2.32 Newfoundland and Labrador Housing Corporation Non-Profit Rental Social Housing Units. Introduction

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1 Introduction Te Newfoundland and Labrador Housing Corporation (te Corporation) operates under te autority of te Housing Corporation Act. Te purpose of te Corporation is to provide cost-effective ousing and related programs for te benefit of te residents of te Province wit priority given to tose most in need. Its affairs are governed by a Board of Directors appointed by te Lieutenant-Governor in Council. Te Corporation employs approximately 425 full time and seasonal employees and as seven regional offices trougout te Province: St. Jon s; Marystown; Goose Bay; Gander; Corner Brook; Stepenville; and Grand Falls-Windsor. Prior to 1997, Canada Mortgage and Housing Corporation (CMHC) cost sared in te operations of te rental ousing and ome-owner programs. In 1997, te Corporation and CMHC entered into te Canada- Newfoundland Social Housing Agreement wic transferred all responsibility for operating and maintaining te rental units and omeowner programs to te Corporation. Under tis Agreement, CMHC provides a predetermined annual level of funding on a decreasing basis up to and including te year In , te Corporation ad expenses totalling $101.8 million relating to its subsidized rental ousing and ome-owner programs. Te most significant ousing assistance program administered and maintained by te Corporation is te Non-Profit Rental Social Housing Program. In , te Non-Profit Rental Social Housing Program ad expenses of $49.6 million (including $25.9 million in amortization). Included in te $49.6 million is $11.9 million related to maintenance, and modernization and improvement expense. Tis program provides seniors, non-elderly singles and low-income families wit suitable, affordable ousing. Rental costs do not exceed 25-30% of te montly ouseold income. At 31 Marc 2003, non-profit rental social ousing units were reported on te Corporation s financial statements at a cost of $277 million and a net book value of $238 million. As at 31 January 2003, tere were 5,756 non-profit rental social ousing units in 2,236 buildings directly administered by te regional offices trougout te Province. As outlined in Figure 1, 52% of te portfolio is over 25 years of age. Te units were constructed between 8 and 54 years ago. Auditor General of Newfoundland and Labrador 491

2 Figure 1 Newfoundland and Labrador Housing Corporation Age Range of Non-Profit Rental Social Housing Units 31 January 2003 Region Units Years of Age Under Over 30 Total Units St. Jon s ,258 Marystown Goose Bay Gander Corner Brook Stepenville Grand Falls- Windsor Total units 65 1,373 1,314 1,544 1,460 5,756 % of total units 1% 24% 23% 27% 25% 100% Source: NLHC Rental Management System Scope and Objectives We completed our review of te Non-Profit Rental Social Housing Program in April Te objectives of te review were to assess weter te Corporation: monitors te condition of te non-profit rental social ousing portfolio; determines and carries out an appropriate maintenance program; as addressed te long-term capital needs for te non-profit rental social ousing portfolio, including required expenditures, planned expenditures, funding sources for te planned expenditures and capital work priorities; and as addressed te current demand for ousing. 492 Auditor General of Newfoundland and Labrador

3 Conclusions Te Corporation s non-profit rental social ousing units are in need of significant repairs. At 31 January 2003, 3,004 or 52% of te Corporation s 5,756 non-profit rental social ousing units were in excess of 25 years old. In 2001, te Corporation prepared a preliminary cost estimate totalling $76.7 million relating to modernization and improvements of tese units. Altoug te Corporation is undertaking a detailed review of eac building to determine a more accurate cost estimate and wen te funding will be required, at 31 January 2003, 66% of te buildings ad not been reviewed. As a result of te reviews completed, te Corporation as identified tat in excess of $29 million will need to be spent on tese properties. Te Corporation as also determined tat, of tis $29 million, $13 million is rated as critical and in need of immediate attention. Wile Corporation officials ave discussed funding requirements wit te Provincial Government, no source as yet been identified to fund te required repairs. Te Corporation does not ave a preventative maintenance program in place to identify and correct deficiencies before tey become larger problems. Te Corporation does ave a budget for repairs and maintenance wic annually averages $8.2 million; owever, te majority of maintenance work is directed to critical repairs on a day-to-day basis. Te Corporation does not ave a complete long-term plan currently in place wic addresses te nature, amount, timing and funding source of future capital expenditures. Te Corporation as undertaken a number of initiatives in an attempt to identify future capital funding requirements for its non-profit rental social ousing units; owever, it as still not gatered sufficient information required for a complete long-term plan. Furtermore, altoug te Corporation does ave a budget for modernization and improvements averaging $3.6 million per year over te past five years, based on te information tat te Corporation as gatered relating to required capital costs, tis funding is considered to be inadequate. Te Corporation as indicated tat te lack of funding as led to... te detriment of tenant living conditions.... Te Corporation as indicated tat it is presently experiencing a ig demand for one and two bedroom units wile te need for four and five bedroom units as declined. Tis demand is te result of demograpic canges suc as an aging population, more single parents and fewer cildren per ouseold. As a result, vacancies in four and five bedroom units are becoming increasingly difficult to fill witout over-ousing te prospective tenants. At 11 December 2002, 2,026 units or 35% of te 5,756 rental units were occupied by families smaller tan te unit s capacity. Auditor General of Newfoundland and Labrador 493

4 Findings and Recommendations Condition of te Non-Profit Rental Social Housing Portfolio A major strategic issue identified by te Corporation in its Corporate Plan of February 2000 is te effective property management of te social ousing stock to ensure design, structural and aestetic integrity wile meeting canging client needs and community expectations. Te Plan indicates tat aggressive modernization efforts are required to address issues of age and suitability of te existing ousing stock. In , te Corporation set up a task force to look at required modernization and improvement for all non-profit rental social ousing units trougout te Province. In January 2001 te task force, based on a sampling of units and teir knowledge, determined te repairs and improvements tat were necessary relating to public non-profit rental social ousing witin te next 7 years. Te task force produced a report wic identified a need for $76.7 million in expenditures over tis 7 year period. Te task force recommended tat te Corporation complete a condition report on eac of its buildings wic ouse te non-profit rental social ousing units to determine a more complete and accurate cost estimate. At 31 January 2003, te Corporation ad 2,236 buildings wic oused 5,756 non-profit rental social units. Te task force establised criteria tat would ave to be considered in conducting te condition reports. Our review indicated te following: Te task force report did not provide any details as to ow muc funding would be required in eac of te seven years; instead, tey only determined te total of $76.7 million. Altoug te task force recommended in January 2001 tat condition reports be completed for all buildings wit a rating to establis priority for work, at 31 January 2003, te Corporation ad only completed condition reports on 755 (i.e. 34%) of te 2,236 buildings containing te 5,756 rental units. Furtermore, of te 755 condition reports completed, only 229 (i.e. 30.3%) were detailed evaluations representing an in-dept evaluation of te building condition in accordance wit te criteria establised by te task force. Tese reviews included building component inspections, examination of at least 40% of units contained in te building, review of maintenance istory and tenant interviews. Tese condition reports result in a well supported and reasoned estimation of te expenditures required on te unit. 494 Auditor General of Newfoundland and Labrador

5 Te remaining 526 (i.e.69.7%) were basic evaluations representing a preliminary level evaluation of te building condition based on te inspectors knowledge of te building using information tat is already available. Terefore, cost estimates for units in tese condition reports are not as well supported and reasoned. Figure 2 Based on te 755 condition reports completed, in excess of $29 million in funding is required to bring te condition of te Corporation s non-profit rental social ousing portfolio identified in tese condition reports up to standard. Based on te condition reports completed, te $76.7 million estimated by te task force in 2001 is not an unreasonable estimate. Details of te estimated $29 million by location and urgency is outlined in Figure 2. Newfoundland and Labrador Housing Corporation Non-Profit Rental Social Housing Portfolio Condition Report Findings 31 January 2003 Region Immediate Repairs Repairs Needed in Near Future Repairs needed witin 5 years Total St. Jon s $ 7,559,257 $ 5,249,398 $ 2,421,905 $ 15,230,560 Marystown 349,061 1,364, ,260 2,041,896 Goose Bay 197, ,108 8, ,776 Gander 327, , ,900 1,319,620 Corner Brook 1,832,610 1,634, ,610 3,638,405 Stepenville 628, , ,190 2,288,310 Grand Falls - Windsor 2,405,003 1,058, ,220 3,707,113 Total $ 13,299,194 $ 11,460,201 $ 4,272,285 $ 29,031,680 Source: NLHC Condition Report Database Auditor General of Newfoundland and Labrador 495

6 Figure 3 As Figure 2 sows, te Corporation as identified tat approximately $13 million is required on an immediate basis in order to complete te required repairs on te 755 buildings for wic condition reports ave been prepared. Te Corporation as not attempted to project te required immediate repair costs on te remaining 1,481 buildings. It is likely, owever, tat tese repair costs will be quite significant. Wile Corporation officials ave discussed funding requirements wit te Provincial Government, no source as yet been identified to fund te required repairs. Maintenance Management During , te Corporation spent $8.2 million in recurring maintenance on its non-profit rental social ousing portfolio. In addition, during te year te Corporation spent a furter $3.8 million in modernization and improvements for a total of $12 million. Figure 3 provides information on tese expenditures during te past five years. Newfoundland and Labrador Housing Corporation Maintenance Costs and Modernization and Improvement Costs Years Ended 31 Marc Average # of units 5,899 5,876 5,811 5,797 5,773 Annual Maintenance Costs $9,243,915 $8,286,420 $8,001,575 $7,377,777 $8,158,876 Average cost per Unit $1,567 $1,410 $1,377 $1,273 $1,413 Annual Modernization and Improvement Costs $4,165,530 $3,850,375 $2,784,455 $3,537,655 $3,754,756 Average cost per Unit $706 $655 $479 $610 $650 Total Costs $13,409,445 $12,136,795 $10,786,030 $10,915,432 $11,913,632 Average total costs per Unit $2,273 $2,065 $1,856 $1,883 $2,064 Source: NLHC Financial Information Systems Note: Modernization and improvement expenditures ave been reduced by te amortization related to te $5 million capital expenditure for te years 2001, 2002, and Auditor General of Newfoundland and Labrador

7 Given te required repairs identified by te Corporation and te increasing age of te rental units, it would be expected tat maintenance costs would increase or at least remain at a constant level. However, as Figure 3 sows, average maintenance costs per unit declined eac of te last four years prior to Even wit te increase in 2003, te average maintenance cost in 2003 is 11% lower tan it was in Te Figure also sows tat average modernization and improvement costs in 2003 are 8% lower tan tey were in A review of maintenance activity identified te following: A new maintenance system implemented during 2000 captures information on suc tings as te total number of work orders completed, total time taken to complete work orders, time spent on meetings, travel, and leave. Altoug tis new system provides information on labour time and costs, no standards or bencmarks ave been establised to provide a basis to monitor work completed. As a result, te Corporation cannot readily identify areas were improvements could be made to its maintenance activities. Te current system as been mainly used to compile labour and materials costs on a project basis. Included in te total $10.9 million spent on maintenance, and modernization and improvement in 2002, is $5.6 million in labour costs or 51% of te $10.9 million. As part of te Corporation s review of maintenance activities in January 2002, it was identified tat te amount of sick leave taken by maintenance staff averaged 13.1 days for te year ended 30 June Te cost of tis sick leave, estimated to be approximately $284,000, is included in te maintenance and modernization and improvement costs. Altoug te Corporation spends approximately $11.8 million annually for repairs and maintenance, and modernization and improvement, it does not ave a preventative maintenance program in place to identify and correct deficiencies before tey become larger problems. Currently, te majority of maintenance work is directed to critical repairs on a day-to-day basis, including reacting to requests made by tenants. A preventative maintenance program for te non-profit rental social ousing portfolio could contribute to an increased service life and lower bot maintenance, and modernization and improvement costs over te portfolio s life cycle. Auditor General of Newfoundland and Labrador 497

8 Te Corporation does not adequately monitor te allocation of costs between maintenance and capital costs for modernization and improvement. We reviewed expenditures carged to teses two accounts and found tat tere were similar expenses carged to bot. As a result, tere are inconsistencies in te categorization of expenditure transactions produced by te Corporation s management information system. Terefore, it is difficult for te Corporation to determine weter it is spending in accordance wit its plans. Tere is no information readily available to track eiter modernization and improvement or maintenance costs on units (or projects) over te years. Officials informed us tat, due to te cost of storing information, te Financial Administration System as only 4 years of data available at any time. All data in excess of 4 years would be available in ard copy only and ten it only goes back to Prior to 1992 tere would be no practical way to compile accurate and complete information as to te modernization and improvement or maintenance costs tat were carged to rental properties since construction. Terefore, tere is no tracking of te useful life of suc items as windows, doors, and roofs to determine wen suc items may ave to be replaced. Wen repairs or replacement is required for tese components, it is difficult witout aving a complete istory of all work completed on tese items to determine te quality of te product, workmansip, and wat impact any preventative maintenance may ave ad. Capital Planning and Budgeting Good management practice requires te preservation of capital assets and te extension of teir useful lives troug periodic maintenance and modernization and improvements. Terefore, wit regard to te Corporation s non-profit rental social ousing units, it is important to periodically inspect te condition of te units and establis priorities for needed repairs and modernization and improvement. Since capital repairs often result in major expenditures, it is also good practice to establis long-term plans and budgets for te nature, amount and timing of future capital expenditures. 498 Auditor General of Newfoundland and Labrador

9 Altoug te Corporation as undertaken a number of initiatives in an attempt to identify future capital funding requirements for its non-profit rental social ousing units, tere is no complete long-term plan currently in place wic addresses te nature, amount and timing of future capital expenditures. In 2001, te Corporation estimated tat it would cost $76.7 million over seven years to address all required repairs to its non-profit rental social ousing units. During te budget process, te Corporation requested $36 million over five years - (year 1 - $5 million, years 2, 3 and 4 - $8 million and year 5 - $7 million) for te modernization and improvement of its rental social ousing units. For 2001, Government approved te $5 million relating to te year 1 request; owever, te Corporation ad to find tis money witin its existing funding levels. Furtermore, no funding as been provided to te Corporation since tat time relating to te balance of $31 million. Te Corporation as acknowledged tat insufficient expenditures on nonprofit rental social ousing units for repairs and modernization and improvement over te past several years as contributed to te deteriorating condition of its non-profit rental social ousing portfolio. In fact, in its capital budget on non-profit rental social ousingmodernization and improvement, te Corporation stated tat...funding for te program as been inadequate. Te result as been te postponement of planned modernization and improvement to te detriment of tenant living conditions and te cost of ordinary maintenance. Recent inspections of te portfolio confirm tis and indicate tat some units are below standards, lack necessary facilities and are not configured to meet demograpic demand. Figure 4 outlines te actual expenditures for te past four years on modernization and improvements. Auditor General of Newfoundland and Labrador 499

10 Figure 4 Newfoundland and Labrador Housing Corporation Modernization and Improvement Expenditures Years Ended 31 Marc Region St. Jon s $1,882,820 $1,786,096 $1,201,289 $1,708,255 $2,411,368 Marystown 201, , , ,230 74,661 Goose Bay 261, , ,753 4,016 36,085 Gander 305, , , , ,581 Corner Brook 576, , , , ,395 Stepenville 193, , ,745 (5,619) 218,297 Grand Falls-Windsor 743, , , , ,369 Total $4,165,530 $3,850,375 $2,784,455 $3,537,655 $3,754,756 Source: NLHC Financial Information Systems As te Figure indicates, since 1999 spending is restricted to less tan $4 million annually. Te annual provision for modernization and improvement in te operating budget as averaged $3.6 million over te last 5 years. Allocating tese monies to te regions on an annual basis is te only plan tat te Corporation currently as in place to address its estimated $76.7 million in required repairs. Tis estimate was based on tese repairs being made over seven years. Given te Corporation s current level of funding, it will take 20 years to complete te required repairs unless oter sources of funding are identified. Furtermore, condition reports completed by te Corporation ave identified tat approximately $13 million is required on an immediate basis to address required repairs in its non-profit rental social ousing units. 500 Auditor General of Newfoundland and Labrador

11 Figure 5 Wile Corporation officials ave discussed funding requirements wit te Provincial Government, no source as yet been identified to fund te required repairs. Matcing Housing Demands to Supply Te demand for non-profit rental social ousing varies among te seven regions and is impacted by demograpic canges, availability and affordability of private sector rental ousing and oter socio-economic factors. As sown in Figure 5, as of December 2002, vacancy rates for te Corporation s non-profit rental social ousing units range from a low of 1.3% in te Stepenville area to a ig of 30.1% in te Marystown area. Newfoundland and Labrador Housing Corporation Vacancy Rate of Non-Profit Rental Social Housing Units 11 December 2002 Region Units Vacant Units Vacant for more tan 1 Year Vacancy Rate Waiting List (31 January 2003) St. Jon s 3, % 455 Marystown % 11 Goose Bay % 7 Gander % 38 Corner Brook % 132 Stepenville % 33 Grand Falls-Windsor % 95 Total 5, % 771 Source: NLHC Rental Management System Auditor General of Newfoundland and Labrador 501

12 Our review identified te following: Te Corporation s Rental Management System does not provide a istory on waiting lists and, as a result, te Corporation cannot readily determine if te number of approved families on waiting lists are increasing or decreasing on an annual basis. Our review identified tat, for te entire Province, tere were 1,524 applications on file at 31 January 2003 of wic 753 were classified as incomplete and awaiting information from te client. Of te 771 applications wic were approved and selected, tere were 354 on te waiting list for more tan 1 year wile 165 ave been on te waiting list for more tan 3 years. In tree regions - St. Jon s, Corner Brook and Grand Falls- Windsor, tere were rental units vacant in excess of one year even toug tere were a large number of approved families on te waiting list. Officials indicated tat most of te vacant units were in need of major repairs and, terefore, not in a condition to be rented. For example: St. Jon s - of te 11 units wic ave been vacant for in excess of one year, 8 require major renovations, 2 are being used for storage and 1 is in a low demand area. Corner Brook - of te 4 units wic ave been vacant for in excess of one year, 2 are to be sold, 1 was sold in January 2000 and not removed from te vacancy listing and 1 is in a low demand area. Grand Falls-Windsor - of te 6 units wic ave been vacant for in excess of one year, 2 require major renovations, and 4 are located in a low demand area. During te past few years, te Corporation as experienced very low demand for te non-profit rental social ousing units located in Marystown and Goose Bay. As a result, tere are excessive longterm vacancies. Te Corporation as indicated tat it is presently experiencing a ig demand for one and two bedroom units wile te need for four and five bedroom units as declined. Tis demand is te result of demograpic canges suc as an aging population, more single parents and fewer cildren per ouseold. As a result, vacancies in four and five bedroom units are becoming increasingly difficult to fill witout over-ousing te prospective tenants. 502 Auditor General of Newfoundland and Labrador

13 As a result of te costs associated wit te redesign and upgrades for te larger units to make tem into smaller units, te Corporation cannot afford to undertake any suc projects. For example, in February 1992, te Corporation identified projects to redesign 757 rental units at an estimated cost of $19.5 million; owever, te projects did not proceed because of a lack of funding. Figure 6 outlines te Corporation s rental units, number of bedrooms and te family size occupying te units. Figure 6 Newfoundland and Labrador Housing Corporation Portfolio Composition 11 December 2002 Family Size Number of Bedrooms Total Units , , , , vacant units Total , ,756 Source: NLHC Rental Management System Auditor General of Newfoundland and Labrador 503

14 As te Figure sows, as at 11 December 2002, tere were at least 2,026 families living in units wic ad more bedrooms tan te family size. For example, tere were 813 single tenants oused in two bedroom and larger units, 1,068 two person families being oused in tree bedroom and larger units, 140 tree person families being oused in four bedroom and larger units, and 5 four person families being oused in a five bedroom unit. Terefore, 35% of te rental units are occupied by families smaller tan te unit s capacity. Recommendations Te Corporation sould: complete detailed condition reports on all of its non-profit rental social ousing units to develop a long-term capital plan wic outlines te nature, amount, timing and source of funding; implement a preventative maintenance program; and develop a long-term ousing accommodation plan to address te effect of demograpic canges. Corporation s Response Te Corporation as clearly documented te financial callenges associated wit capital improvements to its non-profit social ousing portfolio. In tis context te Corporation, based on solid randomsampling metodology, as also identified te funding parameters to meet tis callenge. As noted, owever, te Corporation as extremely limited budgetary flexibility given tat te income tresolds of its social ousing tenants provide little, if any, opportunity for rental income revenues above current levels. Moreover, te province s annual sustaining grant to NLHC cannot fully address tese capital requirements. Te Corporation fully recognizes te need to maintain an updated corporate and capital plan to meet tis callenge and also fully recognizes te need for detailed condition reports wic reflect te portfolio condition. As of November 15, 2003, te Corporation as completed detailed reports on approximately 53 percent of its units. Tese reports generally confirm te fiscal callenge as initially identified troug te random sampling metodology referenced above and will form te basis for te refinement of capital plan options by te Corporation. 504 Auditor General of Newfoundland and Labrador

15 Te Corporation notes tat te ongoing portfolio maintenance callenges reflect, in large measure, two principal considerations: te age of te social ousing portfolio and teir specific building envelope caracteristics. Only 1 percent of te portfolio is under 10 years of age wereas 76 percent are in excess of 20 years. For te most part, te major maintenance callenges are associated wit te approximate 2500 units wic were constructed over te period and wic are subject to major building envelope deterioration. Te Corporation acknowledges tat a preventative maintenance program could elp address te overall maintenance callenges but as noted in te above social ousing unit review te principal focus of te current maintenance budget is directed in support of day-to-day critical repairs out of necessity. However, te Corporation will be giving tis issue priority in te development of its revised Corporate Strategic Plan. Virtually te entire existing social ousing portfolio of te Corporation was constructed prior to te dramatic demograpic and rental market sifts wic ave occurred witin te past decade or more. From tis perspective, te Corporation as limited flexibility to matc te current social ousing demand wit te existing demograpic realities. Wenever possible, individual tenant placements are assigned on te basis of approved unit requirements. Moreover, as noted in te above review, te identified costs associated wit te redesign, upgrading and reconfiguration of te larger, older units in te main are proibitive and beyond te Corporation s existing budget limitations. Te Corporation will, owever, explore every cost-effective option to address tis issue in te context of long-term ousing accommodation options. Auditor General of Newfoundland and Labrador 505

16 506 Auditor General of Newfoundland and Labrador