It’s no secret that many average income earners have been shut out of the Greater Vancouver housing market – and that’s a problem for employers.
It means that workers can’t live close to the urban core. As a result, building costs have soared as construction companies strive to pay their crews enough to live within the region. To help solve that problem, the non-profit B.C. Construction Association (BCCA) is launching a program that will give first-time mortgages to essential workers who don’t qualify for bank mortgages, usually because of the federal government’s stress-test rules. The association represents a multibillion-dollar sector that is suffering major labour shortages, and lack of affordability is a key cause.
They will offer mortgages at a comparable rate to the banks, but with longer amortization periods, so that the monthly payments are only one-third of household income. Currently, borrowers who make less than a 20-per-cent down payment can amortize the loan over a maximum of 25 years.
The BCCA has formed a mortgage-investment corporation (MIC), with the input of Peter Elkins, co-founder of Capital Investment Network. Mr. Elkins, whose business matches private funding with entrepreneurs, was at one time a paramedic on the downtown East Side. He and BCCA chief strategy officer Lisa Stevens came up with the idea to provide accessible lending, not just to tradespeople, but also to medical-care providers, emergency responders and educators. The BCCA is in the process of finding other associations to partner on the project.
“What I tell people is to close your eyes, and think of all the people you know personally who would want to own a home you know they would pay their bills but still they can’t get a mortgage,” says Mr. Elkins, who is acting chief executive officer for Impact MIC. “The list goes on and on and on.”
He says he got the idea to use an MIC for lending to middle-income-earners when visiting his elderly parents on Hornby Island, and he saw the young caregivers there who were struggling to earn a living and find affordable housing.
“It’s about realizing that there are all these great people in our community who want to own homes, but they can’t meet the stress test. It’s not even a working-class problem anymore. I’m realizing that people making over $100,000 a year, with graduate degrees, working in the public and private sectors, can’t own a home.”
The BCCA plans to make the mortgages from Impact MIC available to its members by April, 2020. The association is affiliated with other construction-industry associations that serve more than 10,000 employees in the province.
Mr. Elkins and the BCCA say it's the first MIC in Canada dedicated to a social goal. In a release, the BCCA said its board had approved funding to move the MIC forward, and they were “proud to pioneer an affordable housing solution with potential to improve the quality of life for thousands of skilled tradespeople and other essential workers.”
MICs don’t have to follow the federal stress-test rules, and are regulated provincially by the Securities Commission. And for those individuals who invest in an MIC, they are eligible for tax-sheltered savings plans such as RRSPs, TFSAs and RESPs. The managers are aiming for a 6 per cent or more return for investors.
BCCA is a principal shareholder in Impact MIC, and Mr. Elkins is still working to drum up more investors.
Usually, MICs offer high interest rate loans at short terms to higher risk customers, but this one will offer terms similar to bank mortgages and will cater to people who are gainfully employed and have a proven track record as a renter, Mr. Elkins says. They will also offer free financial-management coaching for borrowers.
“We really don’t want to be compared to an MIC, even though we are going to be. It’s really just a legal taxation vehicle that we can use without having to change legislation or anything,” he explains.
Only those needing their first mortgages for their first homes can apply. “You can’t use us to speculate in the real estate market.”
Applicants will be evaluated on a case-by-case basis, and he says that they would consider lower down payments.
“There will probably be less of a down payment than the banks. And again, we will look at loan-to-value ratio on a case-by-case basis. We will encourage people to have bigger down payments. … But we don’t want to shut people out. The real metric for me is what you pay in rent and what you do for living – those are really the criteria.
“If somebody is a nurse or paramedic or getting a paycheque from the government, they are pretty good risk.”
And because the payments are affordable, the chance of defaulting is reduced.
Mr. Elkins would like to eventually get into the entrepreneurial self-employed space, which is a significant share of the millennial job market.
“That’s where we are heading. Three or four years from now, we will figure out that relationship with the Chamber of Commerce so these people can buy homes.”
By law, he says that 50 per cent of the MIC fund has to be devoted to the mortgages, but the other half can be involved in more traditional investments, such as lending money at a higher interest rate. In that way, the higher-earning investments will subsidize the lower-rate lending program.
University of Victoria masters of business administration students and their professors spent five months studying the idea, in partnership with the BCCA. Their work formed the business case for the lending program.
A major problem for the construction industry is that companies are struggling to retain workers, who are in short supply, says Justin Bontkes, owner of Caliber Projects, a Fraser Valley based construction-management company that is 11 years old.
“As much as there has been a decrease in home sales in the last year, the construction industry outside of Vancouver is still booming here in the suburbs – and it’s not small stuff, it’s big stuff,” Mr. Bontkes says.
He says the MIC idea intrigues him. He could see such a program becoming a key part of business owners’ efforts to attract and retain good employees. It would be an appealing employee benefit, because his industry is increasing wages by around 10 per cent a year just to keep workers.
Mr. Bontkes says he would need to study the idea more thoroughly.
“This isn’t just a problem for construction now. This is a problem for just about any employment that requires you to live close to these centres. I think it’s awesome that this guy is thinking outside the box and coming up with creative solutions. For myself, it’s something I need to think about for my own employees. How do I extend the benefit to my own employees, so that it allows them to live nearby? It’s a creative employee strategy. … It could potentially be a huge opportunity for an employer looking to retain employees in this difficult market.”
Mr. Bontkes says it could prove popular because in construction, tradespeople tend to want to own their own homes rather than pay high rents.
He has an employee who told him recently that he has to look for a new home because he can’t afford the $2,600 a month in rent. Another employee who makes a good income recently told him he was having a tough time making ends meet. Mr. Bontkes says he’ll have to pay the employee more.
“As a business owner, we are always looking for a competitive advantage and I think this MIC strategy may be one we need to think through a bit more,” he says. “We have access to capital and the market we are in right now is extremely competitive, so the fight for talent is on. If we could get creative, it might be what we need.”
As for investing in the program, he says, “I’d have to look at it, because there is risk.”
James Faulkner, is co-founder of SiteMax Systems, a construction-software company that he runs with Christian Hamm. Mr. Faulkner, Mr. Hamm and Andrew Hansen are construction-industry specialists who started a podcast on their industry a year ago, called Site Visit. Mr. Faulkner says that “any step is a good step,” so he’s open to the idea, but he cautions any applicants to go in with their eyes wide open. There are many people in construction who have fallen into their jobs for reasons based on life situation, and it wasn’t necessarily their first choice. They already have their stresses.
“They didn’t put up their hand at school and say they wanted to be in a hole with mud up to their ankles,” Mr. Faulkner says. “A whole bunch of life pressures come with it, and it could be a failed marriage, a previous business that failed, student debt, being out on their own really early and a life of hard knocks.
“Often what comes with that is debt, and having to service that debt. They don’t have enough money for a down payment – they can’t even get in the game. They are churning and burning money every month, and it’s paycheque to paycheque. Any extra money is going to that credit card.”
He sees “tons” of people in that situation, and he has worked with and trained those people.
“And let’s say that one of these loan applications is successful. They extended themselves a little more than their rent. They got in there, and now the housing bubble totally crashes. What are we doing to these people? They are poor off as it is, and now their $522,000 condo is worth $400,000 and they have 35, 40 years on this thing, and they haven’t paid down much of the principal because it’s mostly interest in the beginning.
“What is the exposure? There is a lot at play here.”
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