The Sky’s the Limit for Affordable Housing
-
Minute Read
-
Listen
Stop
-
Text Bigger | Text Smaller
When it comes to affordable housing, doing the right thing and turning a profit don’t have to be mutually exclusive. That was one of the key takeaways from the Canada Housing Discussion/Affordable Housing panel, which closed out the 2023 BMO Government, Reserve & Asset Managers Conference.
The panel, hosted by John Uhren, Managing Director, BMO Capital Markets, explored the financial benefits of providing housing to the country’s most vulnerable populations, including in environmentally friendly ways. The session featured Jamie Cooper, Portfolio Manager, Dream Impact Fund, Vivian Chih, National Key Account Manager, Financial Institutions, Canada Mortgage Housing Corporation (CMHC), and Clio Straram, Head, Indigenous Banking at Bank of Montreal.
BMO’s John Uhren set the stage by explaining why investing in affordable housing can be an opportunity to drive revenue and alpha for investors. “When we think of affordable, it’s not about philanthropy,” he said. “Accepting below-market returns wouldn’t be sustainable, either for our shareholders or for the communities.”
BMO has been doing its part to encourage affordable housing. In 2021, the bank made a $12-billion commitment to support affordable and accessible housing for Canadians by 2030, which we developed in collaboration with CMHC as part of our ongoing participation in the Canada Mortgage Bond program. So far, 22%, or $2.6 billion, of those funds have been used to help finance affordable mortgages in multi-unit residential spaces that align with CMHC’s definition of affordable housing.
Gathering the Stakeholders
Part of this process involves taking advantage of government programs to ensure capital flows to projects that are affordable and climate-compatible, something CMHC specializes in. According to Vivian Chih, CMHC is making significant investments in housing through the National Housing Strategy, a 10-year, $82-billion federal housing program designed to provide Canadians access to affordable accommodations.
“We’re helping some of the most vulnerable people in your communities, people you see every day – seniors and veterans, people with disabilities, be it physical or developmental, folks who have mental health challenges and/or addictions, Indigenous people, women and children fleeing domestic violence and people who are homeless, who may have never had a safe place to call home,” she said.
By the end of last year, CMHC had committed $31 billion, helping support the creation of a total of roughly 118,000 new units (created or committed funding). CMHC has also committed more than $10 billion to support the needs of women and children.
Key to CMHC’s success is the partnerships it has formed with housing stakeholders across the country. Additionally, CMHC maintains a strong community presence by embedding teams of housing experts within Indigenous communities and in off-reserve communities. CMHC has also seen tremendous take-up of its housing supply programs, including Mortgage Loan Insurance Select, which offers lenders protection against borrower default while helping ensure new units are affordable, accessible, and energy efficient.
The Sky’s the Limit for Affordable Housing
Historically, the Canadian private sector hasn’t been overly focused on affordable housing, but according to Dream Impact Fund’s Jamie Cooper, that’s changing because of the size and scale of the opportunities on the horizon. The Fund, which was launched in 2021 to capitalize on this opportunity, is among the largest non-governmental owner and developer of affordable housing in the country, with around 2,600 units.
“When you have affordable housing in a project, you have very stable income,” Cooper said. “It’s long term, and it’s oftentimes done on a new asset. The government is able to provide, through CMHC, really attractive loan terms that lower the amount of equity we have to invest in a project. So on the equity that we have invested, we can achieve market-plus returns that you expect from infrastructure.”
Cooper envisions affordable housing evolving in much the same way renewable power did 15 years ago when the arrival of strategic investors and other interests helped deliver higher returns with less risk. “We see Canadian affordable housing in the exact same light,” he said. “It’s really early days in the industry. The national housing strategy was launched in 2015, so the whole market is just starting to figure out how the system works. The size of the opportunity is gimongous, to use precise terminology.”
These developments won’t be coming at the expense of energy efficiency, either, Cooper said, because of the emphasis entities such as the Canadian Infrastructure Bank and CMHC have placed on transitioning to a net-zero economy. “So, No. 1, you’re getting access to more attractive financing,” he said. “No. 2, the carbon tax is accelerating the business rationale to transition.”
The Path to Prosperity
Due to provisions in the Indian Act, First Nation communities and people have historically not been able to access capital and financing like Canadians have elsewhere. This is because banks and others are unable to secure property and assets located on reserve. “That means First Nations people living in these communities weren’t able to get a mortgage from a bank in the traditional sense to support home-ownership,” explained BMO’s Clio Straram.
BMO has been trying to remove some of the barriers to homeownership in Indigenous communities since the creation of the first On-Reserve Home Loan Program in 1995, according to Straram. The program lends directly to the First Nation member to buy, build or renovate a home in their community and is supported by a guarantee from the First Nation government. The program has been remarkably successful since its inception nearly 30 years ago.
The bank has also worked to overcome other obstacles, including the high cost of building in remote communities, by financing directly to the First Nation to build multiple homes and reducing infrastructure barriers by financing roads, utilities, and services for homes before they are built.
When working with Indigenous communities, it’s critical to build relationships and trust over time and to really understand what a community’s needs and vision are; that way, solutions can be created that make sense. “It’s important to not assume the needs are the same between different communities, or if you live in an urban setting that your experiences will reflect those in other communities,” Straram noted.
“My story, from growing up in social housing to eventually owning my own home, is exactly why I’m passionate about this. I think getting people in housing, and especially on the path to homeownership, is incredibly critical,” she said.
Captured in photo (L-R): John Uhren, Managing Director, BMO Capital Markets; Clio Straram, Head, Indigenous Banking at Bank of Montreal; Jamie Cooper, Portfolio Manager, Dream Impact Fund; Vivian Chih, National Key Account Manager, Financial Institutions, Canada Mortgage Housing Corporation (CMHC)
Highlights from our 2023 Government, Reserve & Asset Managers Conference
PART 1
Fireside Chat: Darryl White Talks AI, Banking Systems and Press Freedom
Darryl White May 08, 2023
From artificial intelligence and the health of the banking system to press freedom, almost no stone was left unturned between Darryl White,…
PART 3
How Businesses Can Use AI to Enhance, Not Replace, Human Work
May 10, 2023
AI is poised to transform our lives far faster than any technology has before, with large language models (LLMs) like ChatGPT already augme…
PART 4
Assessing the Current State of the Carbon Credit Market
Eric Jacks May 10, 2023
While climate change remains an important theme for investors, asset managers, financial institutions, and governments, there continues to …
Conference
June 15, 2022 Toronto
Email Us