CMHC funding model questioned after halt of non-profit Vancouver housing project

Open this photo in gallery:

A small Vancouver non-profit has halted construction of 70 new low-cost apartments in the Downtown Eastside, after the federal Canada Mortgage and Housing Corporation imposed stringent new requirements on a crucial construction loan.

The Anhart Community Housing Society had conditional approval on the $14-million loan, which was to have been provided through a federal program called the Rental Construction Financing Initiative. But in April, CMHC added a new condition: The non-profit had to put up 100-per-cent collateral by July 30.

When Anhart wasn’t able to do so, the federal Crown corporation didn’t provide the loan. On Thursday, after months with no progress toward a financial solution, Anhart placed the project on indefinite hold.

Housing observers say non-profit housing groups trying to provide true low-cost apartments are largely being shut out of the Rental Construction Financing Initiative – a program that accounts for more than a third of all federal housing money promised by the Liberals since they were first elected. Meanwhile, private, for-profit developers are getting tens of millions from the program for units that are much more expensive.

The Anhart project, a planned $20-million rental building on Main Street near the port, was already under construction. The non-profit has invested $3-million of its own money, and now is scrambling to find some way to salvage the building, which has a foundation partly built. Anhart has also lost a $2.74-million grant from BC Housing that was conditional on funding from the CMHC loan.

“It’s a missed opportunity for people in that neighbourhood we are trying to help,” said Keith Wiebe, Anhart’s co-founder, who convened a community meeting Wednesday to develop strategies to save the project.

Through the Rental Construction Financing Initiative, CMHC lends money on a 10-year term, with up to a 50-year amortization period, at low rates. Mr. Wiebe said it would cost Anhart $2-million extra to build its Main Street project with conventional bank financing.

In 2020, Anhart was successful in getting a $5-million construction loan from CMHC, for a 40-unit apartment building in Hope, about 175 kilometres east of Vancouver. That had made Anhart staff working on the Main Street project confident about going ahead.

According to Mr. Wiebe, the loan for the Main Street building began to unravel when CMHC officials started to scrutinize the revenue that Anhart gets from another of its buildings in Vancouver, the Dodson Hotel, and became concerned the property was not making money. Mr. Wiebe said the small housing group tries to keep rents as low as possible, even when it could charge more without violating provincial affordable-housing standards.

In late April, the organization was expecting to receive a letter of intent from CMHC. But three days later, according to Mr. Wiebe, CMHC issued new conditions, including the requirement for a 100-per-cent guarantee on the loan – the kind of condition a private development company can easily meet by putting up other buildings in its portfolio as collateral. But Anhart doesn’t have that kind of portfolio.

In a statement, CMHC said that it does not discuss details of negotiations with housing program applicants until there are signed agreements.

Critics say the Rental Construction Financing Initiative has been successful at adding rental supply, but not at providing affordable housing. “It’s just a very perverse system,” said Steve Pomeroy, a housing researcher and analyst of federal housing programs.

He said the problem with the initiative is that the vast majority of its loans go to private developers, who are not building apartments that are anywhere near affordable, even though creating affordable rental housing is supposedly a key objective of the program.

The private developers are qualifying for the money because, unlike small non-profits, they are able to offer security for their loans using their other holdings, Mr. Pomeroy said.

And they easily meet the program’s affordability requirements because, according to an analysis Mr. Pomeroy did for the Centre for Urban Research and Education, CMHC officials are using a very different definition of affordability from what had previously been the standard.

Other affordable-rental programs require that rents in new, government-supported buildings be at or below the median rent in the local market. But the Rental Construction Financing Initiative defines affordable rent as being no more than 30 per cent of median household income. That number is typically much higher than median rent.

As a result, affordable rents under the Rental Construction Financing Initiative can be almost twice as much as they are under the other definition.

In Mr. Pomeroy’s analysis, rents for projects supported by CMHC in the Vancouver area could have gone as high as $2,150, in 2017 dollars, even though average local rents at that time were only $1,650.

NDP MP Jenny Kwan, who represents the East Vancouver riding in which the Anhart project is located, has been raising concerns about the Rental Construction Financing Initiative for months. This latest development, she said, has confirmed her worst fears.

“This was a non-profit trying to deliver affordable units. But non-profits are not really able to get access to this money for the community,” she said. She added that Anhart is in an unusual position because it received conditional approval for a loan and then had it rescinded. She has heard from other housing groups that simply haven’t applied, or were rejected because they didn’t meet the program requirements.

Vancouver Councillor Michael Wiebe (he is not related to Keith Wiebe) said he’s baffled by what happened to Anhart. “This is the exact type of project that should be able to get this financing,” he said.

In its statement, CMHC said that $9.7-billion has been committed through the Rental Construction Financing Initiative toward 29,700 residential units and that $550-million of that amount went to non-profits.

However, little has come to B.C. non-profits, so far.

CMHC has made a series of announcements about hundreds of millions of dollars in construction financing to private companies in the past month: $109-million to Concert Properties for a tower in Coquitlam, $349-million to Wesgroup Properties for three rental towers in southeast Vancouver, $48.6-million to Woodbridge Homes in Port Moody, and $88-million for a project that the Musqueam Band is building with Polygon Homes on the University of British Columbia endowment lands.

One non-profit that did receive money from the Rental Construction Financing Initiative recently was Lu’ma Native Housing Society, which announced in May that it would be getting $6.4-million in construction loans for a 23-unit building in Vancouver. The society plans to rent the units for an average of 15 per cent below market rates.

In June, CMHC announced $39.8-million for Catalyst Community Developments Society, another non-profit, to build 119 apartments. That project will also have rents significantly below the maximum permitted by the financing program.

In his paper, Mr. Pomeroy suggests that the government, if it wants to create truly affordable housing, should take money away from the current financing program and put it toward something more specialized, aimed at non-profits that are trying to achieve rents that are significantly lower than market rates.

Mr. Wiebe, the Anhart co-founder, is not sure what will happen next with his Main Street project. He is hoping Anhart can find a new financing partner, or another housing group to take over the project. Anhart may have to sell the land.

Plans to buy another piece of property are on hold, he said, as long as there are no guarantees that Anhart will be able to get federal help in the future.

We have a weekly Western Canada newsletter written by our B.C. and Alberta bureau chiefs, providing a comprehensive package of the news you need to know about the region and its place in the issues facing Canada. Sign up today.