Proceedings of the Subcommittee on Cities
Issue 3 - Evidence, June 5, 2008
OTTAWA, Thursday, June 5, 2008
The Subcommittee on Cities of the Standing Senate Committee on Social Affairs, Science and Technology met this day at 8:35 a.m. to examine and report on current social issues pertaining to Canada's largest cities.
Senator Art Eggleton (Chair) in the chair.
[Translation]
The Chair: Welcome to the Subcommittee on Cities. Today, we examine the issue of homeownership.
[English]
Our subcommittee is building upon previous work that has been done in the Senate on the matter of poverty. That is our overall theme. Today's sub-theme is affordable home ownership. On the question of poverty, we are building on the 1971 report headed by Senator David Croll and Senator Cohen's report entitled Sounding the Alarm: Poverty in Canada. That is still a relevant title today.
At the same time, we are doing complementary work with the Standing Senate Committee on Agriculture and Forestry, which is dealing with rural poverty. Also, Senator Keon, who is part of this subcommittee, heads the Subcommittee on Population Health, which is looking at the social determinants of health, and that again brings in questions of poverty and homelessness.
Today we have four witnesses who will make some opening comments for five to seven minutes each. We have one witness to come, but three are here. Let me introduce all four.
Dan Paris is the director of development for Vancity Enterprises Ltd., a unique market developer that embodies Vancity's commitment to community leadership. It works in partnership with local groups and societies to improve the quality of life in communities by undertaking socially responsible real estate developments. Its focus is on the provision of affordable, accessible housing by balancing commercial, social and urban design factors in a manner that ensures long-term community sustainability. There is a good example of a project they did with Simon Fraser University, which I am sure he will tell us about.
Keith Hanson is also from out West, from Saskatchewan. He is the executive director of the Affordable New Home Development Foundation. The foundation is a registered not-for-profit organization created in 1999 to provide education and support to families and individuals that want to buy their first home but, for various reasons, cannot access the traditional marketplace. Since its inception, the foundation has assisted more than 250 families in the purchase of new homes.
Dennis Carr, who will join us shortly, is the development coordinator of the Centretown Affordable Housing Development Corporation here in the city of Ottawa. This corporation was created in response to the desperate needs for affordable housing in Ottawa resulting from the end of federal and provincial government social housing programs. We hope it is not the end of those programs. Its mandate is to develop affordable housing outside government programs.
Steve Pomeroy is a private consultant based in Ottawa, and he specializes in affordable housing policy and research. With a master's degree from the University of British Columbia in urban planning with a specialization in housing and urban land economics, he worked with Canada Mortgage and Housing Corporation where he held a number of positions in social housing, market analysis and housing policy. Since establishing Focus Consulting in 1994, Mr. Pomeroy has authored over 70 policy and research reports. He has developed housing strategies for a number of provinces and municipalities and regularly advises a number of national and provincial associations on housing policy issues.
We have today four people with a wealth of information that I think can be quite beneficial as we consider the question of affordable home ownership.
Keith Hanson, Executive Director, Affordable New Home Development Foundation — Saskatchewan: Thank you, Mr. Chairman and honourable senators. It is a pleasure to be here this morning to speak with you briefly about something that is near and dear to my heart and the passion that goes with that.
This morning I will not speak about what we have done so much as what we think needs to be done and how it can be done. Hopefully that information will be of value to the work you are undertaking.
I have a PowerPoint presentation. I believe you have copies of it, but there are some things in the PowerPoint presentation that are movement-related, which is important, and they do not show up in the printed copy. If we can, I will go through that.
The first element is a discussion of what we are and what we have been doing. The Affordable New Home Development Foundation has been working for almost eight years. We started in 1999 with five housing units, which brought forth about 2,000 families wanting housing when we first opened up.
I did a count the other day, and over 350 families have gone into new houses as a result of the work we are doing. This is brand new construction, not renovated houses. We are currently engaged in a planning process for the development of 4,000 new affordable homes in the Saskatoon and area region over the next five years.
I will show you a few of our last projects to get a sense of this. Here is a 15-unit project we built in 2001. It is an infill location. We have a density of about 12 units per acre. In large cities, that is not much density. In small cities, that is a pretty decent density. A normal, single-family housing subdivision carries a density of five or six at best, so this is at least double that density. They are simple, ground contact houses.
This is a 50-unit single detached condominium tenure that we built in 2002. We have about 13 units an acre on this, so it is a no-strata strata kind of activity.
This is our current project, which we just completed: 42 units of townhouses. A good portion of them are fully accessible for people who are mobility challenged and need wheelchairs. This has been a successful and affordable project.
I will bring to your attention just a few issues. First and most important is filling the financial gap. That is, I think, what you are looking at doing, and I have some suggestions on how to deal with that.
One suggestion is support for municipal flexibility or encouraging municipal flexibility in the municipality's role to nurture an environment for the development of affordable, appropriate housing. One element is of course creative new designs that are focused on the needs of the occupants, especially those in greatest need. Cities are notorious for limiting the flexibility of design.
This is a chart to help get a feeling for what I am talking about in financial capacity. If we look at the current system in Canada for mortgages, it is the capacity of a household to borrow money in the mortgage system. This example shows a 25-year amortization, 6 per cent interest rate, so you can see the slope. People down at the low end at $36,000 a year can borrow about $120,000 of mortgage funds using the normal gross debt servicing, GDS, and total debt service, TDS, lending practices all the way through.
Most people are now moving to 40-year mortgages. That seems to be the prevalent initiative. You can see what impact going to a 40-year amortization period has on those same incomes. It adds a little more money in the $36,000 range. It takes it up another $10,000 to $15,000.
I keep pointing to the $36,000 range because that is how much a family would earn with two people working full time or full-time equivalent in minimum-wage jobs. We know that there are many of those jobs in our country. That is about $36,000 a year gross for that household. That is where our challenge is.
In most of the country, an entry-level priced home is around $250,000. That varies by community, of course, and you would know that better than I. If we use that as a mean, our challenge is to fill this gap indicated in this triangle. There is the amount of money or resources or techniques that we are about to design that will be needed, because at the $60,000 income mark, you can see that most people with a 40-year amortization can now enter the marketplace on their own. We need to deal with incomes that are less than that.
Let us have a quick look. This is a Statistics Canada detail. A female lone-parent family has an income of about $41,000 a year. A two-parent family with children, minimum wage employment, as I said, is $36,000. The male-female average single person is about $39,000. Those are the income levels for those households.
That means, when we look at that chart again, that we need about $70,000 worth of help for the average lone-parent family. We need about $100,000 worth of help for a low-income working family. If we go back to the chart, the kind of dollars we are looking at in some form is very significant. It is my contention that if we do not do something to get to those levels, anything less than that will be ineffective. It is a level of scope.
We all know, and your opening comments reinforced this, Mr. Chair, that home ownership is the foundation of our financial and community stability. In Canada, about three quarters of all people, or close to that, are homeowners. We know that if people are to be economically viable in the long term, home ownership is critical to their success. I implore you not to turn away from this challenge. It is a very high-level and important road you are walking.
Where will the money come from? We have three choices: government grants directly; investors, which is the big one; and a combined initiative between government grants and investors.
We need some new ownership schemes that will be developed to support funding, and those funding initiatives would include shared equity programs, which we can describe in detail later, and transition entities, which are there to help people bridge across from their current world into the ownership world.
There is something wrong happening in Canada. In Canada, investors cannot receive any kind of tax treatment for investing in housing or even donating for housing, but they sure can if they are investing in films. That means that there is no tax treatment available for individuals who wish to invest in affordable housing. However, if they want to invest in pornographic films, we have full tax treatment available for them in Canada with both federal and provincial taxes. Something is definitely wrong.
If we want to get investors involved in the housing market, we have to make it attractive to them. We have to allow better overall returns in other low-risk investments. We need to utilize capital gains exemptions and flow-through shares, and we need to guarantee the principal.
We can tie funding and opportunities to ethical practices, such as building energy-efficient, reduced water consumption and electrical use.
In summary, we need to change the tax laws to encourage investors to invest in or donate to affordable housing. We need to contribute money from the federal coffers to leverage and encourage other investments. We need to make direct contributions to affordable housing trusts. By trusts, I mean pools of money that are used to assist building affordable housing, and as that housing moves through, the money is returned to the trust so that it continues to be available to build more affordable housing.
With regard to multi-unit, big houses, this particular house on the slide has five units. To look at it, you would never know that. The point of this is that affordable housing does not need to be ugly.
The Chair: Thank you very much. By the way, in another committee room, they are dealing with Bill C-10, which deals with tax credits for films, but I will not go into that. My mayor, the Mayor of Toronto, Mr. Miller, is making a presentation over there.
Steve Pomeroy, President, Focus Consulting Inc.: The other gentlemen here are more in the trenches, building and financing housing. I am a policy analyst who looks at these things more from a policy and research point of view. My comments will be slightly different in context.
As a policy analyst, I like to start off with fundamentals: Who cares and why? What is the issue, and why are we looking at it? Regarding the issue of the affordability of home ownership, looking at the statistics over the last decade, we have probably never seen more affordable housing markets despite the rhetoric and the perception that house prices are going through the roof. In actual fact, in real terms, the access to housing has not really increased. The key indicator of that is an absolutely dramatic rise in home ownership rates in this country from 1996 to 2006 after they were flat for about 25 years.
If housing is supposed to be so unaffordable, why did the rates go from 63 per cent to 68.5 per cent in the last 10 years? I think there is interesting information there as to why that happened and who is and who is not getting access. I suppose that is the issue you are more concerned with.
The second issue I touched on in the brief that I submitted is the role of home ownership as a tool and mechanism in asset building, which is a key element in escaping poverty, which is the other issue you are keenly interested in.
The third point I want to speak to briefly, because the other gentlemen are focusing more specifically on building new affordable housing, is to touch on the other side of the housing market, which is the potential of resale housing in the existing housing market. I think we need to do both. Since they are looking at the other, I will focus more on that piece.
To go back to the comment I made that housing has never been more affordable, think about the chart that Mr. Hanson put up showing where mortgage rates are and about where mortgage rates have gone in the last decade. In 1996 we were around 12 per cent or 13 per cent on mortgage rates. If you were earning $50,000 in 1996, you could carry a mortgage of $110,000; by 2006, with the strong income growth we have seen over the last decade and mortgage rates having dropped down to 6 per cent or 5.5 per cent, if you were earning $70,000 as a household, you can now carry $310,000. There was a dramatic threefold increase in the capacity of households to carry a mortgage in that decade, and that is why house prices have gone up, because incomes have been very strong.
In real terms, we have seen a dramatic increase in the real disposable income. The chart in the brief shows strong growth in income. All these figures are in real terms, so they have been adjusted for inflation. First, it pulled up house prices because people were able to pay more for housing on average. That does not speak necessarily to the bottom end of the market.
On the one level, one could say it does not seem to be a big problem here. That said, I think average and median data can be misleading. Certainly for the average Canadian the market is performing extremely well, and most of them are doing quite well in the marketplace.
In your area of concern, poverty issues, we do not see the same level of income growth, particularly at the low- income levels. For individuals on fixed incomes, particularly seniors, social assistance rates, for example, are generally not indexed. Even though minimum wages have moved up, there has not been as much growth in income in the lower quintile of incomes over the last decade.
In terms of a rationale for why we should care and why we want to look at access to affordable home ownership as a poverty reduction strategy, I think the key element here is asset building. Homeowners have income twice those of renters. They have the capacity to build an asset over time; they have a nest egg for retirement, and it is much easier for them to get on later in life when they can actually release equity by borrowing against it to send their children to school or to retire.
Increasing access to home ownership for that reason is a good thing to do. The home ownership market has had a dramatically important effect on the overall health of Canada's housing system. I do not think it is appropriate to segment the housing market into looking only at home ownership, because everything you do on the home ownership side reverberates through the rental market and also through the social housing system as well.
In this country, in the last 10 years only 9 per cent of average housing starts each year have been in the rental market; but a third of our households rent, so we are tightening up the rental market dramatically, which is where most low-income people live, and the release valve for that has been the access to home ownership. The rise in home ownership rates, the ability of moderate-income households to move sideways, has freed up stock in the rental market and has helped the rental part of the housing system.
I know that is not your focus here today, but it is an important aspect, to think of housing as a system and how it interrelates across the two pieces.
The other part is that there are certain segments of the market where home ownership makes a lot of sense, but I do not think you necessarily want to push it down to the lowest-income levels, because as you push down the incomes distribution, the burden of carrying mortgage payments, maintaining a home and paying property taxes becomes harder to bear. If people default on their mortgage, they now have a very poor credit rating and cannot get access to credit, which is obviously important in our consumer society as well. It has a counterproductive effect.
We want to be careful which niche of the market we target this to, and I would recommend looking at the margin of being able to get into the market, if they cannot quite make it there yet, rather than pushing down. There is a role for the rental housing market and an important role for social housing and rent-geared-to-income housing for the lowest incomes. From the assistance point of view, having a balance between policy options in that part of the market is important.
In terms of the existing home ownership market, I have included graphs that show the price point of houses in a number of cities across the country — Vancouver, Halifax, Calgary, Winnipeg, Ottawa — and the number of existing home sales. If you look at total home sales in any of those markets in most years, 70 per cent to 80 per cent of actual sales are in the existing housing market, and the median house price in the existing market is about 70 per cent to 80 per cent that of building new. Therefore, that $50,000 gap that Mr. Hanson showed in terms of what moderate income households can afford and the price of building new can be adjusted somewhat by going into the existing market and buying existing homes.
There is a graphic showing what Canada Mortgage and Housing Corporation, CMHC, calls a housing income limit, which is the eligibility to be defined as being in housing need and being able to access social housing. If you take 80 per cent of that number or 120 per cent and look at those households at the boundary of being eligible for social housing — not the poorest of the poor but those who are having some challenges affording their housing — we find that of all the housing sold in the first quintile of house prices and also up to the median, about half of the housing sold in each of those markets using 2003-04 data was in fact affordable to those households. The existing market is an important source of affordable home ownership opportunities; and if your objective is asset building, it can be a useful mechanism.
The key issue is why people cannot actually access that housing. There are two things. One is lack of down payment. High rents preclude the capacity to save and get to a down payment. The second is creditworthiness. A number of moderate low-income households, because they have been struggling, have not paid their bills on time. They basically have poor credit ratings, and they go to see their local bank and cannot get a mortgage because they do not have good credit. Impaired creditworthiness is an issue in terms of access to credit, which is the gateway to ownership.
In terms of solutions, a couple of things are being done in some communities in Canada, though not extensively, but also very prolifically in the U.S., in the area of homeowner education and counselling and financial literacy programs that help credit-impaired households, those at the margins of the market, to be able to get into the market. Many of these that work well in the U.S. are a partnership between realtors and lender institutions along with government agencies as well that help individuals better understand the obligations of buying and carrying a mortgage and maintaining a house.
Extensive research, particularly by the Urban Institute and the Brookings Institution, has found that households that participated in both pre- and post-purchase counselling have a lower default rate than average buyers on high- ratio mortgages. Leaving aside the subprime issue, which is a perversion in terms of what is going on, well-designed, good education and counselling programs can be very effective in that asset-building transition to allow households to get in there.
The other element, as I mentioned, is down payment grants. As Mr. Hanson mentioned, there is a gap there in providing assistance. One-time assistance to households can help them get there.
The other element, which I think the others will speak to, is that when you enable someone to get into home ownership in a rising housing market and house prices are moving, there is the risk of windfall gain. They can flip the house a few months or a year down the road and pocket the gain. That undermines the objective, to some extent, of creating an asset in the long run.
Various mechanisms are available to place controls on resale and limits or constraints on title; but I think the key policy issue when we start talking about those is trying to find the right balance between your objective to build assets, in which case you are limiting the amount of appreciation that the buyer can actually retain for themselves downstream when they sell, versus controlling windfall gain. There is a balancing act there, and you need to figure out how much you want them to keep if they are going to get ahead. If you depress the price to keep it affordable in the future for somebody else, the first household is not gaining assets. On the other hand, you do not want them to run off with a pile of cash, a windfall gain. There are interesting questions around how to balance those things out.
The Chair: Thank you. Your comments have raised questions.
Dennis Carr, Development Coordinator, Centretown Affordable Housing Development Corporation: Thank you. It is a pleasure to be here.
CAHDCO, the Centretown Affordable Housing Development Corporation, was created in 1996. It is an off-shoot of a community-based housing group called Centretown Citizens Ottawa Corporation, which was a product of the government rental housing programs in the 1970s. We were established in 1974 and are currently one of the largest community-based agencies in the country. Until the mid-1990s, we were very happy to create housing through the government housing programs with a total capital subsidy and partial operating subsidies.
Those days are over, and we have managed to create affordable housing under the current system of partial capital programs. Home ownership is part of that matrix of solutions for us.
CAHDCO's mission is to provide development assistance for other groups and, more important, to create homeownership. The reason CAHDCO was created was directly related to the housing crisis that resulted when the rental housing programs were terminated. In my presentation, there are some statistics about that. Regardless, this scenario played out all across the country.
We deconstructed the economic formula of building housing and realized that if we could get people into home ownership, we could create units. Then we started to think about why we were doing this and, if we were to do it, what the outcomes would be.
Viability was one reason for homeownership. It can work under some circumstances with no government grants and under other circumstances with limited grants. Therefore, there is an obvious economic advantage over rental housing. There is a market need. There are 50,000 households in core housing need in this area.
There is also the advantage of asset building and the advantage of community development, if it is targeted right. Also, as you move people into home ownership, the rental housing waiting lists are reduced.
CAHDCO had two specific goals in its model: short- and long-term affordability are both critical to us. We wanted to ensure that whoever is being housed would otherwise be eligible for a subsidy in a social housing unit. We also wanted to ensure that future purchasers would have the same opportunity. Therefore, short- and long-term affordability were the key objectives for us. When you do this, other objectives become realized as well: mixed-income communities and intensification of sites and family housing downtown — all those good, smart growth things.
The eligibility for our Clarence Gate Project was essentially the same as for a household in social housing. The reality is that the people we were able to house would have qualified for a very modest subsidy. In other words, we could not house people at the very lowest end of the income scale, with the exception that some people had saved every nickel they ever earned from their first paper route; some people had family monies. Therefore they had a down payment that helped them reduce their mortgage payment. Of course, the bank mortgage screening would always apply to it.
These are people who were not being served by the private market. In our particular project, two-thirds of the units were the affordable units. We had hoped to build them all at the affordable rate but the market reality dictated that one-third were sold at a market price. Keep in mind that this was being done without any assistance from any level of government. The market units and the affordable units are built to the same specifications; there is no class divide within the project.
We control the value of the resale price through an index. We have an option to repurchase that is based on a housing component of the cost of living. Therefore, the owners receive a modest surplus, but they do not take advantage of the speculative nature of the market.
How did we do it? How did we fill that gap Mr. Hanson talked about? First, we have a non-profit mandate. The design was modest; it did not have the bells and whistles that much of the private-sector ownership housing would have. Also, the operating costs were kept low through a variety of mechanisms.
I say in my presentation that the property taxes reflect the lower resale price; however, through a recent market value assessment by the Ontario tax agency, they have been reassessed at the higher price. We have appealed that on behalf of the owners.
The result is that a unit that was occupied five years ago is now at least $100,000 cheaper on resale than a similar market unit being sold.
Why do this? There is reduced government support and what is there is often badly directed and poorly implemented. There are many regulations; the federal government, the province and the cities all have their regulations. You have to come up with some level of equity to build the projects, and you almost always have to build on poor sites. They are infill sites, often with contamination.
What is the affordable home ownership policy environment? There is almost no housing sector dialogue on this issue. There have been a couple of national conferences, but there is no serious policy discussion of what is the best way this limited pool of government money should be spent. There is no national leadership on the issue, and there is no national housing strategy.
The current funding has very weak affordability provisions. Therefore, the key elements of government housing policy should include home ownership. It is a critical part of that continuum. The solutions should have a range and should support the initial and long-term affordability. The models that are funded should demonstrate that they have some ability to continue on creating housing.
We acknowledge that asset building is an important part of this, but we do not want it to become the prime focus of government policy.
We recognize that when you build home ownership, you are facilitating a range of smart growth issues, mixed- income and mixed-tenure communities.
To conclude, we think the federal role is to convene the national debate to get the dialogue started with various government agencies involved in this and with non-profit sector groups, to provide land, funding and the other incentives. There is a SFRPHI, Surplus Real Property for Homelessness Initiative, program for land, but it is a bit cumbersome. There is the occasional pool of money that comes from the federal government. We really need some kind of sustainable program. There is a strong role for CMHC. They offer relief of their mortgage insurance premium on the rental housing projects, and that is a tremendous benefit. There is no reason they could not be doing this for home ownership as well. There is a continuing role for CMHC home ownership sessions providing education.
Dan Paris, Director of Development, Vancity Enterprises Ltd.: Thank you for having me here today. I appreciate the opportunity to speak. I would like to thank our other speakers here who have raised excellent points, some of which I will also be touching on.
I work for Vancity Enterprises, which is a subsidiary of Vancity Credit Union, Canada's largest credit union. The credit union has a broad, community-based mandate to provide financial services and to help strengthen the community through asset growth, capacity building, and so on. Our division is a real estate development company, a for-profit company whose mandate is to provide socially and environmentally beneficial projects throughout the community, often in partnership with other groups.
We always build to a high standard. Several of our projects, as is the case at Dockside Green in Victoria, speak to the levels to which we are able to build. A primary part of what we focus on is affordable housing.
Our genesis came about as a social housing developer nearly 20 years ago, but as funds became less readily available or not at all available, we switched to being a marketplace developer. I cannot tell you how transformative that was. It shifted our whole way of thinking about what we build and how we build to how can we do it by ourselves in different ways than was previously available to us. It has caused us to be much better and much more innovative in how we approach our projects.
The two things — and three, if time permits — that I want to talk about are the direct result of this transformation into a market-based developer. I will speak today about two methods that we have developed. One is a legal mechanism to enable families to acquire homes that are more affordable than our competitors' products. The second is a financial mechanism to enable renters to step into home ownership when they otherwise might not be in a position to become a homeowner.
The first mechanism is what we refer to as the Verdant resale control agreement. Verdant is a project we built at Simon Fraser University's UniverCity neighbourhood in Burnaby. We built a 60-unit wood-frame townhouse project. We sold all of the units to staff and faculty. The intent of the project was to be in partnership with Simon Fraser University to provide housing for staff and faculty. We were successful in being able to discount the price 20 per cent below market prices, relative to our competitors. The resale control agreement was drafted to protect the affordability of the units in perpetuity. In this case, perpetuity is 99 years, the duration of the ground lease.
The difference between ours and many others is that the mechanism enables the below-market value to float relative to the marketplace, which means that owners' equity increases over time relative to the market. It provides an opportunity for people to get in at a discount. In effect, they are able to buy a three-bedroom unit for the price of a two-bedroom unit, if you will. It provides for protection of that affordability in the future for the next purchaser, but it also gives the opportunity for equity to rise exactly at market rates.
When we first started this project, we were looking at several options and different models. One was the method used by Options for Homes, which is a well-known company based in Toronto, where they artificially decrease the value only upon initial sale. Another model was the Whistler agreement at the resort municipality of Whistler, which artificially reduces the value at a very prescribed rate rather than at market. While we looked at them in detail, we chose not to use either of those but to create our own, which would create that affordability in perpetuity and allow owners' equity to increase at market rate.
I want to describe in more detail some of the technical issues to help you understand that what we have had to do was very solutions-based.
We have created a section 219 restrictive covenant. It stipulates the procedure an owner must follow to buy and sell the unit at a discount relative to market. It also describes a penalty process that Simon Fraser University, in this case the holder of the agreement, can use to enforce the agreement and protect affordability. The agreement is legally held by SFU Foundation and is administered by SFU Community Trust, which is the real estate arm set up to establish the UniverCity neighbourhood. SFU Community Trust established sets of buyer criteria, mostly to do with the priority of whom we were to sell to, in this case staff and faculty primarily with children. Next in priority were staff and faculty without children. The third priority was the general public with children; the fourth was the rest of the public. We wanted first priority to go to staff and faculty whenever possible to keep them at the same site where they are working, and we wanted it to be a family-focused development, which many of the other developments in the UniverCity neighbourhood were not.
We and SFU agreed not to invoke an income test. I know that in most cases of resale control agreements, that is the case. SFU specifically did not want to exclude any opportunity to any of its staff and faculty regardless of income, so it provided the opportunity for anyone to have affordable housing or to purchase it.
Suites are owner-occupied and cannot be rented, except when on administrative or academic leave, and except in the case of SFU, which has bought some units specifically to rent. There is an entire process to go through in terms of appraising the value, discounting that value relative to the market and then selling it. I will not go into the detail of that, but it is a well established procedure and it works very well.
A degree of legal protection is required of the covenant. The agreement is registered on title. It transfers from person to person upon sale. If an owner defaults and resells higher than the below-market value, there is an option to purchase within the agreement that is embedded and that gives SFU the automatic right to be able to repurchase at a deep discount relative to the below-market price, so it is a very large legal incentive for an owner not to abuse the process. It is an effective tool; it has been used in other jurisdictions in other agreements, and we felt it had the best opportunity to maintain the integrity of the agreement.
That option, however, is very narrowly defined, which means that SFU can exercise it only in very specific circumstances. That gives protection as well to the homeowners that they will not lose their home simply because SFU wants to acquire a suite.
There have been several minor legal challenges to date on this agreement. All have been dealt with. None has resulted in any legal matters. Most concerns were raised by owners, but more specifically by their lawyers, simply because they did not fully understand the structure or the mechanism described within the agreement. However, we were able to address their concerns and satisfy them, and nothing has resulted subsequent to their concern.
We have been able to use this method now in three of our projects: first Verdant; one recently completed; and another still under construction at Dockside Green. We are finding that it is a relatively easy document mechanism to use. It is replicable and beginning to be used by others elsewhere within B.C. Two other municipalities have approached us to use it in other projects.
As a result of our dealings with BC Housing on the Dockside Green project, they have since agreed to hold the agreement for similar developments anywhere in B.C. They have recognized its value and its importance and have since adopted it as a standard form of agreement. They are in the process of working with us on putting together a package of information that can be rolled out across B.C. to other groups for educational purposes so that they can adopt this method as well.
I should note that this is the first time BC Housing has been involved in private home ownership. I think that is recognition of the value to them because it takes away some of their load and relieves some of the pressure on them as a provider of public rental housing.
The other mechanism I want to talk briefly about is what we refer to as the Springboard mortgage program. This mortgage program is specifically set up to address the needs of tenants of not-for-profit housing. It speaks to the issue that Mr. Pomeroy mentioned where many individuals and families are on the cusp of home ownership but have not had the opportunity to buy. This program was set up specifically for that.
Many families are consistently able to pay their monthly rent and have sufficient income to manage a modest mortgage, but often they lack that cash required for the down payment. The high cost of housing and the challenge of saving for the down payment leave many renters without the opportunity to own. This program gives them that opportunity by providing 100 per cent of the money required for the acquisition of a house. It covers both the down payment plus the balance of funds required to purchase up to a value of $300,000, including the acquisition costs. Factoring those in, it is 101 per cent or 102 per cent of cost of acquisition.
The benefits to the community are that renters become home owners and build the assets and confidence they require in the long term to be more productive and to provide better for their families. More importantly, it also frees up capacity in social housing without new construction, which I believe is one of its most important functions.
The mortgage itself is broken into two components. One is a 20 per cent down payment loan, which is interest free and payable over 10 years. In effect, it is a forced savings program.
The second component is an 80-per-cent, 10-year, fixed-rate mortgage, which is interest only and payable over 10 years. During this first 10 years, a restriction of no resale is put on the owners. If the owners choose to sell because of life circumstances or for whatever reason, they are subject to heavy financial penalties. This incentive helps them maintain ownership and follow through on the commitment they made at the outset.
At the end of 10 years there are no financial penalties and it is a traditional mortgage at that point. The remaining 80-per-cent debt is renegotiated and converted to conventional financing, which is typically repaid over 20 to 25 years.
The criteria are simple: individuals living in not-for-profit housing for two or more years; verifiable employment or pension income; two years' unblemished record of rent payment; and having completed a home readiness financial literacy course. The course has proven very successful in helping individuals prepare and carry through with ownership. We believe it to be one of the most important parts of the program.
I want to conclude with the comment that these are just two of many examples, and I hope they are helpful in terms of providing you with some guidance towards solutions leading to more affordable home ownership.
The Chair: Thank you all. We will now engage in a dialogue and questions and answers with the committee, and I will start off.
I will start with you, Mr. Paris. I want to explore a little further what you have been telling us today. On your Verdant project, how much is it a model for universal application versus being a one-off, a very special circumstance? There are circumstances that will not arise every time.
For example, you were dealing with Simon Fraser University. Their ground lease was purchased at half the market price, and you pointed out various other reductions of profits, including among others management-fee savings and realtors at a reduced price, all of which help to contribute to keeping the cost down. That meant you were able to sell at 20 per cent below the market.
How much of that is a one-off versus a good model to apply in other cases, particularly in view of those things which seem rather different?
I realize you completed this project not long ago, but have you had any experience yet on the resale portion? You are saying that in the resale control agreement you will enforce resale at 20 per cent below market. They do get some appreciated value, but they have to commit at 20 per cent below market value. I take it you can then sell to someone else or they will sell to someone else.
Mr. Paris: I will answer the second question first. Verdant was finished a year ago. To date there have been no resales. The first phase of Dockside Green, for which this has also been used, has just closed. Individuals have just moved in, and so far no one has indicated they will resell.
In terms of this being tested, I cannot speak to that. We have had a lot of discussions with homeowners about the process. They are curious about it and need to know how it will work. Conceptually, it is relatively straightforward. Everyone who works at SFU Community Trust understands it and believes they will be able to carry this out very quickly.
We had a previous version of this 10 years ago on another project in which four units out of 10 that we built had a similar type of restrictive covenant. Since that was built, one person has resold and another is currently in the process of reselling. In both cases there is no record of there having been a problem with the resale process. I cannot speak specifically about where the bottlenecks or speed bumps will be in resale.
The Chair: Were you able to resell to moderate-income people? There is an appreciated value, presumably, in a fairly strong market.
Mr. Paris: It appreciates at exactly the same rate as the market. In that respect, home owners' equity gains are identical to anyone else's. The rate of gain is identical.
There is a good value appreciation over time and an asset building over time.
The Chair: I am looking at affordability for the purchaser.
Mr. Paris: Affordability is always relative to market. If a market is relatively affordable, then the below-market value remains relatively affordable as well. As the market increases substantially, it still causes the price to rise, even to a high amount — though at a below-market price that is more affordable, relatively speaking.
The Chair: How many of these mechanisms are one-offs? Can they be applied in other cases? We are trying to develop a universal model.
Mr. Paris: The restrictive covenant itself can be applied on any project. Verdant was a one-off project in some respects but not in others. Quite a few not-for-profit housing providers are doing affordable home ownership using almost all of the same techniques. I had a conversation with Michel Labbé from Options For Homes, and what he does and what we do to be able to provide below-market housing is almost identical. It has been done on many occasions already.
The Chair: There are many similar characteristics.
Mr. Paris: Yes. The difference between his model and ours is that our model remains affordable in perpetuity and his does not. This model can be used even on for-profit projects, as we have used at Dockside Green, where we took a pool of funds available from a much larger development project and applied them to discount the prices on what would otherwise have been very traditional market houses, without any discounts.
The Chair: Without any government funding?
Mr. Paris: None whatsoever.
The Chair: Some of the others have mentioned retrofitting. I think most of your projects are new housing. Have you looked at retrofitting? Is there a reason why you do not do it, if you are not doing it?
Mr. Paris: We have built new construction from the beginning. We have looked at retrofitting in some instances. In the city of Vancouver, we have found that the construction cost of retrofits, given seismic upgrades, handicap code upgrades, and so on, is nearly the same as new construction. If there is an opportunity to purchase a building that has low value but that can be increased substantially through a reconstruction process, we will look at it. However, to be honest, it rarely comes up.
Mr. Carr: The people we targeted probably could have found a townhouse at the furthest reaches of the outer suburbs, at a similar price perhaps, but then they would have been faced with high transportation costs. Many of them did not have cars and did not want cars. If you are buying a unit at a market price, you are pretty well excluding our clientele.
The Chair: Let me ask a general question. The others can respond to what you have just heard as well on the question of retrofitting versus new housing.
I am interested in asset building. I think it is good for the owners and for the community. I am also interested in creating some relief in the rental market. In Toronto, we have 75,000 — the last number I heard — people on a waiting list for affordable housing. Some will wait seven or ten years to get into it. Meanwhile, they and others are paying a lot more than 30 per cent of their income on accommodation. If something can be done to relieve that situation that would be most helpful as well. I am interested from all those angles.
As I think all of you pointed out, a limited number of people can take advantage of this kind of a program. Mr. Pomeroy, you said it is those in marginal situations. Mr. Hanson, you had some statistics that indicated where the gap might be.
How many people are we talking about here? Government always wants to know what kind of program we are talking about, how many people might benefit from it, and what kind of impact it will have overall. For example, what kind of impact will it have on the rental waiting problem? How many people? How much of an impact are we talking about here?
Apart from Mr. Paris, you have all indicated that government programs might be helpful, whether credits or assistance with the down payment. If there were to be a program, which one do you think would be the most effective?
Mr. Pomeroy: On the quantification issue, CMHC measures housing need in Canada with a methodology that comes up with a number. I will not get into the details of the methodology, but the official government statistic is that about 1.4 million households in Canada are deemed to be in housing need; that is about 14 per cent to 15 per cent of total households in Canada. About 500,000 of those are homeowners. They would tend to be homeowners paying more than 30 per cent. A bunch of seniors and a bunch of first-time buyers would be included in there. The remaining 900,000 are renters. That is the big pool. If you want to look at those at the margin, I would recommend the top 20 per cent or 25 per cent of that group. You would be looking at probably 200,000 households then.
Interestingly, in the last 20 years, since 1986 when CMHC started using this measure, the number of households in core housing need has not declined, either in absolute or in relative terms. It has gone down marginally in relative terms in the last couple of years, but it has actually gone up in absolute terms.
For 20 years we have not been very successful in reducing need, partly because programs were cut off in 1994 and we have stalled for a bit. Part of that issue is that we have always tried to focus limited resources on those most in need, which tends to be the most expensive solution. Therefore, you get fewer outcomes for your investment. I do not think we should shift all the investment away from those most in need, but we could move a bit of it to these marginal households. For a modest level of down payment assistance and effective mechanisms that can actually engage partnership with the private sector, you could start to move a significant number. You could really attack that 200,000 band at that level.
In places like Moncton, Fredericton and Prince George, some of our third-tier cities, if you will, there are more houses for sale in the existing housing market than there are households in the top quintile of core housing need. You could push there.
The people who gain from increasing access to home ownership are the realtors and the lenders, who are in the business of transacting the deals. There is a good example in Alberta, the Alberta Real Estate Foundation, where realtors are prepared to give back half of their sales commissions into a down payment pool to help purchasers with their down payment. That is not government money. Basically, it is recycling of transaction fees, because a non-profit organization is bringing it forward and pre-screening the purchasers. A bunch of the work that the realtor would do is being done for them by a community-based agency. They are prepared, partly because they have saved some money and partly out of interest in giving something back, to help with that kind of program. Certainly, pushing in that area is useful.
On your terminology, in terms of retrofitting, I was talking about buying existing homes, resale homes that would not necessarily need major retrofitting. We all buy houses that are 20 years old. Some of us rehabilitate them a lot; others just move in and put up some new paint. It is really buying existing housing as opposed to retrofit, which is another category that can add costs.
The Chair: Does that work for people with affordability problems?
Mr. Pomeroy: They are buying a house; they are already at the margin. Adding another $20,000 on to do retrofits will probably not work well.
Mr. Hanson: Those were two interesting questions. On the retrofit issue, we know that it is a bit of a problem to take people who are using buildings as rental and convert them into ownership. Taking that part of the housing stock away is a problem. Upgrading those for better quality of life is important. There are a number of organizations, for example faith groups and non-profit organizations across cities working on that front and doing some excellent work.
In terms of national programs, if we are talking about rescuing dilapidated buildings and putting them back into the marketplace, ones that have been abandoned, that is a different perspective that is certainly worth looking at. Again, whether that is a low-cost directive compared to rebuilding from scratch would be a matter of analysis.
I would like to focus for a moment on your comment about growth of assets. Some of the other speakers have dealt with of how to let people move through that. Statistics Canada did a study a number of years back that I found interesting. They looked at the richest people in Canada, and they defined rich as everyone who has a net worth of at least $100,000. I would like to describe that as meaning sell everything you own, pay off all your debts, and you are standing on the street in your underwear with $100,000 in your hands. If you are in that category, you are in the study. That may not be a high threshold or it may be too high a threshold, but that is, by definition, the richest people in Canada.
Statistics Canada looked at where that money or that asset was. That asset is the equity in people's homes. That tells us that in Canada, the economic well-being of our population is based on home ownership. Anything we can do to get people into ownership or quasi-ownership or some form of ownership, some of which we have described today and which our foundation does as well, is important because it builds stability in the marketplace and is a foundation for health and a determinant for education and all of the benefits that go with that. That homeowner side of things is very important, and it is important that we continue to build and grow that side.
My point is that the tax laws in Canada now are effectively a capital gains exemption for residential buildings or homeowner-occupied residential buildings. If a small adjustment were made to the Income Tax Act, then that would allow for a flow-through. For example, if I am a dad and I help my son buy a new home, I am a partial owner in that home, technically. I provide, say, 25 per cent or 30 per cent to the value of that home. If I could be eligible for a capital gains exemption when that house is sold and I gained on that money, I would be quite interested in participating. In fact, I would be quite interested in participating for my son's friends and other people in the community who are struggling to get into a home.
In other words, a private investor could come to the table and benefit from an exemption on capital gain from growth in that house. That would be a small thing that would provide incredible leverage with a small tax dollar investment for building affordable housing. That would be a simple tool that could be utilized and put forth as a recommendation.
In terms of how big a picture this is, we have been doing some studies on this in some communities in Saskatchewan and Alberta. We are seeing about 3 per cent to 5 per cent of the current housing stock as a current deficit. If you have 100,000 housing units in a community, about 3 per cent to 5 per cent of that is the deficit number of units that need to be added to the marketplace in order to provide sufficient housing volume to satisfy the demand of people living there. We have a big problem across the country in any markets that are growing of having a big deficit of housing as well.
The Chair: We have a big problem. How much of the solution is ownership versus more rental or some of the other subsidy programs we have talked about? Are there any further comments?
Mr. Carr: I would not mind responding to one of your questions. If the government could offer one resource, what would it be? One of the biggest problems we have in this field is access to land. It is very difficult for CAHDCO, as a non-profit group, even with the support of a parent corporation, to buy land or even to have it held for us. There is a significant role for the federal government here. There have been a few examples of Canada Lands Company projects with affordable housing. For the most part, they are in areas where there has been significant community pressure on them. There are many examples of Canada Lands projects that have no affordable housing. If affordable housing were made part of Canada Lands' specific mandate, that would be a big help. If the SFRPHI program were beefed up and made more efficient, that would help, if there were a way to leverage surplus land from Crown corporations or quasi- government corporations. For example, the National Capital Commission is embarking on a huge project downtown with no affordable housing. That is my one recommendation on that.
The Chair: Mr. Paris has an interesting proposition in his paper about selling density off of federal lands as a possibility. Of course, density has to go somewhere, and you need to have a receptive community.
Mr. Paris: Yes, you do. We are working on a project in the city of Coquitlam, which is adjacent to some municipal- owned land that is a road right-of-way. It will never get built as a road. The city has said that already. There is a creek on it. However, it holds developable potential. The city has indicated that they would be willing to up-zone their property as well as ours so that we could sell the residual density and use those funds to offset the purchase price of our units, in the same way we did at Verdant. It costs the government nothing in this case. There is a willing group of developers elsewhere within the community who are able to acquire the density and build. As the mayor always likes to say, if you can build 32 floors, why not build 36? We can put that density somewhere.
The Chair: It depends on what the citizens say, too.
Mr. Paris: In the city of Coquitlam, there has been no negative response to that type of proposition.
Senator Munson: My first question is for Mr. Carr. Briefly, I am the senator for Ottawa-Rideau Canal. Having come to Ottawa in 1972, I can look at your organization and see what has happened in Ottawa, in lower town and in centre town, since 1972. Everyone talks about the growth of Ottawa, but what they do not see is what you just described, the 100,000-odd people who are having serious difficulty. I do not think Canadians think of Ottawa as having that problem, but if you go deeper into the inner core, you see it. Where do the poor people go, and how do they afford anything?
You talked about no federal leadership and no national strategy. How do you survive as an individual group? How do you keep going when you just said moments ago that in this whole area, not too far from where we are talking, there is no place for affordable housing for people? I would like to see what the stresses are. Here we are in a reasonably rich city, and yet there are the hidden poor who just cannot grab onto that affordable housing, even though there are some great ideas around this table about how to get through that door and about the bridging mechanisms.
Mr. Carr: I mentioned that CAHDCO's parent group, CCOC, Centretown Citizens Ottawa Corporation, is a product of the government housing programs of the mid-1970s. Those were the salad days for us. I was lucky enough to be around from 1990 to 1995, so I caught the last five years of the glory days. When you invest in the non-profit housing system, it is a gift that keeps on giving.
CCOC and CAHDCO are doing this because of a larger community-based mandate. Many of our rental projects are in those areas. Our home ownership project is in the ByWard Market. It is right beside the Shepherds of Good Hope shelter. It was a contaminated site. We have a larger community development mandate. We built family housing in the Market, where currently nothing but one-bedroom and two-bedroom condos and bachelor condo apartments are being built.
I think that answered part of your question. I am not sure what the other part was.
Senator Munson: There is a connection between your groups here and federal leadership — the whole concept that people are urging the federal government to wake up and convene a meeting. One thing we can do is take these recommendations and put them into a report. Another thing is to echo what you are saying, in having that national forum and exercising that kind of leadership. If we do not have that, where do we go?
Mr. Carr: There is an obvious need for a national housing strategy, but what CCOC and CAHDCO do is pick up the pieces and get by with whatever is available.
Mr. Pomeroy: On the issue of the national housing strategy, I just completed a report for the Federation of Canadian Municipalities, which was released in January, on recommendations for a national housing strategy. Clearly, there is a need for all levels of government to be actively involved.
The fear among the affordable housing advocates is that the suggestion of the current government — that this is a provincial mandate and it should not be involved — is a dangerous path to go down. The data I have presented in recent research has shown that at those periods of history over the last 20 years when the federal government has been actively involved in cost-sharing programs and has created both an incentive and a lever for provincial participation, the provinces have come along and added more money to the pot and we have had successful programs. The federal government also provided leadership when it pulled out, because the provinces have pulled out as well.
It is critical on the spending side, notwithstanding any debates around constitutional responsibility, for the federal government to play an active role in housing. That includes developing a framework strategy, in collaboration with the provinces, and resourcing it. The money is being collected predominantly at the federal level and there is an income redistribution issue here.
Senator Munson: Mr. Hanson talked about tax treatment for the production of various films in this country. You seem to have a cutting edge strategy in terms of making a political message on some of the films, but how would this work for affordable home ownership? What, specifically, would you like to see in terms of that same kind of tax treatment that we see for various Canadian enterprises?
Mr. Hanson: That is a key issue; I am glad you asked the question. Fundamentally, because we have a tax treatment for ownership housing, principal residence — the capital gains exemption — the federal government is probably not interested or has not been interested in offering any other kind of tax treatment for investment in housing because of the perception that there might be a double-ending on this. You get a tax treatment going in and then you get a tax treatment on the capital gain. I cannot say that for sure. I do not know the thinking of the federal government, past or current.
However, the reality is that we need a lot of new, appropriate construction throughout the country to meet the demand. We need a lot more money than the federal government can give as a gift. We need to find a way to leverage monies that others have into housing.
For example, if you wanted to put money into a venture capital corporation and get the appropriate federal and provincial tax treatments that venture capital corporations offer, you could do that, but that venture capital corporation cannot invest in a housing project. They have to invest in other things that are good for the economy of Canada. If investors want to do something for housing, they are frozen out of that field.
It would be a simple change to allow venture capital corporations to do that. The problem with venture capital corporations is that they want huge returns on their investments. However, if that tax treatment were provided with that legislation, there would be nothing stopping someone from setting up a venture capital corporation and providing that. It does not need to have a mandate for getting huge returns. It could have a zero base if it wanted to.
I think that is one taxation technique that would be helpful to allow investors to focus on affordable housing and move that ahead. Link that with a tax treatment — as I mentioned before, perhaps on the exemption from capital gains — and we might be able to see a recurrence of what we saw back in the 1970s, when the government of the time put in place the MURB program for multi-unit residential building rental units, which was a writeoff of the soft costs.
We saw thousands and thousands of rental units built across the country. Those units are still in use today, still housing people. They are now being converted to home ownership through condominium title initiatives. That was private money that was invested, with a small benefit from the Government of Canada. It was the right tax tool at the right time to get housing built. Those are the kinds of mechanisms I am talking about.
There are two tests. One is that initiatives have to be sustainable. It is not okay to say, "Here is some money; go do something with it.'' There needs to be a policy, a program, a sustainable thing so that people can plan for two or three years down the road to build a project, knowing those monies will be there to accommodate that. That is a critical element.
The other part is that the funding has to be adequate. There needs to be enough money to make the projects go. We know that for the current federal-provincial agreements that have money to help in rental and have been out there for a number of years, the numbers keep going up year by year, but it is too little, too late. By the time you get the project going, the amount of money available is too small.
I think we need to take strong action and leverage, as much as possible, the monies that are out there. There is a lot of money in Canada that we would be investing in here if we would just open the door to it.
Senator Munson: I have one other question. How can anyone afford anything in Vancouver, Mr. Carr? I am curious about that.
We have seen this slide from Mr. Hanson; affordable housing does not need to be ugly, but then we see some of the other slides. They are not ugly — I do not know how to say this — but in these communities, you know where the people live that have what we described as affordable housing. I describe it as barely affordable housing. I know that the intentions are honourable between the private sector and governments and so on.
In Vancouver or anywhere across the country, is there a concerted effort, when you are creating this affordable housing, to ensure that it blends in with the community? I see it on the fringes of my community where I come from in northern New Brunswick, as well as in other places. There is an attitude out there with people who say that is where "they'' live — which I think is horribly unfair — despite all the great intentions with builders and people on the ground dealing with this issue.
Mr. Paris: In the early days of social housing — in the 1940s, 1950s and even, to some extent, the 1960s — the type of housing, the design of homes, was very identifiable as affordable housing projects. Probably since the 1980s, and very much today, you almost cannot distinguish an affordable home project from any of the market-based projects. In fact, quite a few of them win design awards. Many of them are very nicely done. I think that is, to some extent, because the design panels that are influential within the municipal process require a level of detail that would not normally be required in others where that process does not exist. It is not apparent. With the exception of signs out front, it is difficult to identify some from market-based projects in Vancouver.
Mr. Carr: My comment, as someone who builds the housing and whose group has won several design awards, is that they are distinguished because they look better than private sector housing. Certainly, in this town, the general level of architecture of private sector building is quite poor. I would encourage you, if you have a chance, to walk by the corner of King Edward Avenue and Clarence Street to look at our home ownership project. I would challenge you to find a private sector stacked townhouse project that looks better.
Senator Munson: That is good to know. I will take up that challenge. I appreciate that.
Mr. Hanson: I have one follow-up comment on that, Senator Munson. Our foundation has stopped using the term "affordable housing'' even though it is in our name. We do not market our name and no one knows who we are. We stopped using that term and we now call it "entry-level housing.'' All of our designs are mixed designs, which means that we design for various levels of income. We have some very nice units that have a high purchase price. Some of our upcoming projects have commercial activity built in. That is what the people in our marketplaces are telling us they want. They do not want cookie-cutter designs that all look ugly and the same as the next one.
Senator Munson: We have to learn some of these terms. There seems to be a speech policeman somewhere. I do not like the term "visible minorities.'' Such terms are out there and we need to deviate from them or someone will take you away to give you a lesson on how to use new phrases.
The Chair: I must ask Senator Keon to take the chair because I have a flight to Toronto to take. Senator Keon chairs a subcommittee doing a study on population health. He is from Ontario.
Senator Wilbert J. Keon (Acting Chair) in the chair.
The Acting Chair: It has been tremendously interesting listening to your testimony this morning. You have a wealth of knowledge to impart on some of these issues. Another group that came before us addressed the issue of Aboriginal housing. The comment was made that between $3 billion and $4 billion would solve the problem of Aboriginal housing for a very long time, if they could just get a shot at that kind of funding up front. I do not know how accurate the figure is, but I would ask you collectively for your views on how some of this funding could be put together.
Before doing that, I come back to Mr. Hanson. I noticed in your comments on tax incentives that you did not address tax deductible mortgages. I know some young people in America who think that between their tax deductions and inflation, their mortgages are fundamentally free; and one of those people is very knowledgeable about business. Their hypothesis is: buy the biggest house you can find, obtain the biggest mortgage, and it becomes a tremendous way to improve one's financial position.
Projecting that, getting houses built for any reason is a good thing because they will be around to provide shelter for people for a very long time. Large, expensive single family houses, as we saw in the opening slide, can be transformed into five units for people who cannot afford such a house. I was just saying to Senator Trenholme Counsell that I bet everyone who drives up to that house says, "This is my house,'' because it looks like a large private home, which is wonderful. It is an ingenious idea.
Let us address this issue of tax deductible mortgages. I know that they are of great benefit to the rich and of little use to the poor. That is a given. However, they do stimulate the housing industry. I see Mr. Pomeroy thinks that perhaps that is not so. Would you address that subject, Mr. Hanson?
Mr. Hanson: Certainly. I have heard Mr. Pomeroy speak about his position on this before. I am sure he will be willing to share it, so I will be brief.
If tax deductible mortgages are in sync with capital gain exemptions for housing, then we have a problem. Of course, that is the American model. They have tax deductible mortgages, but they pay taxes on their capital gains at the time of sale. That is a concern. We can do things to get people into houses and, as you say, at the lower end of the income scale, the tax deductibility of the mortgage does not have a huge impact. It is important to us that we get people into a position of economic stability. We know that homeowners in Canada are treated differently than renters are treated by government, by society in general and by institutions. To provide the ownership position for people in Canada is critical to the social growth and well-being of our country as a whole.
We want to get people into home ownership so that they will be successful. It has been great hearing about the programs we have in Canada. Our foundation runs many similar programs that we have developed over time. We have a retention rate of over 96 per cent of people still in their houses. They love living in that community. They put roots down and stay because the housing is adequate for them, which we are proud of. As well, the houses are growing in economic value. The key thing we need to do is to ensure that people participate in Canada's wealth by virtue of their home ownership.
For some of the programs that we run and others that we have talked about, we keep the housing perpetually affordable but we limit the growth. Mr. Pomeroy talked earlier about the balance between gain for the homeowners and maintaining affordability. My answer to that is that we need some mechanisms that will be in place for a while to allow for a constant supply of new housing in the marketplace because a shortage of housing drives prices up. We need a continuous supply of housing. If we can solicit private investment to build houses and reap some benefit from it, then the cost to the federal government will be limited while the benefit to home ownership and to society as a whole will be phenomenal. Currently, we are at that transition point in Canada. We need to be able to do that.
Without boring you further on that item, I will move to the question on Aboriginal housing. We have been working with a number of bands in Saskatchewan to help them with their housing initiatives. We have been transferring our education programs to them, which are very useful. The issue of on-reserve and off-reserve housing is a big concern. There are some programs with a few million dollars available to fund off-reserve housing, but the trend in Canada is clear: First Nations people are moving off reserves to locations that have educational and job opportunities, although economic development on a few reserves across the country is growing, providing some good opportunities.
We need to bring First Nations and Metis people into home ownership in the communities of Canada and allow them to gain a foothold. Many of our First Nations people have not had an opportunity to gain any equity or wealth, so we need to reach a little further to ensure that that can happen.
That is a huge challenge. We need $1 billion right now in Saskatchewan to fill our deficit just in Saskatchewan. I do not think $3 billion or $4 billion would handle the whole country in that regard, but it would go a long way to helping out.
The Acting Chair: I will ask you to address the issue of what we could recommend, both to government and to society as a whole, to come up with an innovative idea to put some major capital in place, as you have said, to keep the agenda rolling and to keep building affordable housing or to keep building housing.
Mr. Pomeroy: To come back to the previous question before this one, do not go down the path of mortgage deductibility. The major Western nations that have done so, the U.K. and the U.S., have both significantly backed off. The U.K. has almost got rid of it completely and the U.S. has capped the amount of value of the house that is eligible. It gives people the incentive to borrow against their home equity. However, because the interest is deductible, it has huge repercussions on the overall economy because of excess consumption — that is, taking money out of your house and spending it on cars and recreational vehicles and other things. It exacerbates boom and bust cycles in the economy. Stay away from it is my advice.
In terms of what you should do, Mr. Hanson is on to a good idea. Given that we are talking to a federal jurisdiction here, what are your policy levers? Clearly, tax policy is one area where you can make significant impacts. This goes back to the reference to venture capital funds and the preclusion of housing from those, which, incidentally, is on the provincial regulations side. Nonetheless, it is a federal tax credit.
Most of the investors who have invested in things like venture capital funds and so on have been high-risk investors. There has been no tax sheltering vehicle for the more conservative middle-class investor, particularly seniors or near seniors who are trying to protect their capital for retirement. When there is a social objective such as increasing access to affordable ownership for moderate-income households, you could quite easily create a more bond-like rate of return but within a tax-sheltered vehicle like a labour-sponsored investment fund where investment from those bonds into affordable hone ownership and down payment initiatives would be of significant benefit to the individuals you are trying to help but also for that large pool of investors who have not bought those high-risk venture capital vehicles because they were not high-risk investors. There is a big pool of capital out there in that low-risk conservative investor group. One could do that in the form of a shared equity model around getting the investor to put money in to get some appreciation while the home owner gets some equity.
The area of home owner education and counselling is also vitally important. CMHC has worked in that area and GE Capital has as well. However, they have not pushed it in a significant way. If you are trying push into that band of potential buyers who do not have as much financial acumen to get into the market and present some risks for lenders, you are trying to provide the lenders with assurance that these will be good borrowers and will repay their loans by educating them and helping them a bit. A bit of hand holding post-purchase can go a long way. The government investment would be in resourcing the educational materials for various community agencies. People like Mr. Carr's organization could deliver education programs to potential buyers. Given the right resource materials to do that and working in partnership with lenders and realtors in the communities to develop them, those programs would be at very low cost to the government.
Mr. Carr: Tax incentives are always an attractive option because it looks as if it is not costing the government money. However, it does. On certain occasions, it is politically more palatable. I am sure that we all invest in RRSPs. An RRSP-like vehicle for affordable housing would be very useful. I have already talked about government land and government leadership on the policy issues. There is a need for funding. I think that the money is there; I just do not know how to get it out of the federal government.
Mr. Paris: In terms of home ownership, one of the options that could be considered is a form of shared equity: a directed investment in a percentage of the title of property that would then be otherwise owned by individuals who would occupy the suites.
One of the other panels mentioned the concept of shared equity before. I do not know whether you are familiar with it, but the notion is that a percentage is owned by a housing authority or a government and the balance is owned by an individual. It is commonly used and has been for many years successfully in the U.K. and in one form or another in countries like India, Pakistan and Australia.
That would be one way. It is a direct subsidy, a direct form of ownership. Another way would be the tax credits that have already been spoken about to encourage more venture capital investment.
I absolutely agree with the financial literacy course, the educational component. That is an important part and it is a low-cost item to be able to put together and help promote ownership.
In terms of rental housing, which I know is not the purpose of this panel, but we have talked briefly about it, I cannot say this enough: direct construction grants. It is so expensive to build and rents are so low that it is not possible to make the economics work without some form of direct grant and/or tax credit, but preferably a direct grant. The required surplus typically is not currently available, and it is the number one contributor for rental properties not being built now.
If rental properties can be built, it will take away much of the pressure on those who are currently fighting to find or are in rental properties, and it will ease some of the costs of home ownership as well simply because there will be a larger number of units available to the public from which to choose.
Senator Trenholme Counsell: This is a huge subject that touches many lives. What you have told us this morning has certainly helped us understand the complexity of the issue.
Looking at the historic home ownership rates in Canada, one would get the impression things are getting better. Mr. Pomeroy gave us a presentation about that. However, I did not have that feeling. I do not really have the knowledge on this area; it is not my strength. Perhaps we could elaborate on whether the situation is better. The graph in your presentation goes from 60 per cent in 1971 to 68 per cent in 2006. While that is a slight gain, it still means that only two thirds of the population are successful at this.
The 2006 Canadian average incomes from Statistics Canada show that the female lone parent family average was $40,900. I was surprised at that.
Mr. Hanson: I was shocked at that as well when I pulled those numbers out.
Senator Trenholme Counsell: It is correct?
Mr. Hanson: We think of the female lone parent family as being a single mom with a child living in poverty. That is the impression we have. That is always the basis with statistics; namely, what is the universe of the numbers being tested? However, there are many single-parent households, female-led, that have very good incomes. They are all included in that number. Therefore, it is very misleading. If we were to put an age limit in there and look at female-led single-parent families under the age of 25 or 30, I am sure we would see that number plummet to a much lower level.
Senator Trenholme Counsell: It is still much higher than I would have thought, but I guess it is good news.
Two things struck me as I was listening and learning this morning. First, I worked with Habitat for Humanity some time ago and realized how valuable the counselling portion of that program is. It provides support, counselling and preparation for home ownership. I heard the financial literacy course mentioned, but I would like to understand better how often, and in what context, we have counselling. Could you address that?
Second, Mr. Paris, I have been reading in your presentation about the alternate model to consider, which is sale of density. I do not understand this. On page 5, talking about saleable lands, you say:
Because the government owns surplus lands across Canada, and it can sell and transfer density to a developer without selling the underlying land itself.
Then, at the bottom of the page you say "This type of process is complex.'' It is certainly too complex for me.
I think of Toronto, and perhaps it is good that Senator Eggleton is not here. I am very upset by what has happened on the lakeshore in Toronto. I lived there for a long time and love the city — it is a great city — but I do not love what I see on the lakeshore. When I was reading about sale of density, this is the picture that came to my mind, although it can happen in any town or city. I am sure there are lots of other examples.
However, I do not understand this. I do not think it is a good thing. From what I have seen, especially on the lakefront in Toronto and other places, the concept scares me. Maybe I am dense this morning when it comes to sale of density. Can you elaborate on that?
Mr. Pomeroy: To clarify, the value of any development is based on what you can put on a piece of property. The revenues that the builder will generate from the sale of units less the cost of building are what the land is worth. Therefore, the more units you can build, the more it is worth. Changing zoning and increasing density adds value to the land.
If a developer can build 100 units on a property now and someone down the street is not building on an unused property, for example government land, by giving him another 40 units he can now generate the revenues of selling 140 units with no additional land cost. There is no inherent value in land itself. Basically, the value is created by what you can put on it.
If you are a farmer, the value is in the yield from your crops. If you are a forester, it is the yield from selling the timber licence. For a housing developer, it is the yield from selling housing units.
That is how the alternate model would work. It is similar to inclusionary zoning where you are trying to extract value. When a municipality rezones a property, it increases the value of lands by virtue of a public decision. It is a windfall gain for the person who owns it. Therefore, extracting that and sharing some of that increase in the gain is one mechanism that can be used to get land essentially at no cost and without hurting the developer.
It would have the consequence that you have addressed. It does increase density and if people do not like high density, it can raise community opposition to the development.
However, it has been successfully used in many communities. Vancouver is one of the best examples. They have a city charter, unlike the municipal act, that gives them more power do that type of thing. There are churches in Vancouver that sold and could have been replaced by 20-storey high-rise buildings. They kept the church and sold the density that they could have built on that site to the building next door to build 40 stories for example.
Senator Trenholme Counsell: Therefore, the land itself really is not sold?
Mr. Pomeroy: In the case that Mr. Paris is talking about, it would not have to be. Indeed, in the example of the church, the land was not sold either. They sold the right to develop and moved it somewhere else.
Senator Trenholme Counsell: Is there a 100-year lease or how does it work?
Mr. Pomeroy: Once density is sold, it is there forever.
Mr. Paris: The notion is that the land would remain the property of the city that owns it, and the right to develop on that land would be simply transferred to another property owned by another person, not the municipality.
Mr. Pomeroy's description was very good in terms of how you can take two 20-storey buildings and transfer the density of one to another. You create a 40-storey building and protect the original property from being developed for some purpose, whether it is for heritage preservation, a utility court corridor, et cetera. It is often done.
In municipalities throughout Vancouver, a piece of land owned by the municipality next to a site available for development will be held. The city may not be able to build on that property for various reasons, such as future development of a road or a park, but it would otherwise be developable. They choose to keep it because of the future purpose in mind and not for building.
The density can be sold from that site without selling the land itself and the equivalent benefit to the community would be created. There would be as much total housing as there would have been had that site been developed by the municipality along with a lower-density site being developed next door to it by a developer. You are simply shifting housing from one location to another.
Senator Trenholme Counsell: When I read this, I thought it was that a municipality would obtain money from this piece of land to allow a very dense development. However, the responsibility, if you will, is that the money they got from selling that density is used somewhere else, maybe further from the downtown, for housing to meet certain needs.
Mr. Paris: Yes.
Senator Trenholme Counsell: Is that right?
Mr. Paris: The assumption in my model is that if the density is sold for the purpose of creating affordable housing, the money should be ploughed back into affordable housing projects ideally within the same neighbourhood, but not necessarily.
In one project I am working on now, the assumption is to plough the money back into a neighbourhood that is only starting to go through revitalization. However, there is no other market for that density within the community.
Therefore, it has to go into another community elsewhere where the market already exists and there is willingness for a developer to purchase the land.
The Acting Chair: For technical reasons we have to wind up. I am sorry to interrupt this interesting time, but thank you all for coming before us.
The committee adjourned.