Are Federal Housing Incentives Working?

Tens of billions of dollars later, what's really going on?

Canada’s housing crisis has definitely attracted a lot of attention. In response, we’ve seen a host of program launches, including:

• Rapid Housing Initiative

• Housing Accelerator Fund

• Co-operative Housing Development Program

• Canada Secondary Suite Loan Program

• Canada Housing Infrastructure Fund

• Urban, Rural, and Northern Indigenous Housing Strategy

• Canada Rental Protection Fund

• Affordable Housing Fund

And that’s just what’s coming from the federal government. Some of those initiatives are now administered as part of the Affordable Housing Fund. That fund includes the Apartment Construction Loan Program (ACLP) - formally known as the Rental Construction Financing Initiative (and before that, the Affordable Rental Housing Financing Initiative). Because the ACLP is particularly heavily funded, I’d like to use this post to take a deeper look.

There’s value in asking ourselves two questions:

1. Does the program make sense from a real-world perspective?

2. Is the program actually successful?

The Business Case for ACLP Loans

The ACLP provides long-term, low-cost, CMHC-insured loans of at least $1,000,000 for construction projects by for-profit or non-profit developers. The loans could cover as much as 100 percent of costs. Applicants must have experience and a financial profile appropriate for such a venture.

Projects must result in total residential rental income at least 10 percent below their gross achievable residential rental income. In addition, at least 20 percent of units must offer rents at or below 30 percent of the median household income in the target market.

Beyond that, projects should be built for a minimum of 15 percent more efficiency in energy consumption and GHG emissions than the applicable reference model building codes. To their credit, the program recently introduced greater flexibility in that area.

To assess whether a project with such constraints is even possible, I ran the numbers for a hypothetical 100 unit property using a 50-year amortized loan for $25 million with a fixed rate of 4.5 percent. I included both the costs and offsetting operational savings associated with complying with the added environmental requirements. I also assumed that: