March 27, 2017
Author: John Fox
Last week’s budget leaves no doubt that the Federal government is coming back into the housing world. However, exactly how they will carry out that engagement is left for another day – the day the National Housing Policy is unveiled – and CMHC could well be at centre stage.
The budget promises $11.2B to the housing sector over the next 11 years. I have pasted in the summary table from the budget below. What’s interesting is that the money is being committed ahead of the supporting policy framework. It seems to me its usually the other way around – a policy comes out with no money and we all complain that its toothless. Well, there is money in the Budget, but we will have to wait for the policy to know exactly how this money will all get spent.
Building Money: IAH Renewed
The Budget measures include a continuation of the existing Investment in Affordable Housing Initiative, which provides capital grants for affordable housing projects. From a lawyer’s perspective, having spent years improving the contracting between the public sector and housing providers (with negotiating partners primarily at the City of Toronto), it is to be hoped that the replacement program is seamless. Both the housing sector and private partners have now become familiar and comfortable with the Contribution Agreements that are in circulation. Let’s not re-invent that. (Please)
From an economic perspective, its only so much money. The continuation of the IAH with a new but hopefully similar program likely means about $89 Million dollars annually for Ontario projects. That’s based on the proportion of money received by Ontario for previous programs which ONPHA cited in their summary of the Budget. As you divide that up among municipalities, that number becomes smaller. As a result, leveraging private financing, creativity, partnering, and supplementing federal funds with municipal incentives, and whatever other tools we have been using in the sector to get work going will continue to be necessary to build and repair units.
The Budget contains a commitment to make federal lands available for housing. Let’s hope they are serious about that. These days it’s land cost that blows up affordable housing pro-formas in the Greater Toronto Area. I know the GTA is not the center of the universe, but from where I sit, land value is a real challenge for creating new housing and I do not see an end in sight to that issue. Removing that burden from a housing pro forma is like manna from heaven, or, in this case, from manna from Ottawa. I don’t want to pretend that this is somehow novel. It has been around before and municipalities contribute land regularly. However, the value of this contribution is now higher than it was. Public land may have always been free or discounted, but the value of that discount is now higher than ever.
National Housing Fund
Almost half of the $11B being invested in housing will be funded through a new National Housing Fund. I have to think that this new fund will be at the center of the National Housing Policy. The Fund is intended to:
We do not know the details of these and will not until the National Housing Policy comes out later this year. However, I am particularly keen on the second bullet relating to the creation of a lending pool for direct lending. This is a high potential move akin to existing financing initiatives in the UK and has the potential to allow providers to effectively access the public debt markets through the conduit of a new Rental Housing Finance Initiative. The sector needs that level of leveraging to renew its stock and the federal government can and should play a role in getting that off the ground.
The budget also provides for targeted support for Northern Housing and Indigenous Peoples. I will leave it to others to comment on those. I was also pleased to see additional resources being made available to strengthen Housing Research. For more on those, please see the budget documents.
We don’t yet know how all this will play out – and we won’t until the National Housing Policy comes out. But, is it just my imagination or is CMHC about to be a really big deal again? If CMHC retains control over the $5B invested in the National Housing Fund, including the Finance Initiative, that initial investment could yield significant lending to the sector. Remember that the Finance Initiative is about leveraging other money into the sector. If CMHC is successful in doing that, it could be responsible for delivering 10 or 20 Billion dollars of lending into the Sector. So CMHC would be center stage as housing providers look to it to supply the debt money needed to build and repair units.
Of course, I don’t know for sure that CMHC will have that role. But I can give you this advice: Be nice to your friends there for a least the next little while. They could be your next banker.
PS – Hey CMHC – I think you’re great!