Canada’s federal housing agency is lending billions of dollars to boost construction of rental homes without routinely disclosing the recipients of the money or where the units are being built, shrouding in secrecy a program designed to address the country’s housing shortfall by providing developers with low-cost financing.
The Rental Construction Financing Initiative is one of Ottawa’s major efforts to boost home construction. It was announced in 2016 with $2.5-billion in funding, which has grown to more than $25-billion, making it the largest program in the government’s National Housing Strategy, a bundle of different initiatives intended to improve access to affordable units.
RCFI is administered by the Canada Mortgage and Housing Corporation, which as of this summer had committed to $13.6-billion in loans through the program. The developers receiving the money have pledged to build roughly 38,300 rental units, according to a Globe and Mail review of figures prepared by CMHC and tabled in the House of Commons.
The figures were scrubbed of many key details. Notably, CMHC redacted the provinces or territories where projects that received $9.2-billion in loan commitments through RCFI were going to be built. Together, they accounted for more than 24,000 units.
In many cases, CMHC has entered conditional agreements with developers, who must fulfill certain criteria before final agreements are signed and the money is handed over. About $10.9-billion in loans had progressed past the conditional stage. And most of that money – around $6.7-billion – was earmarked for construction in locations that have not been publicly disclosed.
Citing “privacy concerns,” CMHC said it allows developers to determine whether RCFI-funded projects are publicly announced. Lately, announcements have been rare: Just one project has been unveiled in the past 15 months.
“New announcements will be made in the upcoming weeks and months with proponents whose projects are not faced with any privacy concerns,” CMHC spokesperson Leonard Catling said in a statement.
Critics say the lack of transparency is puzzling, and that the obfuscation makes it difficult to assess the federal government’s performance in adding home supply, even while the erosion of housing affordability grows as an economic threat.
“This is not top-secret information. It’s just useful information,” said Steve Pomeroy, head of the housing policy research firm Focus Consulting Inc.
“I don’t think it’s acceptable,” said Jenny Kwan, a Vancouver MP and the New Democratic Party’s housing critic. “The public deserves to have access to that information.”
The federal government announced RCFI – then known as the Affordable Rental Housing Financing Initiative – in 2016, following decades of lacklustre rental development across Canada. As more money has been allocated to RCFI, its objectives have grown: The program is now tasked with supporting the construction of more than 71,000 rental units by 2027-28. As of June 30, around 5,400 units had been built and another 18,365 were under construction, according to CMHC.
Several people connected to the development industry spoke favourably of RCFI. Builders get access to low-cost loans, with 10-year terms and amortization up to 50 years. The interest rates are lower than what developers could get in the private market. The funds are borrowed from the federal government, rather than financed by taxpayers.
To secure loans, developers have to fulfill several criteria in their rental project proposals, such as promising to lease at least 20 per cent of their units at what the government considers to be affordable rates.
“In speaking to those in the development community, they believe it to be quite advantageous for them from a financing perspective,” said Shaun Hildebrand, president of the real-estate consulting firm Urbanation.
But efforts to learn more about RCFI – and its borrowers – have yielded spotty results. Documents obtained through access-to-information requests tend to be heavily redacted. CMHC also declined to provide The Globe with a dollar sum of the values of projects that have received final approvals.
Instead, The Globe’s analysis was based on a government response to Ms. Kwan, who submitted a written question on the order paper in June, seeking detailed information on several CMHC programs. The document with RCFI figures, which was tabled in September, provided loan values for approved RCFI projects, whether conditional or finalized.
The $13.6-billion in loans to which CMHC had committed itself as of this summer were spread across 216 projects. More than 7,600 rental units and 34 projects were in Ontario, and roughly 2,900 units and 22 projects were in British Columbia.
But another 131 projects and 24,277 rental units were in undisclosed locations. The redacted group included a $444-million loan for 855 units, which until recently was the largest RCFI project.
There have been no publicly announced RCFI projects in Saskatchewan or Newfoundland.
“The document really shows how opaque the system is,” Ms. Kwan said.
In early 2021, CMHC published an evaluation of RCFI through November, 2020. It noted that projects in Toronto accounted for 28 per cent of approved units, followed by Vancouver at 9 per cent. Projects in Ajax, Ont., received 6 per cent of approvals. Montreal, Winnipeg and Victoria all had smaller proportions.
RCFI has frequently been criticized over its affordability criteria. Under those rules, units are deemed affordable when they are rented for no more than 30 per cent of median family income in the surrounding area. The calculation includes homeowners, who earn more than renters on average. And any unit that rents for that price is considered affordable, no matter how big or small it is.
As a result, an RCFI-funded development in downtown Winnipeg was able to charge $1,756 monthly for an “affordable” bachelor unit – or 2.3 times higher than the average market rent for such a unit, according to a report published earlier this year by the non-profit Blueprint.
The affordability rules “fail to put any meaningful downward pressure on rents,” the report said.
In its spring budget, the federal government announced an overhaul, pledging that at least 40 per cent of units would need to be leased at below-average rates. And it said developers who “significantly exceed” requirements on affordability and energy efficiency would be eligible for partial loan forgiveness.
But the new rules have yet to be implemented. In September, CMHC announced a $1.4-billion loan to the Squamish Nation for the construction of 3,000 units in Vancouver, under the old definition of affordability. (The Squamish Nation said it would charge less than it could for the “affordable” units.) It was the first RCFI announcement since August, 2021, and the largest loan to date.
Canada is contending with worsening affordability in its supply-starved housing markets. Mortgage rates are rising quickly, making it tougher to qualify for home ownership, while rents are surging in urban centres.
The federal government announced more than $10-billion in new spending for housing initiatives this spring, with the goal of doubling home construction over the next decade. Hitting that target will be difficult, in part because rising interest rates are forcing some developers to cancel or delay their projects.
RCFI-funded projects amount to a sliver of what is needed. In June, CMHC estimated that Canada would need to build 3.5 million more homes than projected by 2030 to bring affordability back to levels in 2003 and 2004.
Mr. Pomeroy questioned whether RCFI is having much of an impact on rental development. In 2019, for instance, less than 10 per cent of rental housing starts were funded through the program.
“Opportunistic developers that were going to build anyway, if you can go and get cheap financing and avoid paying CMHC mortgage insurance fees, why wouldn’t you use the program?” he said. “That’s not really a very strong rationale for expanding and maintaining the program.”