Options for Homes Article in the National Post

My story (also here) on Michel Labbé and Options for Homes appears in today’s National Post. The article came out of a longer one that I had written in March. Here is the more in-depth version.
The Revolution Will Not Be Subsidized
Can a Toronto non-profit housing organization save the city’s construction jobs? Its founder, Mike Labbé, thinks so.

The small basement room of the West Toronto Baptist Church is full with more than 40 people interested in buying condos on a Saturday morning in early March. Another such meeting will be held in the afternoon. These twice-a-month church-basement events are packed, strictly by word of mouth, amidst declining housing sales for the city; February’s sales were 32 per cent lower compared to the previous year. The attendees have mostly middle to lower-middle incomes and, if they decide to buy, they will probably take a second mortgage that the developer has to offer. This plan not only has the blessing of the Canadian Mortgage and Housing Corp. (CMHC), but the city as well.

As potential buyers look at floor plans on bristol boards, Michel Labbé, the president and founder of Options for Homes, sets up his laptop and projector near the front of the room and has a sip from a juice box he had taken from the refreshments counter. Then, with the lights down for his presentation, he explains why the two buildings his non-profit organization is developing on Keele Street, just north of Dundas Street West, had units for $250 to $280 per square foot while most developers in Toronto can’t sell for less than $360 per square foot, even with the troubled housing market. A 610 square-foot one-bedroom apartment, with the Options second mortgage, costs $161,920. Under the same plan, a 1,030 square-foot two-bedroom apartment runs $256,790. At $360 per square foot, the low-end of the condo market, those apartments would be $219,600 and $370,800 respectively. A foam-board model of a 24-floor tower, about 50 centimetres tall, sits on a table to Labbé’s right. The setup has more the feel of a Grade 6 science project than a condo sales presentation. During the session, a little girl scribbles furiously at the back of the room.

Labbé explains his model for developing cost-effective housing. Options finds not-yet-desirable sites in Toronto—the Distillery District in the late 90s and the Junction for the current project comprising a 19- and 24-story tower, totalling 643 units—for development. It spends little money on marketing, but doesn’t skimp on the buildings: its builder on Keele Street is Deltera, Tridel’s construction arm. The towers at the Junction site will have solar panels for heating water, carbon filters for air intake and there are plans for a car-sharing program for residents. Such amenities as a spa, gym or concierge are absent. Apart from the eco-features, the buildings, like their nearest grocery store, will be no frills. He explains how the second mortgage works. Labbé covers everything in detail, which is key to convincing some of the skeptics that the plan isn’t a scam.

At the end of these presentations, an average of 30 per cent of the attendees put down a $100 deposit on a unit. If they decide to buy, they will join the 1,500 households Options has housed since 1993. With multiple awards for its work, including one in 2002 from CHMC for finance and tenure, Options is a success in the field of cost-effective housing. Labbé sees solutions within his model for the construction slowdown that is coming for Toronto. Construction in the low-rise housing market has already been hammered, but it’s the condo market, what councillor Adam Vaughan calls the General Motors of the city, that will get hit next as the current batch of projects finish in the next eight to twelve months. The Options model could save 10,000 jobs.

Labbé’s philosophy for Options for Homes draws from an emerging field of business called social enterprise, which many of its practitioners feel is part of the next evolution of the economic system. Companies within this group, which are sometimes called “more-than-profits,” use business techniques to solve social problems. Revenue becomes a means to further the social-change component of an organization. And if these practices are the next evolutionary step for our economy, then what better time to propel these ideas to the fore as even G20 finance ministers and central bankers contemplate overhauls to the way we create capital?

* * *

While the market may be convulsing, Michel Labbé is pretty calm about going through his third recession since he’s been involved in the housing industry. His early forays into alternative housing models came in 1979 with Lantana Non-Profit Homes, an organization that helped groups take advantage of federally and provincially subsidized rental programs. It facilitated social housing in the classic sense, co-operatives and subsidized rental units. Labbé grew dissatisfied with this model. All the work that went into creating a co-op housing complex only benefitted the people who got in. Labbé wanted a way to extend that benefit beyond the lucky few. Also, throughout the 1980s, he saw government subsidies for social housing dry up until they simply disappeared soon after Mike Harris’ Conservatives came to power in 1995.

Out of this scenario, Labbé developed the Options for Homes model. At its core is the second mortgage that a buyer in an Options condo takes on. The purchaser only repays when he sells or rents the unit. The interest is a percentage of the unit’s increase in value. Both the buyer and Options, therefore, benefit from the equity that comes with homeownership. If the unit hasn’t increased in value at the time of sale, then only the principal is repaid. Options then takes the repayment and puts it into Home Ownership Alternatives, a non-profit corporation that will fund future cost-effective building projects. Since Options for Homes began in 1993, $12 million worth of mortgages have been repaid and $38 million are still being held. Labbé’s housing revolution does not have to be subsidized.

Options undertook its first major projects in the Distillery District. “Our first building in the Distillery District, St. Lawrence, was sold at the end of the down market in 1997-98,” Labbé says. “At that time when we put out flyers, we would get a two to three per cent response rate. A one per cent response rate is considered phenomenal. But during the recent peak of Toronto’s condo sales activity, we would get a 0.2 per cent response rate. Our percentage of the market increases as the market goes down.” He is keen to begin marketing Option’s next project, a 350 to 400-suite building near Bathurst and Lawrence. The recession looks bright for Options.

Labbé, who describes himself as a democratic capitalist, seems to be made up of equal parts idealism and pragmatism. These two qualities must reside in any social entrepreneur, but with Labbé, both are very strong. He can utter maxims that would get a No Logo-reading, anti-globalization anarchist nodding in agreement: “The ultimate goal is to have one person have it all: that’s the complete fruition of capitalism today.” He is also creative when it comes to solving business challenges. For example, when the CMHC and traditional banks wouldn’t help with the construction financing for the Junction project, Labbé brokered $97 million through a syndicate of seven credit unions, two based in Toronto and four from the western provinces. The two sides of Labbé come together in the idea of community. Homeowners want to live in a community—a Beach, Annex or Leaside—for a sense of place and feeling of security. But for Labbé, building and maintaining community is also a way to protect one’s investment. Options starts solidifying the investment before the ground is even broken for the building.

The closing date for the Junction buildings is almost two years away and their site is a deep pit crowded with construction vehicles and rebar. Yet, the co-operative board for the building has been meeting every six weeks for almost two years in the basement of the Runnymede United Church. More than a hundred plastic chairs are quickly occupied each meeting, leaving late comers to stand at the side and back. The purchasers vary in age: some are young first-time buyers getting help from their parents, others are long-time renters making the move to ownership. There’s a woman who works in HR for TD Canada Trust. Another purchaser, a fundraiser for a theatre company, hasn’t made it to one of these meetings yet, but follows the updates on Facebook. A man who often busks with his saxophone also keeps abreast of things online. These are Annex types who can’t afford the Annex. Other buyers have low incomes that require even more help than that of the second mortgage.

At a recent meeting in the church basement, the purchasers face a long plywood-top table for the five board members, who sit in front of a large wall hanging of a gold crucifix with pastel aqua, pink and purple rays emanating from it. This is a purely secular meeting, but the attendants are united in a collective vision. Labbé leads the meeting at a mic to the right of the table. He’s slim, of medium height and is almost always seen in tight dress pants and a loose dress shirt, tonight in dark and light grey respectively. He covers various items such as a city-parks levy and a bothersome hydro hook-up fee. The really timely questions come near the end of the session. One woman asks about the value of the units. In light of the troubled economy, she has some concerns. Labbé gives a thoughtful, nuanced answer. Since Options prices are about 30 to 40 per cent below regular market prices, even below the low end of the market, and since the remaining units are selling without active marketing and without a change in price, the value is at least staying the same. He couldn’t be sure if the units had increased in value because Options has no intention of raising the prices to see what the market could bear.

“Is that a good enough answer?” he asks.

“You said it’s not going down, so I’ll take that for now.” Her bluntness elicits laughter from everyone.
At a later date, Labbé adds more detail regarding the stable price of Options units. He says that Options isn’t about providing people with spectacular investments. They create quality buildings and communities. But the work condo dwellers do creating and maintaining their communities protects their investments. This emphasis on communities, as well as the second mortgage, deters flippers; Options buildings are 96 per cent owner occupied. Labbé says that his condos, with their absence of slick marketing and fancy amenities, are not about a life-style sell.

They are, of course, about life style; the sell just differs in kind.

* * *

While Labbé may have convinced purchasers that his plan is robust enough to withstand the recession, his larger challenge is convincing the city that Options is not only robust, but able to ease Toronto’s construction woes. In February, 28,000 construction jobs disappeared in Ontario. For the past five years, the city has come to depend on the yearly injection of more than 10,000 condo units built by developers and the accompanying development charges that help the city maintain its infrastructure. According to Labbé, the way to save 10,000 construction jobs and collect development charges—although at a later date—starts with the city.

At the end of January, Labbé sent a memo to the mayor and the Affordable Housing Office—which helps with the development of affordable housing in city—suggesting they designate 5,000 units worth of municipally controlled land for a one-time program. Labbé’s organization and other non-profits that could adopt the Options model would then develop these units with sale prices geared to households with incomes less than $75,000. There wouldn’t be any proposal calls, the means by which private developers gain building opportunities; the city would assign land to the various organizations. The non-profits, Labbé argues, would be more responsive than the traditional developers because maximizing profits requires careful, deliberate study. Selling at cost, which would be further lowered with the deferral of development charges, is more straightforward. The traditional developers and non-profits can also co-exist peacefully because the Options homes bring a different type of buyer into the condo market.

While Labbé’s plan is ambitious, many of its components have some kind of precedent. When the city developed the St. Lawrence Market area during the ’70s and early ’80s, it allocated land in the area to various non-profits, including Lantana, the organization for which Labbé worked. The Affordable Housing Office, which is a partner with Options on the Junction project, deferred $3 million worth of development charges for up to 10 years.

Options can deliver condos for well below market value; however, it can’t develop all 5,000 units. It needs other non-profits to adopt its model. Labbé has cited Artscape, the Co-operative Housing Federation of Toronto and Habitat for Humanity Toronto as organizations that could undertake such projects. These groups may have experience in the development industry, but it is at a lower scale. Habitat for Humanity Toronto, for example, has built 100 homes in the last 19 years. It plans to build 100 homes in the next 19 months, which is still at a rate too slow to combat the effects of the troubled economy. On this last point, Labbé invokes a variation on the Field of Dreams dictum: “If you build it, he will come.”

“The interesting thing is that once you provide an opportunity,” Labbé says, “people will come along to take advantage of it. That’s a lesson we learned from the development of the St. Lawrence area. There were about five groups that were created just to deliver in St. Lawrence.”

Two months after the memo went to city hall, it was under cautious consideration. The mayor’s office had met with Labbé and was reviewing the plan. Sean Gadon, Director of the Affordable Housing Office, said he was encouraged that Labbé was putting his mind toward how affordable housing can provide jobs. He was anxious to see housing investments help the economy, so the plan was under review.

Councillor Adam Vaughan shares Labbé’s desire to create condominiums that are also neighbourhoods and is willing to experiment with the non-profit developer’s ideas. However, Vaughan has reservations about the idea of allocating city lands.

“The amount land that Labbé thinks the city has is not quite accurate,” Vaughan says. “It’s not quite as simple as he offers and handing over tracts of land to private hands at reduced rates…You know, if we start doing that, he won’t be the only practitioner in town and the next person won’t necessarily be quite so honourable as he is. I’m not sure how you control that.”

John Sewell, former mayor of Toronto and a housing activist who was involved with the development of the St. Lawrence Market area, also has some critiques of Labbé’s plan. While Sewell feels the Options model is good, his concern is that it is limited in its ability to reach households with lower incomes.

“The city can provide land at no cost, but land is a very limited subsidy,” Sewell says. “The land cost is maybe five per cent of the total cost of the development. Not a lot. You need a greater subsidy if you are going to reach people with low incomes. Also, the city does not have a lot of resources. It’s very difficult for the city to afford to give the land away without subsidies. The reason the city could make land available for the St. Lawrence project is we had subsidies available from the provincial and federal governments.”

A recession may be a time for new ideas, but the unfamiliar—building cost-effective housing without subsidies, creating opportunity for non-profit developers that don’t exist yet—brings understandable pause. The ideas are still relatively new and they come out of an emerging field of business. The practitioners of social enterprise are working in an area that has few mature models. Some such enterprises are more socially beneficial than profitable, such as a proposed program by Toronto’s Woodgreen Community Services that would provide employment opportunities for mostly homeless men. They would prepare homes with bedbug infestations for effective spraying. It’s not expected to make a profit. Labbé’s organization is really at the top of the social enterprise food chain. But whatever the organization’s focus—bedbug removal or condo development—the values come first.

Labbé sees the movement as quite significant. “Social enterprise is the next appropriate evolution of the economic system,” he says. “It’s a much easier argument to make these days having seen what unfettered greed can do. A greed-based system collapses onto itself.” To further the expansion of his own ideas on social enterprise, Labbé is preparing to give a talk in November at the Canadian Conference on Social Enterprise here in Toronto. It will have echoes of the ideas that have kept him busy the last few months.
“I’m pitching a global partnership to eliminate child poverty. I’m going to be looking for practitioners of social enterprises that work on the basis of community wealth funds, in which the equity created is preserved for continual community support. The objectives are broader than just housing. For me, it’s the ultimate comprehensive approach to restructuring the economic system for social good, instead of profit margins. I want to do a pitch to the people who care and see whether they are willing to alter what they do to fit into what I perceive to be a better pattern.”

Labbé then adds, “So it’s going to be a fun time.”

* * *

Toward the end of Labbé’s presentation in the West Toronto Baptist Church basement, some of the potential buyers shift in their seats. It’s a familiar sight. Units are limited. Those who want to reserve scope out the available Options for Homes personal advisors for questions about availability and copies of floor plans. If they decided they do want to live in one of the buildings going up in the Junction, they will place a deposit at the table at which the little girl scribbled during the presentation.

Labbé watches from the front of the room. For him, housing is everything. It represents jobs, quality of life, respect and pride. He knows homeowners vote more; their neighbourhoods are more secure and have less crime.

“Homeownership changes your way of thinking and makes you a better citizen,” he says.

He’s just changed the way some people think about housing. But there are still others to whom he wants to bring his ideas.

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