Innovation in Financing Affordable Housing
The cost of not doing enough
Executive Vice President
& Community Affairs
RBC Financial Group
Canadian Housing and
Renewal Association (CHRA)
Western Regional Workshop
Friday, November 5, 2004
you for the marvelous introduction Jim
and for inviting me to speak at this
luncheon today. It's great to be back in Saskatoon - I'm sure Gord Nixon, RBC
Financial Group's President and CEO, felt the same way when he was in the city
earlier this week. Jim told me that in over 35 years, the Canadian Housing and
Renewal Association (CHRA) has never held a meeting in Saskatchewan and these
type of gatherings are a new idea. It's about time this province and city gets
a chance to assume a key role when it comes to regional discussions about innovative
affordable housing. RBC is pleased to be a sponsor of this event - there's a solid
record of housing leadership in Saskatoon.
During my last visit to Saskatoon
in June, I spoke at a business forum about early learning and child care - the
cost of not doing enough. Jim heard my presentation and a certain General Manager
of the Saskatoon Housing Authority (SHA), board member of the Canadian Housing
and Renewal Association, chair of the Advisory Committee for Homelessness Initiatives
and past president of the Saskatoon Housing Initiatives Partnership (SHIP) - quite
the busy man - thought I'd be a good fit for this workshop. It got me to thinking
there a connection between investing in children and investing in affordable innovative
housing? You be the judge of that in the next few minutes.
nation is built and maintained by strong businesses and individuals. A healthy
and competitive nation is built one household at a time. Across Canada, 1.7 million
families are in need of affordable housing, and an estimated 14,000 people lived
in homeless shelters at the time of the last census. Shelter is a basic necessity
that we cannot take for granted." Business - financial services providers
- have a critical role to play in nurturing a healthy and prosperous society in
communities across the country.
Let's start by looking at some of the financial
drivers that impact accessibility to home financing, to better understand the
risks. First, regulations under the Bank Act prohibit banks from lending in excess
of 75% of the purchase price or the appraised value of a property without obtaining
hi-ratio insurance. High ratio mortgages must be insured through CMHC (Canada
Mortgage and Housing Corporation) or GENCOR (GE Capital Corporation).
looking for homeownership financing represent a spectrum of individuals: On the
one hand, there's people who don't understand the importance of credit history,
have defaulted on payments or have gone into bankruptcy. There are also people
who understand their capacity to borrow, as well as the need to budget and follow
through on payments. And there's clients who are everywhere in between. With any
affordable homeownership project, the goal is to shift the risk profile of low-income
families - to move them (and their risk level) in the right direction through
education, awareness and coaching.
Secondly, insurers and banks look at
credit through credit bureaus and credit scoring. Some of the more common factors
used in credit scoring are: credit history (which can represent a challenge for
those without a history, as could be the case for new immigrants, single mothers
etc.); delinquency and loan performance history; the amount of credit/number of
credits outstanding; residential and job stability; and past payment behavior
- paying utilities, rent, credit cards on time.
Thirdly, there's operational
risk - this is an especially important driver to frame any affordable housing
consideration. This risk is high if processes are time-consuming and prone to
human error. Then there's interest rate risk. Fluctuating interest rates on the
lending side, coupled with borrower defaulting, can translate into a bank loss.
Finally, there's reputation risk. Banks look for homeownership solutions that
create a win/win. We never want to put clients in a position where they cannot
make payments, nor do we want to put people on the street.And there are other
costs that also need attention. For example, set-up costs, such as legal contracts
for any affordability project, need to be easy and straightforward, if not standardized.
The credit underwriting/adjudication process adds costs. Ongoing counselling,
as well as payment and/or default management, requires resources that can be expensive
Having said all that, on July 4, 2000, three partners dedicated
to making a difference in Winnipeg's inner city (The Government of Canada, mainly
through the Canada Mortgage and Housing Corporation, RBC Financial Group and the
Spence Housing Coalition), announced an innovative pilot project for individuals
wanting to buy homes in the downtown Spence Neighbourhood. Under the pilot project,
buyers have the option of making a minimum down payment of five per cent, contributing
labour as an alternative form of down payment ("sweat equity"), or doing
a combination of both. By working together for inner city revitalization, the
Spence Housing Coalition, RBC and the Government of Canada are sharing in a commitment
to improve housing conditions for those persons who might not otherwise be able
to afford a home. While a pilot project at the time, this initiative signaled
the beginning of a growing trend of partnership which will help revitalize inner
cities and make better, stronger, safer neighbourhoods. The partners found sustainable
solutions for affordable housing in Winnipeg's inner city because they believe
facilitating home ownership will get people into homes and foster good neighbourhoods.
RBC, corporate responsibility is not just philanthropy, it also means investing
in community economic development and creating products and services that respond
to the needs of our communities. By participating in the Spence Neighbourhood
Pilot Project in Winnipeg, RBC's goal was to use what we do best as a business,
such as lending money, to make a difference in low-income neighbourhoods.
addition to enabling people to purchase homes under the Spence Neighbourhood pilot
project, buyers receive training on banking and budgeting from RBC, and on home
maintenance from community groups that are members of the Spence Housing Coalition.
Pilot project participants benefit from more flexible mortgage insurance eligibility
criteria and may also be eligible for additional funding, to help with renovations.
The project operates as a pilot for five years and is being monitored to assess
its success. The three partners are optimistic that it could become a model for
other Canadian inner city neighbourhoods interested in similar projects
what did we learn from the Spence project? And what are the elements that would
facilitate the financing of affordable housing? From a bank's perspective, we
see working in partnership and standardization (contract models) as the two priorities.
We also know that you don't abandon the people once the project is complete!
Spence Project taught us that expanding affordable homeownership programs requires
standardization: the time constraints and resources needed to operate any homeownership
solution are currently prohibitive and restrictive. Affordable housing projects
should be clearly identified internally to accelerate the financing process. Templates
for delivering home ownership to modest income Canadians are rare and what works
in one place may not work in others. At the very least, we need a common financing
model, to reduce time and effort spent on each new opportunity.
our Board of Trade is committed to a competitive and vibrant city. Its latest
report is concerned solely with "affordable rental and ownership housing
as a key factor in creating a city that's competitive with other North American
centres and offers a compelling quality of life." Toronto's supply of affordable
housing is inadequate. This ultimately affects business and can lead to a whole
host of more serious social and economic problems. You may want to take a peek
at the report's recommendations, including the development and implementation
of a national affordable housing strategy, an expanded mandate for the Canada
Mortgage and Housing Corporation (CMHC) and changes to the federal tax system.
Over 350 housing stakeholders participated in the Mayor's Affordable Housing
Summit in Toronto last February. People were energized to make housing happen
in the city and offered real affordable housing solutions. Talk about partnerships
all three levels of government, community agencies, corporations
and residents provided input and feedback. I also encourage you to obtain a copy
of this report, as sharing ideas is nothing less than a best practice.
here's another story about the value of partnerships
on-reserve housing has
long been a critical issue for aboriginal communities. Demographic trends forecast
a 56% increase in the population growth of aboriginal peoples in Canada by 2015.
Today, an estimated 35,000 new homes are needed to meet the current demand of
In 1999, RBC was one of the first banks in Canada to
introduce an On-Reserve Housing Loan Program for First Nations. The program was
not created to replace existing CMHC housing programs but to provide another financing
option that helps to immediately address long housing waiting lists and backlogs.
It was created with the guidance of aboriginal leaders to meet the unique needs
of aboriginal communities. The goal was important, yet straightforward-to help
more families enjoy the many long-term benefits of home ownership. This flagship
program was re-launched last month with some innovative enhancements.
Tsleil-Waututh Community in North Vancouver, BC, is a successful example of RBC's
On-Reserve Housing Program. The development boasts a 24-lot subdivision with 16
new homes currently under construction or recently completed. The community is
proud that aboriginal contractors and tradespersons were prominent in the development.
We're very excited to offer a program that's going to help meet the need for improved
housing and has such great potential to stimulate local economic development.
RBC has a long history of service to the aboriginal community and we have a vested
interest in continuing this partnership.
And what's the challenge and
opportunity in Saskatoon? SHIP estimates that "up to 17,000 (20%) of Saskatoon's
households would benefit from additional assistance in meeting housing needs.
The Saskatchewan Housing Corporation estimates that 1500 additional housing units
are needed to meet the current demand for housing in Saskatoon, requiring up to
$135 million of financing and investment." For this reason, SHIP is developing
a Housing Investment Fund that will help to level the playing field for providers
of assisted housing in terms of financing and other funds. At the same time, Saskatoon
has been singled out for best practices in affordable housing management: congratulations
to the Saskatoon Housing Authority (SHA) and the Youth Leadership Program/Day
Care Program for leading the way.
The private sector is becoming increasingly
aware of the role housing plays in the development of communities and the economy.
This is evident by the work of the Toronto Board of Trade in their document Affordable,
Available, Achievable - Practical Solutions to Affordable Housing Challenges (many
of you are familiar with this document). "Private sector interest in financing
affordable housing projects is triggered by a business case that both makes sense
and can show how affordable housing fits within industry norms."
also partners with various organizations to fight homelessness and support low
- Opportunities 2000. This was a project of the
Lutherwood Community Opportunities Development Association in Waterloo Region
(Vibrant Communities). This organization works with local partners to undertake
initiatives that enhance employability and reduce poverty. When RBC was approached
to become a partner, we were told it wasn't only about money - that it was also
about involvement. Jim Gordon, an RBC executive in Kitchener, Ontario at the time,
spearheaded efforts in poverty reduction and RBC staff engaged the business community
in Waterloo to help find solutions.
- Raising the Roof.
Toques are sold to raise funds for long-term solutions to homelessness (programs
such as providing contact addresses, job training and employment search support).
This is a national program, taken on voluntarily by bank and investments branches
of RBC, with funds raised in each community split between national programs and
local charities. www.raisingtheroof.org
- Habitat for Humanity. We support the habitat national
from which 10 grants of $10,000 are provided to local builds across
the country with RBC sponsorship. We also volunteer in these (and other) locations
to help build the homes. The Habitat model is based on each recipient family putting
in a minimum of 500 hours of "sweat equity." www.habitat.ca
- Phipps Houses. We've also invested in New York's Phipps
Houses, one of the US's largest not-for-profit developers, owners, and managers
of affordable housing. It's a multi-faceted real estate organization that creates
and sustains communities through housing development, property management and
community-based services. http://www.phippshouses.org
On this innovation in financing affordable housing note, what's
preventing Linda Bell (Saskatoon Communities for Children), Jeff Betker, (Manitoba
Metis Federation), Jacqui Bevill (CMHC), Sharon Chisholm (CHRA), Paul Gauthier
(City of Saskatoon), Cameron Gray (City of Vancouver), Les Gray (Moose Jaw Authority),
Trevor Hanna (Saskatoon Housing Authority), Richard Larson (City of Edmonton),
Craig Marchinko (Government of Saskatchewan), Donna Mayer (City of Ottawa), Wendy
Raths (Manitoba Housing and Renewal Corporation), Brenda Wallace (SHIP), Peter
Altobelli (Yardi Systems Inc.) and any RBCer in the room today (Greg Erman, Greg
Jensen, Tari Faulkner, Greg Graves, Terry Grant or Stacey Markowsky) - the people
who face industry challenges on a day-to-day basis - from creating an unparalleled
partnership team, whose insight and knowledge will lead to solutions for the future?
The answer is nothing and no one.
In closing, we must continue to make affordable
housing a priority and to find new ways of financing affordable housing. And we
must continue to make the link between housing, the stability of families and
the impact upon children. An investment in affordable housing pays huge dividends
in building healthy and prosperous communities. "Homelessness may not only
be a housing problem, but it is always a housing problem."
Hannah Taylor, the amazing eight year old Winnipeg girl who started painting ladybugs
on jars to raise money for the city's homeless this year, founded the Ladybug
Foundation and has earned "recognition, respect and support from politicians,
business leaders, artists, musicians and the general public across the country."
Hannah already knows that affordable housing is everybody's business
that there's a cost to not doing enough! Surely if an eight year old "gets
it", we can all get more innovative this afternoon and in the days and weeks