A common question about Social Offsets is how to determine pricing – what will people be willing to pay?
Offsets are priced and marketed to individuals rather than developers. For simplicity, the offset is priced at 1% of the purchase price of the unit.
[An alternative would be to mandate that developers match funding. However this approach would require legislation. The idea behind social offsets is to develop a program that does not require government intervention]
This percentage would be consistent across development styles, and ideally across Canada. The selling price and building cost per unit will vary by region but should vary in proportion to each other.
As an example, in Vancouver, if offsets will be sold at a rate of 1% of total project revenues for new condo developments, this translates into $5000/unit given the average price according to real estate board for condos in Yaletown are $500 000.
According to CMHC Housing Marketing Information August 2008, there are approximately 1600 units being built in 2008 in Vancouver – Downtown and an estimated 1760 being planned for 2009. Therefore in two years the social offset fund will have $16.8 million dollars. Social offset funds will leverage additional grant funding at a rate of 2:1 and $320,000 is needed for each unit thereby funding the creation of 158 units of affordable housing in the city of Vancouver.
The model attached shows the impact of changing these variables and allows some basic price sensitivity analysis and assessing the feasibility of Developer matching funds