Innovation in Financing Affordable Housing
The cost of not doing enough

Charlie Coffey
Executive Vice President
Government & Community Affairs
RBC Financial Group
Canadian Housing and Renewal Association (CHRA)
Western Regional Workshop
Sheraton Cavalier Hotel
Saskatoon, Saskatchewan

Friday, November 5, 2004

Thank 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…is there a connection between investing in children and investing in affordable innovative housing? You be the judge of that in the next few minutes.

"A strong 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).
Clients 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 to administer.

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.

For 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.

In 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

So 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!

The 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.
In Toronto, 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 in making…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.

And 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 Canada's reserves.

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.

The 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."

RBC also partners with various organizations to fight homelessness and support low cost housing:

• 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 office…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."

Just ask 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…and 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 ahead!

Thank you.