Speech from the Throne sets Housing Affordability as a Priority

Again today the federal government identified the importance of housing affordability for Canadians. Of note one program was specifically identified for improvement: the First Time Homebuyers Incentive (FTHI).

In the Speechfrom the Throne the Governor General says "The Government will also help families buy their first home sooner with a more flexible First-Time Home Buyer’s Incentive,"

Trillium Housing has been at the Hill advocating for public policy to enhance Canadians' housing affordability for many years, and indeed is the likely model for the FTHI as the program uses a shared equity mortgage modelled after the Trillium Housing mortgage and others already available in Canada.

Those following me on linkedin will know that I had previously advocated for several changes to how CMHC rolled out the program. Let's hope some of the improvements listed below will come to fruition as the Government adds some "flexibility" to the initial roll out.

Let's first look outcomes. The FTHI has several limits that restrict its impact. First by capping house price to 4 times income (4.5 in select cities) it essentially means the program is limited to families earning more the $100,000 per year (let's face it there are not a lot of homes around selling below $400k). Compare that to Trillium Housing where we ONLY finance families with incomes below the local median - $96,000 for Ontario. Our actual results far exceed this - we achieved an average of $64,000 average household income in Toronto last year. I would venture Trillium is financing families with less then half the incomes of those families under FTHI (CMHC is pretty non-transparent when it comes to how it spends taxpayer dollars).

A FTHI mortgage is capped to 10% of unit value for new homes AND it is mandatory to pay for expensive High Ratio Mortgage insurance from.... you guessed it.... CMHC itself. So while the FTHI is a second mortgage and already provides a buffer for the first mortgage in the case of default, CMHC double dips. On top of receiving government of Canada funds for FTHI it also charges these families an extra 4% on the price of their home. So on a $500,000 new home while you can get a FTHI repayable mortgage for $50,000 you also have to finance an extra $20,000 fee payable to CMHC - so much for helping with affordability.

Trillium takes the opposite approach. We look at what the family can provide as a downpayment (minimum 5%) and then we ALWAYS provide a Trillium Mortgage that takes them to a combined downpayment (their $$ and the Trillium Mortgage) so they hit 20% equity in the home and do NOT have to pay the $20,000 fee for CMHC insurance.

From what can be found on CMHC financial statements, the FTHI only delivered $193m of the $15.billion in the first two years of this 5 year program. It financed 10,600 families - so the average FTHI mortgage is only $18,200 - that saves a family at current interest rates about $86 per month on their housing costs.

Trillium has used every penny available. Our first project provided almost $3 million to 26 families - an average of just over $100,000 for each Trillium Mortgage. The average housing cost savings for our families is an amazing $500 Per Month. Of those 26 families, we took the risk and financed 8 single-parent led families.

So how should the Government change the FTHI to deliver more housing affordability?

First, the Government should seriously look at outsourcing more delivery to non-profits like Trillium Housing, Habitat for Humanity and others. How can helping more families with less money not be better public policy (and let's not forget about much, much lower overheads!)

Second, they should adopt the Trillium standard of combined downpayment/shared equity mortgage financing at 20% of purchase price. This would eliminate the need for the very expensive High Ratio insurance, saving each family tens of thousands of dollars on their housing costs.

Third, the program should have a LOWER maximum house price - this would provide a market signal to developers to build more entry level housing. To foster more construction, they could also consider focussing the program only on newly constructed homes.

Fourth, just like Trillium Housing goes out and finds investors to increase the dollars available for its Trillium Mortgages, the FTHI should use the $1.5 billion Government commitment and entice long term investors like pension plans and insurance companies to invest in a joint fund where the government financing takes on MORE risk and repayment to those investors is prioritized over government. The financing available could at least be doubled, helping more families. It would provide large institutional investors an avenue to invest in a financial product/the housing sector in a manner that supports housing affordability. This type of leverage would likely be better delivered by a joint venture between experienced non-profits and financial firms - CMHC is best to focus on its core business of insurance products and securitization to benefit bank investment in first mortgages.

If anyone on my linkedin is connected to Minister Hossen, feel free to share these ideas.