Implementing the Toronto Modular Housing Initiative as an Urgent Response to the COVID-19 Pandemic

This report includes the content of that planned report with an added urgency to increase the supply of affordable housing as soon as possible, in response to the COVID-19 pandemic. This report recommends Council approve the purchase and installation of 110 modular units to be used as supportive housing for homeless individuals within the City's shelter system by September 2020 and another 140 units in 2021. COVID-19 and Housing and Homelessness Prior to the onset of the COVID-19 pandemic, Toronto was already experiencing an unprecedented demand for homeless services due to various factors including a lack of affordable housing options in the city. Despite adding 3,000 shelter spaces since 2015, shelter occupancy remains at capacity with over 8,000 shelter users each night. The current COVID-19 pandemic has quickly amplified the pre-existing challenges within Toronto's housing and homeless systems. In addition, it has caused considerable added strain on the emergency shelter system largely due to requirements around physical distancing and isolation. In late March, in response to the health emergency impacting the well-being of residents in the city, and the urgent need to find safe and secure accommodation for the City's homeless population, the Mayor asked staff to find ways to expedite the delivery of modular supportive housing, with the aim of getting 110 new homes ("Phase One") open by September 2020, subject to final approval by Council. These modular homes are intended to be used as supportive housing by layering in housing benefits and health supports to the affordable rental homes, utilizing financial support from other orders of government. By implementing modular supportive housing to provide homes for those living outside or in our shelter system, the City is creating permanent housing solutions to help some of our most marginalized residents live in dignified housing with supports. During the COVID-19 pandemic, this initiative will also save lives by providing individuals with safe spaces to exercise physical distancing and self-isolation. Modular Housing and Required Authorities Modular housing, which is prefabricated housing built in a factory and then transported to the site where it is assembled, is considered a faster and a more cost-effective construction option than conventional construction methods. As showcased in many jurisdictions in North America, modular housing provides an opportunity to respond rapidly to the city's urgent homelessness situation. Following the Mayor's request, an inter-divisional team of CreateTO and City staff reached out to a number of modular housing providers across Canada to ascertain which ones could deliver Phase One of the modular housing initiative within the tight timeframe. Based on discussions and research, staff recommended to the Mayor that preliminary discussions proceed immediately with Horizon North Inc. (or its subsidiary, NRB) with respect to Phase One, subject to negotiation of an acceptable agreement and Council approval to proceed with a non-competitive process. This report seeks Council authority for staff to enter into negotiations and formalize agreements with Horizon North Inc. or its subsidiary NRB, for the design and installation of Phase One. Staff recommendation to proceed with a non-competitive process for Phase One only, is based on research and outreach to a number of modular manufacturers in the Greater Toronto Area and across Canada taking the following factors into account: a) There is limited competition in the market with only a handful of companies that have actually delivered residential modular housing; b) Horizon North Inc./NRB has extensive experience (over 40 years) in the modular residential housing industry; c) Horizon North Inc./NRB has successfully delivered hundreds of modular homes in City of Vancouver and across the province of British Columbia; and d) This is the only manufacturer contacted who confirmed they can meet the urgent, emergency timelines required for Phase One. This report also seeks authority for the Housing Secretariat, Corporate Real Estate Management and CreateTO, in consultation with other City divisions, to identify sites appropriate for the modular housing initiative. Additionally, it seeks approval to allocate $28.75 million in City funding and about $12.76 million in Open Door program incentives to support the creation of up to 250 modular supportive homes, with 110 homes to be delivered by the end of September 2020 and the remaining 140 homes to be delivered in early 2021. For clarity, the City funding and Open Door incentives have been budgeted in the Housing Secretariat's affordable housing investment plan and are not new/unplanned costs for the City. The modular housing initiative will be the subject of a further report to Council to obtain the required authority to enter into the leases with the chosen non-profit housing operators for the City sites to be identified. Intergovernmental Support to Deliver Modular Housing Staff have been working with the Canada Mortgage and Housing Corporation (CMHC) to secure funding and financing to deliver this project by way of a submission to the CMHC Innovation Fund. CMHC has reviewed the submission, is supportive of making a significant investment, and is currently working with the City to finalize the legal agreements to facilitate the delivery of Phase One plus an additional 140 units as part of a future phase ("Phase Two") (See Attachment 6). The overall cost to deliver 250 modular supportive homes is estimated to be $47.5 million, excluding land and City incentives. It is proposed that this amount be funded through a combination of the City's Development Charges Reserve Fund for Subsidized Housing (XR2116) and funding and financing from CMHC's Affordable Housing Innovation Fund. The financing obligations will be supported through rent payments made to the City by the future non-profit operators for the sites, funded through their operating revenues. However, the City of Toronto will ultimately be responsible to CMHC for the debt obligation. Operating funding for health related support services and housing subsidies will also be requested from the Province, so that deeply affordable supportive homes can be delivered at the sites. It should be noted that there is a risk of not being able to operate these units as deeply affordable supportive housing in the absence of financial support from other orders of government. The partnership model proposed in this report for developing and operating new supportive homes, through support from all orders of government and community partners, is critical to reducing homelessness. Implementing modular housing would also reduce ongoing and sunk costs to the public sector and make a profound contribution towards expediting Toronto's recovery from COVID-19. To illustrate this point, supportive housing on average, costs roughly $2,000/unit/month to operate versus emergency shelters which costs almost double to operate pre-COVID (and about triple under the current COVID-19 situation). Helping people find permanent affordable and supportive housing also reduces costs to the health care and justice systems. Much like other investments in infrastructure, affordable housing also has an economic stimulus effect in terms of jobs created due to design, manufacture, construction or renovation, etc. which would help "jump start" economic recovery from the COVID-19 pandemic. Therefore, now is the time for all orders of government to act to protect residents from the life threatening coronavirus and other vulnerabilities, and build our resilience as a city, region and country. It is essential that all orders of government also align resources immediately and shift the focus away from providing costly emergency measures to providing suitable, adequate and affordable housing with wrap around services to reduce homelessness and improve the health and overall well-being of our most vulnerable.

2. City Council authorize the Executive Director, Housing Secretariat, in consultation with the Chief Executive Officer, CreateTO and the Executive Director, Corporate Real Estate Management to conduct a Request for Proposals ("RFP") process and to select a manufacturer to design, build, and install modular homes for subsequent phases of the modular housing initiative. 3. City Council authorize the Executive Director, Housing Secretariat to issue an RFP and to select non-profit housing providers to operate the supportive housing units to be developed under Phase One of the modular supportive housing initiative. 4. City Council authorize the Executive Director, Housing Secretariat, to negotiate and execute on behalf of the City, a municipal housing facility agreement (the City's "Contribution Agreement"), with the non-profit housing providers selected through the competitive process referred to in Recommendation 3, or a related corporation, to secure the financial assistance being provided and to set out the terms of the operation of the new affordable rental housing, on terms and conditions satisfactory to the Executive Director, Housing Secretariat and in a form approved by the City Solicitor. 5. City Council authorize the General Manager, Shelter, Support and Housing Administration to negotiate and enter into any agreements with the non-profits housing providers selected to operate the modular housing projects, for any operating funding that may be available, including, but not limited to rent supplement or grant funding agreements, on terms and conditions agreed to by the General Manager, Shelter, Support and Housing Administration and in a form approved by the City Solicitor. 6. City Council authorize severally each of the Executive Director, Housing Secretariat and the General Manager, Shelter, Support and Housing Administration to execute, on behalf of the City, any security or financing documents required by the non-profit housing providers selected for each of the modular supportive housing sites to secure the financing necessary to acquire the leasehold interest in the land and modular units, as well as any subsequent refinancing, including any postponement, confirmation of status, discharge or consent documents where and when required during the term of the municipal housing facility agreement, as required by normal business practices, and provided that such documents do not give rise to financial obligations on the part of the City that have not been previously approved by Council. 7. City Council authorize the Chief Executive Officer, CreateTO to act as the City's agent and to submit all required applications required to obtain required planning approvals. 8. City Council request the Chief Planner and Executive Director, City Planning in consultation with the Executive Director, Housing Secretariat, the Executive Director, Corporate Real Estate Management and Chief Building Official and Executive Director, Toronto Building to: a. prioritize Phase One and future modular housing sites, identifying ways to expedite the necessary building and planning approvals; and b. develop design guidelines for subsequent phases of the modular housing initiative in consultation with the General Manager, Shelter, Support & Housing Administration and non-profit operators. Funding and Financing Considerations 9. City Council authorize the Executive Director, Housing Secretariat to negotiate and enter into any agreement with Canada Mortgage and Housing Corporation ("CMHC") for any funding and financing available to support the modular housing initiative, substantially on the terms outlined in Confidential Attachment 1, and on such other or amended terms and conditions as may be acceptable to the Chief Financial Officer and Treasurer and in a form approved by the City Solicitor. 10. City Council authorize the Deputy City Manager, Community & Social Services to urgently request the Ontario Government to make available operating funding to support the City's modular supportive housing initiative and authorize the Executive Director, Housing Secretariat and the General Manager, Shelter, Support and Housing Administration to negotiate and enter into any agreements necessary to secure such funding. 11. City Council amend the 2020 - 2029 Capital Budget and Plan for Shelter Support and Housing Administration by adding a new capital project called "Modular Homes Project" with a total project cost of $47.5 million and cash flows of $20.9 million in 2020 and $26.6 million in 2021, with budgeted funding of $28.75 million provided from the Development Charges Reserve Fund for Affordable Housing (XR2116), and the balance in grant and re-payable loans from CMHC and recoverable debt from non-profit housing providers by way of lease payments to the City, subject to finalizing negotiations with CMHC. 12. City Council approve the establishment of an obligatory reserve fund account called the "Modular Housing Reserve Fund" in Schedule 15 - Third Party Agreements Obligatory Reserve Funds, of the City of Toronto Municipal Code Chapter 227, the purpose of which is to receive funds from Canada Mortgage and Housing Corporation for the design/purchase/installation of modular housing as well as lease payments from non-profit operators to repay the CMHC loan, as set out in Appendix A. 13. City Council authorize the City Solicitor to complete the transactions provided for in City Council's decision on behalf of the City, including making payment of any necessary expenses related to finalizing the funding and financing agreements with Canada Mortgage and Housing Corporation, and amending or waiving the terms and conditions, as the City Solicitor may from time to time consider reasonable. 14. City Council authorize the Executive Director, Housing Secretariat to compensate CreateTO on a direct cost-recovery basis for provision of the following goods and services to be performed by CreateTO and its contractors, with prior approval from the Executive Director, Housing Secretariat for such expenses: a. Preparing the identified sites for construction, including undertaking necessary environmental studies and remediation, community consultations, planning and other consultant studies to support expedited delivery of the identified sites for modular supportive housing; and b. Entering into and administering the contract or any other agreements required to be entered into with the manufacturer of modular units, for the manufacture and installation of the modular units. 15. City Council exempt the 250 modular affordable rental homes to be developed in Phases One and Two of the modular housing initiative from development charges, planning and permit fees, and parkland dedication all units (as outlined in Table 1). 16. City Council exempt the 250 modular affordable rental homes to be developed on the identified sites in Phases One and Two, from taxation for municipal and school purposes for the term of the municipal housing facility agreement (as outlined in Table 2). 17. City Council authorize City staff to cancel or refund any taxes paid after the effective date of the municipal housing facility agreement. 18. City Council direct that Confidential Attachment 1 to the report dated April 27, 2020, from the City Manager remain confidential in its entirety until such time as Canada Mortgage and Housing advises the Executive Director, Housing Secretariat that the same may be disclosed to the public.