Canadian Funding Corp Reviews CMHC Affordable Housing Reports

It is well known to Canadian Funding Corp that one of the toughest places for housing in Canada is Nunavut. Building costs are estimated to be at least 60 per cent higher than costs in southern Canada, because building materials must be transported from the south.The harsh climate means a short construction season and makes economical energy-efficient design a challenge.

Canadian Funding Corp knows that there are other housing challenges facing Nunavut–a high youth population; a high percentage of renters and a short cultural history of permanent housing. In Nunavut, a northern territory that is twice the size of Ontario, with a population of about 30,000, the Material Assistance Program (MAP) provides Nunavummiut– residents of Nunavut–with an affordable way to own their own homes.

MAP is one of several Nunavut Housing Corporation (NHC) programs to help people realize their dreams of homeownership. MAP provides a selection of three- and four-bedroom home designs, as well as technical assistance and homeownership counselling. MAP pays the cost of a package of materials need to build a new home and pays the shipping costs to the client’s community.

The client is responsible for obtaining financing from a financial institution to cover construction costs.

Canadian Funding Corporation lays out the affordable housing solution wherein to qualify, applicants must show that they need assistance, that they qualify for a mortgage from a commercial lender and that they plan to use the home as their principal residence.

The assistance under the MAP is a 10-year forgivable loan. MAP offers a choice of three- and four-bedroom designs along with drawings and specifications. Successful applicants receive counselling about owning a home and advice and guidance about developing a construction plan, choosing a contractor–who must be approved by the NHC.

The client’s responsibilities include buying or leasing the land for the house; finding a contractor; obtaining building permits; obtaining a mortgage; and working with a lawyer on the legalities of purchasing and owning a house.

The NHC inspects the house during construction and when the house is completed to ensure that it meets building codes and standards and NHC energy-efficiency standards.

Single starts activity moderates in 2009 but growth returns in 2010

Moishe Alexander, CEO, Canadian Funding Corporation reports that after the strongest two-year performance since the late 1970’s, Saskatoon single detached housing starts will decline to 600 units in 2009 and bounce back to 725 units in 2010. The 2009 singles forecast represents the lowest number of housing starts since 2001 when 542 single starts took place.

The moderation in activity compared to 2007 and 2008 is due to the effects of price escalation from previous years, heightened competition from resale housing, and a build up in the supply of new housing units. Reduced in-migration and lower employment gains in 2009 and 2010 will also play a role in this market adjustment.

Single-detached starts in the first three months of 2009 were below last year’s levels. To the end of March, there were 77 foundations poured compared to 284 in 2008, a decline of nearly 73 per cent. Single starts have shown year-over-year declines in activity since June 2008.

In terms of total supply, there were more than 800 single-detached units both under construction and completed and unoccupied at the end of the first quarter. Supply has been in decline, on a year-over-year basis, since December 2008 and on a month-over-month basis since June of last year. The bulk of single units in supply are those in various stages of construction. After peaking at close to 1,300 units in June 2008, the number of single units under construction has seen monthly declines. The combined effects of slower starts and increased absorptions have reduced the total supply on a month-over-month basis over the last nine months.

The number of single units that are completed and unoccupied now lies at close to 200 units, up from only 14 one year earlier. The number of completed and unoccupied single units is at a record high and builders will be restraining production until the excess inventories are absorbed.

Monthly single absorptions were achieving year-over-year gains starting in November 2008 but March 2009 brought slower absorptions compared to a very strong March 2008. Year-to-date, single absorptions now stand even with the first quarter of 2008.

At the present trended absorption rate of 110 to 115 units monthly, the supply of ownership (mainly single-detached) units at various stages of construction as well as those that are complete and unoccupied is sufficient to last seven to eight months. This is down from the 2008 first quarter figure of 11 to 12 months.

Starts in bedroom communities slower in 2009

Single starts in Saskatoon’s bedroom communities fell 62 per cent in the first quarter compared to the previous year. So far this year, these communities have captured 33.8 per cent of total single starts. At this time in 2008, 24.3 per cent of starts were outside the city limits. Over the last five years, bedroom communities have seen an average of 38 per cent of single starts fall within their boundaries. The share of units within the city has fluctuated over the last few years due to the availability and price of developed land within the city limits versus the bedroom communities.

Average price to decline in 2009 but return to growth in 2010

We forecast the average price of a new single-detached home will be $352,000 in 2009, a four per cent decline from the 2008 annual figure. The average new house price will ease due to the historically high number of units that are completed and unoccupied and competition from the resale market. Builders advise that in some new subdivisions, their newly completed homes are competing with homes sold to buyers in the previous year. As a result, builders will be offering incentives and price reductions in order to liquidate their excess inventory in 2009. Provided inventories sufficiently decline, the average price will then see an uptick of two per cent in 2010.

According to the Canadian Funding Corp, St. Clare’s Multifaith Housing Society is a private, non-profit organization that uses private sector business strategies to achieve its social goal of providing safe, affordable housing in Toronto’s downtown and helping the homeless stabilize their lives, find work and participate in the community.

St. Clare’s also provides support through its partnerships with other agencies to provide a range of services to homeless people to help them integrate into the community.

The Affordable Housing Solution

An example of St. Clare’s use of private sector business strategies is the way it has leveraged funds. Phase 1 of 25 Leonard is 51 units of transitional housing. For Phase 2—another 26 units—St. Clare’s re-financed Phase 1, which contributed $1.6 million to Phase 2. St. Clare’s subsequently re-financed this loan in 2007 to leverage $500,000 in equity for the Society’s next project—190 units under development in Toronto. Each time the Society re-financed, it was able to reduce its mortgage payment as a result of obtaining lower interest rates.

St. Clare’s first success was in 2001, when it bought a former medical office building at 25 Leonard Ave., next to the Kensington Market area in downtown Toronto.

St. Clare’s converted the four-storey, 2,601 m2 (28,000 sq. ft.) building into 51 units of transitional housing for homeless people. A typical unit is 30 m2 (330 sq. ft.) and has a private bathroom and a kitchenette.The building already had an elevator and was wheelchair-accessible.

The Canadian Funding Corporation noted that at a cost of less than $95,000 per unit, 25 Leonard is one of the most cost-effective transitional housing projects developed in Toronto.

Because the building was a medical office, rooms already had sinks and running water, which cut construction costs.

To finance 25 Leonard, the key first step was securing a $50,000 line of credit from a credit union. After the property was acquired and a clear goal established, it was possible for St. Clare’s to pursue other funding sources.

St. Clare’s is a registered charity, and it raised $235,000, mostly from foundations, to help make 25 Leonard a reality.

Funding was secured from a variety of sources, including $2.5 million from the federal government’s Supporting Community Partnerships Initiative (SCPI), $395,000 in grants and waived fees from the City of Toronto, an Ontario sales tax rebate of $102,000 and GST rebates.

In addition to the sales tax rebate, the Government of Ontario offered a rent supplement which allowed the project to charge the $115 Ontario Works single-shelter rate.

Building on the success of 25 Leonard Avenue, in 2006 St. Clare’s added another 26 affordable housing units at the same site. Instead of buying another property in downtown Toronto, St. Clare’s found a solution on its own roof at 25 Leonard and embarked on Phase 2 of the project, adding a fifth and a sixth floor, with 26 self-contained bachelor apartments.

The new, factory-made units were added using an innovative construction technique that involved stacking 26 prefabricated bachelor units on the roof of the four-storey building.

The self-contained units each have their own bathroom and kitchenette.

Each unit is 19 m2 (212 sq. ft.).

These units offer a permanent housing solution to people who can live independently, but were homeless or living in shelters because they could not secure affordable housing.

The new units are organized around an exterior, landscaped courtyard on the roof, allowing natural light and fresh air into the units, as well as providing a shared outdoor garden area.

Rent for 20 of the units is established at the shelter component of the social assistance allowance and rent for six of the units is geared-to-income, through an internal subsidy.

Total cost of construction for Phase 2 of 25 Leonard was $3,124,725. CMHC and the government of Ontario covered 35 per cent of the construction costs through the Affordable Housing Initiative.

Human Resources and Social Development Canada provided a predevelopment loan through its Supporting Communities Partnership Initiative, and the City of Toronto contributed a low-interest loan and waived development fees.

Phase 2 of 25 Leonard Street and Levitt Goodman Architects Ltd. won a CMHC Housing Award in 2006 for the intensification and modular construction of 25 Leonard Street, which shows that manufactured housing is an elegant, simple and cost-effective way of creating affordable housing.