affordable homeownership study

Transcription

1 affordable homeownership study Prepared for The City of Calgary Prepared by: Matthew MacNeil, MEDes Principal January 2004

2 executive summary 1.0 introduction An Affordable Homeownership Study has been commissioned by The City of Calgary to identify: affordable homeownership program options that may be appropriate for Calgary The methodology used to conduct the Study included a literature review, key person interviews and an environmental scan of the Calgary community. The analysis focused on affordable (assisted) homeownership programs rather than affordable housing products. 2.0 key findings 2.1 benefits and barriers to homeownership Through a combination of literature review and key person interviews, the following benefits to homeownership were identified: homeownership is a major contributor to financial security and wealth creation for individual households; homeownership is also an important contributor to a community s economic growth; homeownership has positive impacts on personal well-being, fulfillment, self-esteem, sense of control and stability; homeownership plays a role in improving the neighbourhood and community quality of life; promoting greater income equality through homeownership can contribute to improved population health; children of homeowners do better in school and are more likely to complete their schooling (scholastic performance has more to do with household stability, a sense of belonging and family values around education than it does I.Q.); children of homeowners are more likely to become homeowners themselves; homeowners are more vested in the interests of the community in which they live and more concerned about what goes on around them; homeownership offers legitimacy to people, allowing them to speak out and have an opinion about what goes on in their neighbourhood and community; homeowners are more likely to participate in community life, get involved in local activities, and are more likely to know their neighbours and their neighbourhood; homeowners are more likely to vote in local, provincial and federal elections than renters; public efforts to increase access to individual homeownership have greater impacts among low-income households than among higher-income households; and When low-income renters become homeowners, there is a shift in thought processes, attitudes, and level of responsibility. People shift from being clients of social services to being partners in their communities. executive summary - i -

3 Through a combination of literature review and key person interviews, the following barriers to homeownership were identified: lack of savings for downpayment and closing costs; lack of knowledge and understanding regarding the home purchase process; lack of knowledge about the ongoing responsibilities of homeownership; inability to afford the mortgage payments (high cost of housing relative to household s income level); land, construction and development permit costs that make it difficult to provide lower-priced market housing; lenders who may not take clients diverse needs into consideration when recommending mortgages; credit glitches and the time it takes to repair those glitches; increasing monthly operating costs (utilities, etc.) which are not sustainable; limited life skills budgeting, money management, banking, etc.; lenders and their approach to risk management/low-income households; attitudinal barriers; and cultural/linguistic barriers While seen as an ideal, homeownership may not be appropriate for everyone. Some households may not have the means (income, resources, household/career stability), the desire, or the attitude necessary to become successful homeowners; Only a limited number of low-income families would be ready and able to take advantage of an affordable homeownership program in any given year (perhaps 25 maximum); Variable interest rates Family instability (family breakdown) 2.2 affordable homeownership programs in Canada A number of strategies have been used in Canadian municipalities to promote affordable homeownership among low-income households. These strategies have targeted three key barriers: 1. Lack of downpayment and closing costs; 2. Lack of knowledge and understanding about the home purchase process; and 3. Housing affordability relative to a household s income level. Homeownership programs used to address downpayment and closing cost barriers include: gifted downpayments sweat equity rent-to-own programs executive summary - ii -

4 Homeownership programs used to address barriers to knowledge and understanding focus on homeownership education and training (HETP). HETP address topics such as: homeownership pros and cons; budgeting; credit rating and debt ratios; choosing a REALTOR and finding a home; mortgages and the mortgage process; closing costs and process; and ongoing requirements of homeownership (e.g., utilities, repair, maintenance, etc.). In some cases, ongoing supports are provided as part of the program, including budgeting and credit counselling as well as home maintenance assistance and referrals. Homeownership programs used to address housing affordability barriers relative to household incomes include: second mortgages shared ownership agreements Community Land Trusts Housing Co-Operatives 3.0 affordable homeownership case studies The following affordable homeownership program case studies were examined: The HOME Program (Alberta-Wide) CMHC s Buying and Owning a Home Seminars (Canada-Wide) New Beginnings Housing Co-Operative / Home Ownership Made Easier (Prince Albert, Saskatchewan) Saskatoon Housing Initiatives Partnership (Saskatoon, Saskatchewan) Quint Development Corporation (Saskatoon, Saskatchewan) Habitat for Humanity-Calgary (Calgary, Alberta) MCC Employment Development (Calgary, Alberta) Options for Homes (Toronto, Ontario) Shared Ownership Housing Pilot Project (Trois-Rivières, Quebec) Housing 555 (Canada-Wide) Calgary Community Land Trust Society (Calgary, Alberta) Central Edmonton Community Land Trust (Edmonton, Alberta) West Broadway Community Land Trust (Winnipeg, Manitoba) executive summary - iii -

5 3.1 summary of affordable homeownership case studies The following table summarizes the key features of each program and identifies whether or not these programs are appropriate for Calgary. Legend: Downpayment/ Closing Costs Knowledge/ Awareness Affordability Tenure $ Y appropriate for the Calgary context N not appropriate for the Calgary context Y/N portions of the model may be appropriate for the Calgary context - model currently provides these features - model is set up to provide these features Appropriateness of Model for Calgary Gifted/Assisted Downpayment Sweat Equity Rent-to-Own Budget/Credit counseling Peer Support Homeownership Education/Training Shared Ownership Second Mortgages Low-Interest Financing Forgivable Loans Co-Operative Community Land Trust Traditional Ownership (individual titl e) Revolving Loan Fund The HOME Program (Alberta-Wide) Y Buying and Owning a Home Seminars (Canada-Wide) Y/N New Beginnings / Home Ownership Made Easier (Prince Albert, Sask.) N Saskatoon Housing Initiatives Partnership (Saskatoon, Saskatchewan) Y/N Quint Development Corporation (Saskatoon, Saskatchewan) Y/N Options for Homes (Toronto, Ontario) Y Shared Ownership Housing Pilot Project (Trois-Rivières, Quebec) Y Housing 555 (Canada-Wide) Y Habitat for Humanity-Calgary (Calgary, Alberta) Y MCC Employment Development (Calgary, Alberta) Y Calgary Community Land Trust Society (Calgary, Alberta) Y Central Edmonton Community Land Trust (Edmonton, Alberta) N West Broadway Community Land Trust (Winnipeg, Manitoba) N executive summary - iv -

6 table of contents 1.0 introduction benefits and barriers to homeownership affordable homeownership case studies i -

7 1.0 introduction The City of Calgary recognizes the need for more affordable housing opportunities and a full housing continuum to meet the needs of the community s diverse household types and income levels. Statistics Canada 2001 Federal Census results indicate that there are as many as 58,570 households in Calgary earning $37,621 or less (65% of the Area Median Income) and spending more than 30% of their gross income on shelter. 1 Of these households, an estimated 29,695 households are spending between 30-49% of their gross income on shelter costs the remainder (an estimated 28,875 households) is spending 50% or more of their gross income on shelter. 2 As such, an Affordable Homeownership Study has been commissioned to identify and evaluate initiatives that support affordable homeownership for low-income households and that may be appropriate for Calgary. The methodology used to conduct this Study combines a literature review with key person interviews. Through this process, a series of case studies have been developed profiling successful affordable homeownership programs in Alberta and across Canada. The analysis begins with a discussion about the benefits and barriers to homeownership. It also provides an overview of the typical models used in Canada to promote affordable homeownership for low-income households. The analysis then provides a summary of case studies to demonstrate how the models are being used across Canada and evaluates each case study to determine which models may be appropriate for Calgary. 1 The City of Calgary, Affordable Housing Fast Facts (Updated July 2003) 2 Ibid. -2 -

8 2.0 benefits and barriers to homeownership 2.1 societal benefits of homeownership Homeownership is seen as an important contributor both to financial security and social stability. A recent study 3 by Dr. J David Hulchanski comparing wealth and housing tenure shows that the wealth (defined as a person s net worth) of homeowners is significantly higher than that of renters. In 1999, the median net worth of Canadian renters was $2,060 whereas the median net worth of Canadian homeowners was $145,200. The study notes that (f)or homeowners, high and increasing house costs contribute to their lifelong accumulation of wealth, whereas for renters, high and increasing housing costs have the opposite effect. 4 For renters, high housing costs make it difficult, if not impossible, for them to accumulate assets (such as the amount needed for a down payment) resulting, for many, in lifelong impoverishment. 5 The study also notes a growing income polarization in Canadian cities which is expected to lead to increased incidences of homelessness. Promoting greater income equality through homeownership can contribute to improved population health. Monica Townson notes that providing meaningful work for all Canadians, reducing the number of families living in poverty, ensuring equitable distribution of income, and making sure that there is suitable, adequate and affordable housing are key determinants of population health. 6 Townson also notes that it is not the richest societies that have the greatest health, but rather the most egalitarian. A 1995 study from the United States 7 shows that homeownership has a number of perceived benefits, particularly for lower-income households, but also for the broader community. The study describes homeownership as an investment that contributes directly to a household s financial security and wealth accumulation. It also contributes to personal well-being and personal fulfillment. As a recognized symbol of social and economic status, homeownership builds self-esteem. It enhances a homeowner s sense of control and stability. Homeownership is also seen to play a role in improving the neighbourhood and community quality of life. Homeowners are more likely to remain in their neighbourhoods longer than renters. This leads to greater participation in community life, involvement in community politics (i.e., voting and participating on neighbourhood committees), and the forging of informal social 3 Hulchanski, J. David, PhD, MCIP, A Tale of Two Canadas: Homeowners Getting Richer, Renters Getting Poorer. Research Bulletin #2, Centre for Urban and Community Studies, University of Toronto. August Ibid., p. 3 5 Ibid., p Townson, Monica, Health and Wealth: How Social and Economic Factors Affect Our Well-Being. Ottawa: James Lorimer and Co., and Canadian Centre for Policy Alternatives, 1999, 124 pp. (a brief summary is available online at 7 Homeownership and Its Benefits, Urban Policy Brief, Number 2. August (available online at

9 and mutual support relationships that foster close-knit, nurturing communities. 8 Homeowners are more likely to maintain their properties, and the increased neighbourhood stability associated with homeownership is often recognized as an important contributor to crime prevention. Finally, homeownership is seen as an important contributor to economic growth. New home construction requires labour and skilled trades jobs. Buying and selling homes requires REALTORS 9, mortgage brokers, solicitors, home inspectors, etc. In the U.S., many mortgages are pooled as mortgage-backed securities and sold in the secondary market, where they are purchased by mutual funds, pension funds, and a wide range of other institutional investors. 10 Thus, increasing homeownership opportunities can provide a vehicle for broader community investment. Additional U.S.-based studies point to the varied economic and social benefits of homeownership in support of homeownership assistance to low-income households. A 2003 study by the Homeownership Alliance of Nonprofit Downpayment Providers (HAND) suggests that (a) lowincome homeowner s average household wealth is 12 times that of a similarly compensated renter. 11 Using data from the U.S. Department of Housing and Urban Development (HUD), the study shows the following social benefits to homeownership: children of homeowners showed a 9 percent higher probability of being in school than those of renters; teenage pregnancy rates in families owning their homes are from two to four percent lower than for families who rent; children of homeowners have a 25 percent higher probability of completing high school than renters children; children of homeowners have a 116 percent better chance of graduating college than renters children; children of homeowners had a 59 percent better chance of being homeowners themselves within 10 years of leaving the parental home; math achievement scores are 9 percent higher among homeowners children than renters children; reading achievement scores are 7 percent higher among homeowners children than renters children; and homeowners are 25 percent more likely to vote in local, state and federal elections than renters. 8 Ibid. (online source - no page number) (NOTE: Consultations for the Calgary Community Plan : Building Paths Out of Homelessness identified stronger community and social support networks as a necessary contributor to preventing homelessness in Calgary.) 9 REALTOR is a trademarked term requiring all letters to be upper-case. This standard is used throughout this document. 10 Ibid. (online source - no page number) 11 Economic Benefits of Increasing Minority Homeownership, Department of Housing and Urban Development, As cited in Homeownership: The Key To Strengthening The Economic and Social Fabric of the United States, Homeownership Alliance of Nonprofit Downpayment Providers (HAND), Bethesda, MD. 2003, p

10 HAND asserts that, if homeowners provide more social capital than renters, the return on such capital is likely to accrue to their immediate neighbors as much as anyone else. 12 This suggests that while the economic benefits to the broader community of individual homeownership may be indirect, the social benefits to the broader community are more likely to be direct. Public efforts to increase access to individual homeownership have been found to have greater impacts among low-income households than among higher-income households. Thus, facilitating homeownership among low-income households has a greater social return on investment. A recent study by the Fannie May Foundation shows that for children from low-income families, homeownership increases educational attainment, raises earnings, and reduces welfare use. 13 However, the study notes that for resource-constrained families, the additional time and financial investment required for successful homeownership may actually take away time and money that would otherwise be invested in the children - thus the importance of providing affordable homeownership for low-income families. Based on the research described above, homeownership is a positive contributor to wealth accumulation among low-income households leading to improved income equality, population health, educational attainment, and social well-being. It also has economic ripple effects accruing to the broader community in terms of new jobs and increased economic spending on household items and improvements. 2.2 primary barriers to homeownership While homeownership may be desirable for a number of reasons, there are several key barriers to affordable homeownership among low-income households. Canada Mortgage and Housing Corporation (CMHC) have examined those barriers from both the U.S. and Canadian perspectives. 14 U.S. homeownership education and counselling (HEC) agencies have identified the following barriers to homeownership among their clients: N. Edward Coulson, Seek-Joon Hwang and Susumu Imai, The Value of Owner Occupation in Neighborhoods, Journal of Housing Research, Vol. 13, Issue 2, As cited in Homeownership: The Key To Strengthening The Economic and Social Fabric of the United States, Homeownership Alliance of Nonprofit Downpayment Providers (HAND), Bethesda, MD. 2003, p Harkness, Joseph and Sandra Newman, Differential Effects of Homeownership on Children from Higher- and Lower-Income Families. Journal of Housing Research, Volume 14 Issue 1. Fannie Mae Foundation, 2003, p CMHC, Research Highlights, Homeownership Education and Counselling: An Examination of U.S. Experience and its Relevance for Canada, Socio-economic Series. Issue Ibid., p.,

11 lack of savings for downpayment and closing costs (93%) lack of knowledge and understanding regarding the home purchase process (79%) housing affordability relative to client s income level (77%) cultural/linguistic barriers (63%) lack of knowledge regarding available housing support (57%) lack of availability of decent housing (23%); and high construction costs (no percentage estimate given) Among the U.S. agencies surveyed by CMHC, typical strategies for helping clients purchase homes include budget planning and fiscal discipline, demystifying the home purchase process, credit repair, downpayment and closing cost assistance, and access to financial assistance (most often in the form of soft or silent second mortgages with special terms). 16 This is consistent with findings from a 2003 study conducted for Calgary Housing Company. 17 The study involved in-depth interviews with four households that had successfully transitioned out of subsidized rental housing and into market homeownership. Those households who had successfully transitioned into market homeownership cited the need for more information on housing options (including homeownership), financial options (including mortgages), investment and financial counselling and advice, and motivational counselling. Homeownership education and counselling is neither as evolved or as standardized in Canada as it is in the U.S. CMHC research findings identified a patchwork of programs and initiatives [in Canada] that are mostly oriented towards information dissemination rather than education or counseling. 18 In recent years, however, programs have emerged in Canada that provide direct and indirect support to help low-income households move into homeownership. 16 Ibid. 17 Factors influencing successful transition of Calgary Housing Company clients from subsidizing housing to market housing. Prepared for The Calgary Housing Company, April 14, CMHC, Research Highlights, Homeownership Education and Counselling: An Examination of U.S. Experience and its Relevance for Canada, Socio-economic Series. Issue

12 3.0 affordable homeownership programs in Canada Numerous vehicles and approaches have been explored across Canada to promote affordable homeownership. These include alternative building forms, construction techniques, tenure options, and homeownership programs. In order to identify affordable homeownership program models that may be appropriate for Calgary, a literature review was conducted. Examples were identified both within Alberta and across Canada. Sources explored include: Canada Mortgage and Housing Corporation (CMHC) Human Resources Development Canada (HRDC) The Affordability and Choice Today (ACT) Program Homegrown Solutions (CHRA) The Alberta Real Estate Foundation Major and Secondary Urban Centres (Alberta and Canada) The literature review was followed up with key person interviews. Many of the initiatives identified combine several interchangeable approaches for a variety of purposes including homelessness, affordable rental and/or affordable homeownership. As such, the literature can be both confusing and overwhelming. To avoid that confusion and to focus the analysis for the study, this literature review specifically examines homeownership programs that is programs that provide direct assistance (financial and other) to renter households in order to help them move into homeownership. This literature review does not examine alternative building forms, construction techniques, and/or tenure options per se unless those options are useful in illustrating a case example of how a particular homeownership program is being used successfully (e.g., housing co-operatives and Community Land Trusts). The literature review is also focused on Canadian examples of homeownership programs rather than programs from the United States or elsewhere. The United States and other countries have different legal systems, financial and taxation structures, and housing programs that may not be appropriate to the Canadian (or Alberta) context. Limited research from the United States is used where appropriate to identify general trends and issues around homeownership but only where the equivalent Canadian research is unavailable. A number of strategies have been used in Canadian municipalities to promote affordable homeownership among low-income households. These strategies have targeted three key barriers: 1. Lack of downpayment and closing costs; 2. Lack of knowledge and understanding about the home purchase process; and 3. Housing affordability relative to a household s income level. -7 -

13 3.1 programs to address downpayment and closing cost barriers The most frequently used strategies to overcome downpayment and closing cost barriers include gifted downpayments, sweat equity, and rent-to-own programs. Gifted Downpayments: organizations (usually municipal or non-profit) provide funding directly to a household either as a gift, grant or forgivable loan to cover all or a portion of the required downpayment and associated closing costs. Up until recently, CMHC would only accept gifted downpayments if they were from family members and were non-reciprocal (i.e., non-repayable). However, CMHC has recently relaxed its rules regarding gifted downpayments. Sweat Equity: individual households provide labour in lieu of cash to cover the downpayment and closing costs. The use of sweat equity is useful for both new construction and renovation but not for purchasing existing homes that require little or no renovations. Sweat equity is also typically only of value when pursuing high-ratio mortgages (i.e., mortgages requiring a 5% downpayment) in low-cost housing markets (e.g., Winnipeg, Saskatoon, etc.). Low-income households are often unable to contribute the necessary labour and expertise to equal the 25% downpayment required for a traditional mortgage or even the 5% required for a high-ratio mortgage in higher-cost housing markets such as Calgary, Vancouver and Toronto. Rent-to-Own Programs (also known as lease-to-own programs) allow households to move into their homes initially on a rental basis (usually 3-5 years) while they save up the necessary downpayment and repair any credit damage they may have. Under a rent-to-own agreement, the monthly rent is used to pay down the mortgage. At the end of the rent-to-own period, the equity that has been paid down on the mortgage is transferred to the household which then uses that equity as its downpayment and closing costs to purchase the home (usually at a price agreed to at the beginning of the rent-to-own agreement). 3.2 programs to address barriers to knowledge and understanding about the home purchase process Homeownership education and training (HETP) is the technique used to increase a household s knowledge and understanding about the home purchasing process. HETP typically consists of training seminars and workshops that cover topics such as: homeownership pros and cons; budgeting; credit rating and debt ratios; choosing a REALTOR and finding a home; mortgages and the mortgage process; closing costs and process; and ongoing requirements of homeownership (e.g., utilities, repair, maintenance, etc.). -8 -

14 In some cases, ongoing (pre- and post-purchase) supports are provided as part of the homeownership education and training program. These supports include budgeting and credit counselling as well as home maintenance assistance and referrals. 3.3 housing affordability barriers relative to household incomes Homeownership programs and strategies used to address housing affordability relative to household income levels include second mortgages, shared ownership agreements, Community Land Trusts and housing co-operatives. Second Mortgages are used to separate the actual construction cost of a new home from the market value of that new home. A second mortgage is a lien placed on Title of the property that is placed behind the first mortgage. Under this arrangement, the household purchases a first mortgage based on the actual construction costs of the home. The municipality or a local nonprofit agency holds a second mortgage on the home which represents the difference between construction costs and full market value. While conventional second mortgages typically carry a higher interest rate and are payable at the same time as the first mortgage (i.e., two separate monthly mortgage payments), a second mortgage under this scenario is often interest-free, only repayable once the property is sold, and often forgivable over time (five to fifteen years). Shared Ownership Agreements (usually between a municipality or financial institution and an individual household) allow a home buyer to purchase the building first, and the land several years later, at no interest. 19 By deferring the payment for the land component of a house for several years, shared ownership reduces the upfront cost of purchasing a home (size of mortgage and associated downpayment), until the household has increased its income sufficiently to afford the full mortgage. Under this arrangement, both parties are registered on Title, a lien is placed on the Title for the land value (in Alberta, Title to the land and the building cannot be separated) and a contractual agreement established between both parties sets up conditions and timelines for transferring Title of the land portion to the homeowner (at which point the mortgage will like require refinancing). Community Land Trusts are non-profit (often charitable) organizations that acquire land for affordable housing. They do so either by purchasing or receiving as a donation land, land and buildings, or money to purchase land. The land is then held by the Community Land Trust permanently so that it can always be used for affordable housing. Individual households purchase the dwelling units and lease the land on a long-term basis (often at below-market rates). This is an approach similar to purchasing a home on a First Nations reserve or within a national park but with a built-in affordability component. Under a Community Land Trust, formulas are established in the lease agreement to control gain. These formulas limit how much the leaseholder s asset (the individual dwelling unit) can value over time. The formula is often tied to the Consumer Price Index to account for inflation but may also use a different formula that accounts for inflation and depreciation of the asset. In addition, 19 Shared Ownership Housing Pilot Project: Habitations Populaire Desjardins du Centre du Quebec, Trois Rivieres, Quebec, Affordability and Choice Today (ACT) Demonstration Project Case Study (March 1998). -9 -

15 the Land Trust must approve the transfer of the lease to a new lessee, thereby ensuring that the resale formula is enforceable. Each of these three examples has built-in mechanisms to prevent speculation and individual households earning windfall profits on the resale of their homes. Right of First Refusal is also used to ensures that the Municipality or non-profit organization has the first option to purchase the home if is must be sold. Housing Co-Operatives are non-profit organizations that hold title to both land and buildings. Individual households (co-op members) purchase shares of stock in the housing co-operative (own a percentage of the total value of the co-operative). While individual households do not hold title to individual units, as members of the co-op, they each hold individual proprietary leases (occupancy agreements) that convey the right to occupy specific units in the housing project. Limited-equity housing co-operatives restrict the resale value of share prices so that they are accessible to low- and moderate- income households. In addition, resale prices are restricted to maintain long-term affordability. There is some concern about the guarantee of long-term affordability using the housing cooperative model. It is conceivable that the co-op board and membership could at some point agree to sell the asset at market value and then divide the asset. 20 There is also some concern about whether or not housing co-operatives can provide an affordable alternative for low-income, first-time homebuyers. It can be difficult for individual co-op members to secure a high-ratio mortgage because the household does not hold actual Title to an individual dwelling unit. As a result, should the household foreclose on its mortgage, there is no physical unit for CMHC to repossess and sell. Thus, households buying into a housing co-op often require conventional mortgages requiring 25% downpayments. Particularly in high cost centres, many low-income households may not have the upfront equity required to buy into a housing co-op. 20 CMHC, Land Trusts for Non-Profit Continuing Housing Co-operatives prepared by Communitas Inc., May

16 3.0 affordable homeownership case studies Through the literature review and key person interviews, a number of affordable homeownership program case studies were identified and evaluated. What follows is a summary of those case studies. 3.1 The HOME Program (Alberta) The HOME program is a homeownership education and training program designed to assist moderate-income households move into homeownership. The program was funded initially by the Alberta Real Estate Foundation and piloted in Edmonton. The program is a direct response to the issues faced by households living in subsidized rental housing whose incomes have increased to the point where they are at risk of being evicted yet have no affordable housing alternatives available to them. The HOME Program consists of 5 key components: 1. Homeownership Education 2. Downpayment Assistance 3. Individual Support 4. Underwriting Support 5. Tool Box (Building on Success) Homeownership Education is the cornerstone of the HOME Program. This component includes two separate education sessions. The first session is a two-hour overview of homeownership. Topics include: 1) whether or not homeownership is right for the participants (looking at the advantages vs. responsibilities of homeownership); 2) credit; and 3) a general overview of the home buying process. Those participants who are interested in homeownership then move on to a 4-hour session where the nuts-and-bolts of homeownership are discussed. The session includes presentations from REALTORS, mortgage brokers, solicitors, and home inspectors. Downpayment Assistance provides downpayment grants to qualified households using a sustainable, revolving pool of funds. The initial pool of $50,000 was provided through a grant from the Alberta Real Estate Foundation and is replenished through REALTOR referrals. There are three target groups for downpayment assistance: 1. Households earning under $40,000 who qualify receive matching funds up to 2.5% of the purchase price of a home (to a maximum of $3,000). 2. Households earning between $40,000 and $49,999 who qualify receive matching funds up to 1.75% of the purchase price of a home (to a maximum of $3,000). 3. Households earning over $50,000 who qualify receive assistance with closing costs (to a maximum of $1,000)

17 Including households earning over $50,000 in the program helps to replenish the downpayment pool (the lower income group draws more money from the pool than is replenished through the REALTOR referral fees, the middle-income group breaks even, and the upper-income group helps to replenish the pool). Individual Support provides an opportunity for households to work one-on-one with a partnering REALTOR. Households who qualify for downpayment assistance are pre-qualified and usually have a lender commitment already in place. The REALTOR then helps the household find an appropriate home to purchase. Underwriting Support seeks: 1) to assist households in meeting the underwriting triad of equity, income and credit; and 2) to expand the parameters of what constitutes an acceptable risk so that more households can receive mortgage financing. Tool Box (Building on Success) provides ongoing support and assistance to graduating households until they either re-sell their property or refinance in 3-5 years. The Tool Box component helps households deal with crises that may threaten their housing stability, provides advice on who to call when a maintenance issue arises, and/or provides peer support to help households adjust to the requirements of being a responsible homeowner. The counselling and follow-up are essential components of the program, ensuring that each household has the necessary resources, support and advocacy to succeed as homeowners. The HOME Program protects itself against investors using the program as an opportunity to flip properties in two ways. First, careful screening of applicants ensures that those who participate in the program are in fact households in need of assistance. Second, contract agreement reserves the right to require the household to repay the gifted downpayment if it sells the home within three years and makes a profit. This condition also provides an incentive to stay with the program and take full advantage of the ongoing supports. The HOME Program is currently work in Edmonton, Calgary (working with tenants of Calgary Housing Corporation) and Red Deer and hopes to expand the program into each of the 11 real estate boards in Alberta over the next two years. The goal by 2008 is to have 1,000 qualified participants per year province-wide with 500 moving into homeownership within 1-3 years of entering the program. The HOME Program has been very successful. Approximately 20% of qualified participants (those who complete both workshops) move into homeownership within six months of completing the program. Last year, it helped 22 households move into homeownership. This year, with its expansion into Calgary, Red Deer and Lethbridge, it will help anther 60 households move into homeownership. The HOME Program has already helped low-income Calgary families move out of subsidized rental housing and into market homeownership. In November 2003, senior staff from Calgary Housing Company partnered with The HOME Program to conduct the first set of workshops in Calgary. A total of 47 CHC households were invited to attend the workshop. Of those households, fourteen attended and twelve completed the program. Within two months of -12 -

18 completing the program, three (3) CHC families have purchased their homes with a fourth family ready to purchase but wanting to wait until the Spring. This represents an immediate success rate of 33%. As a result of this success, The HOME Program is working with Calgary Housing Company to offer a second set of workshops in Calgary during the first week of February (It should be noted that Calgary Housing Company is also open to working with other types of programs to help its tenant transition successfully into homeownership.) appropriateness of the model for Calgary The HOME Program is an appropriate model for the Calgary context. The key strengths of the model are its: sustainable, self-replenishing gifted downpayment fund; comprehensive education and support program that ensures that households are serious about purchasing a home and likely to succeed; knowledge of client needs; knowledge of the real estate market/financial industry; realistic goals for expansion (200 new households helped per year across Alberta) ability to engage socially-minded REALTORS and other industry professionals on a volunteer basis to participate in the program; strong community networks and access to external resources (for credit counseling, employment skills development, etc.); and backing (both financial and legitimacy) by the Alberta Real Estate Foundation and the Alberta Real Estate Association. The program is already operating in the community and has enjoyed early success. The combination of credit counseling, underwriting advocacy, and ongoing support to households after they become homeowners (both individual and peer support) allows the program not only to help households overcome multiple barriers to homeownership but also to improve the chances that households will succeed in homeownership. The HOME Program has modest expansion goals, preferring to remain relatively small. While this means the program will likely have limited impact on solving the problem in Calgary, it also means that the program will not interfere with or distort the local housing market. 3.2 CMHC s Buying and Owning a Home Seminar (National) The Buying and Owning a Home Seminar is a national homeownership education and training program developed by CMHC. Research from the US indicates that households that graduate from homeownership education and training programs (HETP) live in more sustainable housing for a longer term. The CMHC program has be created for people who want expert, objective, information about homeownership issues, options and responsibilities without the sales pressure associated with current real estate- or banking industry-led homeownership seminars

19 CMHC s program is similar to The HOME Program but has a broader target group and different business strategy. The program is tailored to: first time homebuyers; renters looking at various cost and owning options; current homeowners looking for a lifestyle change; and current homeowners who have not purchased a home in recent years and who might benefit from a refresher course. The CMHC program offers a one-day (nine-hour) seminar whose goal is to remove the knowledge barriers to homeownership and to increase the probability of consumers buying and keeping their homes. The registration feed for the workshop is $25.00 per household and includes the course materials. The seminar includes 10 modules with the intent that modules may be tailored to specific client groups. Unlike the HOME Program, the Buying and Owning a Home Seminar does not include ongoing support and counselling, underwriting assistance, or downpayment assistance. The Buying and Owning a Home Seminar does however offer the opportunity to include counseling and support services should the need be identified locally and an appropriate community agency be found to partner with the program. CMHC s HETP program is currently in the pilot stage. The pilot stage will help CMHC determine whether 1) to continue to operate the program as-is; 2) to modify the program; 3) to pass the program off to another provider (e.g. colleges, etc.); or 4) to scrap the program. During this pilot stage, CMHC hopes to identify other organizations that could partner in the delivery of the course (CMHC is currently exploring opportunities with the HOME Program). CMHC expects to hold pilot 10 seminars to 250 participants throughout the Prairie region by the end of 2003 (the first seminar in Calgary was held in April 2003) appropriateness of the model for Calgary CMHC s Buying and Owning a Home Seminars is an appropriate model for Calgary but may not be appropriate for low-income households. The key strengths of the program are that it is developed and administered by CMHC and backed by extensive research in both U.S. and Canadian housing markets. The program is also flexible, designed as a series of individual modules that can be adapted to local needs and circumstances. However, some local agencies that have had the chance to review the program materials feel that the program is more appropriate for middle-class households. The program offers one-off seminars which may or may not provide the long-term relationship-building required for lowincome households. Nor does the program provide ongoing supports or downpayment assistance. It should also be noted that CMHC staff are currently looking at ways to support The HOME Program rather than provide two separate programs in the Calgary market

20 3.3 New Beginnings Housing Co-operative / Home Ownership Made Easier (Prince Albert, Saskatchewan) The New Beginnings Housing Co-operative and Home Ownership Made Easier (H.O.M.E) program assist low-income households to purchase their own homes at costs often below that of renting. The Co-operative began in 1997 with the participation of a number of community partners, including the City of Prince Albert, a local Credit Union, the Province of Saskatchewan (through the New Careers program), local housing agencies, various provincial departments and community groups. Under the model, existing homes in Prince Albert are purchased by the New Beginnings Housing Co-operative and renovated using sweat equity by co-op members. The sweat equity contribution is used towards the household s downpayment (which is topped off through provincial and municipal funding assistance) and a local community advisory group holds the mortgage until it is repaid over a 10-year period. Since a community group holds the mortgages, there may be opportunities for a certain level of flexibility should households encounter short-term difficulties (i.e., the community group may allow longer arrears before foreclosing on an individual household and may work with the individual household to find new employment, etc.). Another key component of the program is downpayment assistance. Due to low incomes, insecure employment, and debt load problems; many households do not meet the eligibility criteria for CMHC s high ratio mortgage insurance (i.e., 5% downpayment). Thus, each home requires a traditional mortgage with a 25% downpayment. However, most households are unable to provide enough sweat equity to raise the 25% downpayment. As a result, the City of Prince Albert and the Province of Saskatchewan provide sufficient downpayment assistance for the initiative to proceed (up to 5% from the City and up to 20% from the Province). The local Credit Union also provides financial counselling to prospective purchasers. Technical assistance and advice on renovation work comes from the City, existing housing agencies and community groups, and the Province appropriateness of the model for Calgary While the New Beginnings Housing Co-operative and the Home Ownership Made Easier program helps low-income households overcome downpayment barriers, the model may not be appropriate for Calgary. This is primarily due to the different realities of the Saskatoon and Calgary housing markets. Many Saskatchewan communities are faced with declining neighbourhoods and an aging housing stock in need of upgrading. The Calgary housing market offers fewer opportunities for renovation. Housing prices in Saskatchewan are also significantly less than they are in Calgary (single-family homes can be purchased in Prince Albert for under $50,000). Given the high price of homes in Calgary, it is unlikely that a low-income household would be able to contribute sufficient sweat equity to cover the downpayment. Also, the key to the model s sustainability is municipal and provincial contributions that are used to top up downpayments. Unlike Prince Albert, Calgary does not have access to an established provincial program providing downpayment grants

21 3.4 Saskatoon Housing Initiatives Partnership (Saskatoon, Saskatchewan) The Saskatoon Housing Initiatives Partnership (SHIP) is a community-based non-profit consisting of community, business and municipal organizations and individuals. SHIP uses a combination of downpayment assistance and low-cost financing through a community investment fund to assist low-income renters to move into homeownership. A key component of SHIP is its Housing Investment Fund which provides second mortgage financing to minimize downpayments and acts as a loan guarantee to leverage other project financing by encouraging local financial institutions to carry mortgages that might otherwise be considered too risky, or provide direct equity investments. The Fund provides investors with a modest financial return in addition to the social return of increased affordable ownership opportunities and overall improvement in the health of the community. The second key component of SHIP is a 5% homeownership grant as downpayment assistance from the City of Saskatoon. The third key component is a $3.5 million mortgage pool committed by a syndicate of four (4) lenders to ensure that mortgage financing is available to affordable projects that may be considered "too risky" for traditional financing. In SHIP's initial pilot project proposal, the City of Saskatoon provided a grant of 5% of the total housing cost, the Housing Investment Fund provided below market rate financing for an additional 25% of the housing cost, and the remaining 70% was financed through a conventional mortgage at market rates using the $3.5 million mortgage pool. Initial funding for SHIP came from a combination of "in kind" services from community partners, $120,000 in seed funding from Homegrown Solutions and the Western Economic Diversification Fund, and funds from two provincial government departments to cover operating costs and a loan loss reserve appropriateness of the model for Calgary Portions of the Saskatoon Housing Initiatives Partnership model may be appropriate for Calgary. Given the wealth of the private sector and its interest in affordable housing, there may be opportunities to develop a community reinvestment fund in Calgary similar to the Housing Investment Fund. This fund could be used to finance higher-risk projects or to leverage additional low-interest financing for new affordable housing development. However, developing this fund would require considerable upfront capital contributions (in SHIP s case, a $3.5 million mortgage pool was created and $120,000 in seed funding was provided by the Homegrown Solutions program, which is no longer available). Considerable time and energy would also be required to build the necessary business case, form the appropriate private-sector partnerships, and develop a sustainable model that would work in Calgary. The model also uses gifted downpayments funded by both the municipal and provincial governments. This part of the model would not fit with the Calgary context as Calgary does not have access to an established provincial program providing downpayment grants

22 3.5 Quint Development Corporation (Saskatoon, Saskatchewan) Quint Development Corporation is a non-profit Community Economic Development organization that helps low-income households become homeowners. Formed in 1995, Quint combines housing co-operatives with downpayment assistance and home renovations to revitalize older inner city neighbourhoods. These neighbourhoods are characterized by higher-than-average unemployment, a rise in the number of rental accommodations and absentee landlords, aging housing stock and large numbers of vacant homes. Under the program, low-income families become members of a housing co-operative that purchases and renovates existing single-family homes on behalf of its members. In order to qualify for the program, families must have at least one child 18 years or younger, have had difficulty acquiring a mortgage due to lack of a downpayment, have a stable combined income off less than $30,000 per year, and be willing to participate in a housing co-op. Families with past credit problems and those on social assistance are also encouraged to participate. The Province, through the Saskatchewan Housing Corporation (SHC), provides forgivable equity loans of up to 25% of the home s post-renovation value (up to a maximum home value of $55,000). These loans are forgivable only after five years of the homes being occupied by a qualified (i.e., low-income) household. The City of Saskatoon also provides a 5% homeownership grant (for a total downpayment assistance of 30%). The mortgage is then arranged through one of two local credit unions. Residents agree to pay a monthly co-op residency fee for the first five years. For all intents and purposes, this residency fee constitutes the resident s mortgage payments. At the end of five years, the SHC equity loan is forgiven and the household is given one of three options: 1. assuming their mortgage and taking the title of their home while remaining members of the co-operative; 2. assuming their mortgage and taking the title of their home but leaving the cooperative; or 3. remaining with the co-operative but as a renter household (not assuming the mortgage). During the first five years of occupancy, the co-op serves as a resource to help residents build their skills and make the successful transition from tenants to homeowners (hence the SHC loan forgiveness only after five years). To further enhance its home renovation pursuits and Community Economic Development goals, Quint initiated the Bent Nail Tool Co-op and employment and training opportunities. The Bent Nail Tool Co-op provides tools and how to workshops for a variety of home renovations and repairs (plumbing, electrical, roofing, cement, basic carpentry, flooring, landscaping, interior renovations, etc.). This provides community members with the knowledge and equipment they need to successfully undertake their own renovation projects. Quint also offers a training program -17 -