say, not prioritizing a “programme in sustainability” above core departments), and not to have biases in their decision-making.
The original plan, in which the administration was not supposed to choose the participants, was much more transparent.
This is yet another frustrating example of how UBC simply holds too much power on campus. I live in student housing, Acadia Park, where we were effectively written off the map in 2010 without consultation. Acadia Park is an exemplary community with a unique design that truly fosters a safe, supportive, and healthy place to raise children and study. Student families have even less clout (i.e., money) than faculty families living on campus, so imagine how frustrating this is for us. Thank you, Nassif, for communicating these issues and representing us on the BoG.
This is a very interesting debate to read about as a UBC Okanagan faculty member. We have NO housing action plan of any type here – perhaps that is justifiable given that land prices are not as high as in Vancouver – but they are very high nevertheless. I like the idea of having a campus “community” that is residential community and not just a workplace community, and having a mix of faculty, staff and students living on UBC lands makes good sense. But why are students – the people with the most need of housing assistance – receiving the fewest benefits of all? The original proposal suggests more student housing “at or below market price”. It should definitely be below market price in my opinion. Otherwise students in effect are subsidizing faculty and staff.
Excellent comments by Allan, Lior and others. Which begs the question why these comments could not be posted for everyone to see on the consultation site, like in Nassif’s original group work. Why there is no place to publicly provide comments?
Hi John, I guess I wasn’t entirely clear: The number of units are set to double but the space for this community is going to shrink dramatically to make room for more market housing (Acadia East on the 2010 LUP). The residents in Acadia Park are deeply concerned that we weren’t consulted in this process and that a brilliantly designed neighbourhood – developed by students with families since the 1940s – will be lost. Students with families don’t just equal numbers of beds. Thanks for your concern. Please come by Acadia Park if you ever want to see a fantastic student housing community or check out our FB group for lots of great reports & information: Acadia Families for Sustainable Communities.
Barskye: Yes, we desperately need more transparent consultation on campus. The AMS has been working toward this, and it was one of their recommendations in the Needs Assessment they conducted in Acadia Park.
The BOG-approved Restricted Resale Capped Appreciation program should be retained.
Supply is the key issue here. Simply put, it is unrealistic to expect private developers to build the type of housing that faculty need–much less at a price that would be affordable even with the proposed loan assistance.
The best plan was and still is that the University set aside land and build to suit the needs of faculty members, especially those with families, whose space needs are most acute. Affordable housing units with 3 or more bedrooms and over 1,300 square feet of living space are almost impossible to come by on campus. Anything smaller for a family of four is simply inadequate as a primary residence, however much Vancouver condo developers might try to convince one otherwise. Even the old units in Hampton Place, which have maintenance issues and a high monthly strata fee, are now unaffordable.
The overall trend in on-campus constructions by private developers is towards ever-smaller units. Binning Tower is a case in point: if you want more than 1,200 square feet, you have to buy a penthouse for >$1.7 million. (The townhouses, which cost even more, are sold out.) Adera is no better. In short, private developers build for a luxury market of people looking for second homes, investment properties, and apartments that their children will live at while doing a UBC degree. They do not build for faculty families.
What faculty members like me want to purchase is a primary residence that meets the needs of a family. We want a place that does not collapse the dining room, living room, and entry way all into one room. We want to be able to host grandma or auntie in her own bedroom once and a while. We want our son and daughter to perhaps each have their own bedroom some day. We even have the temerity to want a front door that leads to the outdoors, not just a dormitory-style hallway. We want, in other words, a place for the long term–a permanent residence rather than a temporary dwelling. We do not want our families to live indefinitely in a shoebox.
The idea of giving faculty members flexibility to purchase units in multiple buildings is laudable, but if this policy is pursued, the options should be opened up to all of campus. There is no good reason to restrict the options only to new developments, much less the (expiring) few that appear on the initial list. But without the University committing to setting aside land for faculty purchase-housing and developing it according to the actual needs of faculty members, the policy will not meet its stated goals.
Restricted Resale Capped Appreciation units can be kept affordable by having the University retain a portion of the equity, rather than creating a potential tax liability by reducing the list price by 33%. The deferred maintenance issue experienced by some peer institutions has a simple fix: allow faculty members to add any proven out-of-pocket expenditures on maintenance to the re-sale price, over and above the capped appreciation. This removes the incentive for the faculy co-owner to skimp on maintenance.
There is much more to say about the proposed revised program, but for now I have just three final points:
1. If the University wants to solve this long-term problem, it should do it in such a way that maximizes the benefits to the target constituents–faculty members. The revised plan is concerned primarily with minimizing costs to the University, while neglecting the crucial issue of supply. It is also important to recognize that the choice between fiscal prudence and investing in the well-being of faculty members is a false one. The revised plan attempts to satisfy the HAP mandate on the cheap. Instead, the plan should focus on building a sufficient volume of housing whose quality matches the excellence UBC expects of its faculty.
2. The revised plan’s idea of having loans allocated according to some vague “strategic” merit system is wrong headed, for at least three reasons. First, the Housing Action Plan is meant to satisfy faculty demand for affordable housing–that is its sole reason for existence. So long as a faculty member meets the needs-based eligibility criteria (one of the good things in the proposed new plan–this can’t be your second home), s/he should be able to participate. Second, the allocation system will create ill-will among the very faculty that the Housing Action Plan is supposed to help. Faculty members not deemed to be “strategic priorities” will be justifiably resentful of the administration, and the have-nots will also be jealous of the haves. This plan will create divisions among the faculty. Third, the proposed allocation procedure will create a huge administrative burden. It’s not worth it.
3. Build something soon. Universities often move on geologic time, but children grow up fast and we parents can’t wait indefinitely. (The revised plan says that wait lists will be updated every two years–just think of how much the Vancouver-housing-market-value of that $330,000 loan will erode in that time.) Besides, UBC has shown that it can get construction projects moving quickly when it wants to. It’s time for the Board of Governors to tell UBC Properties Trust to sit down with faculty members and design a building.
For good or ill, UBC faculty members and their families will live with the outcome of this process for decades to come. Let’s get it right.
From my impression of the meeting for the revision of the housing plan, the reality will be that the faculty awarded campus housing will be those incoming professors with competing job offers or those current faculty who have job offers elsewhere. The rest will be continuously bumped down the list. So, the new proposal would actually encourages UBC faculty seek job offers elsewhere if they are ever to receive an option to buy. This seems counter-productive to the faculty retention. The meeting actually encouraged me to keep an eye on new job postings if I am supposed to qualify for UBC housing. The danger, of course, is that good offer from another university will look very attractive compared to living in a small condo in a tower on South Campus with multiple large mortgages.