There is a large need for more housing in many B.C. communities and Prince George essential workers could soon have another option to help them live in the community that they work in thanks to Canada's first Impact-Investment Mortgage Fund.
A meeting took place today in Prince George with many staff from key workplaces in attendance including the City of Prince George, School District 57, B.C. Emergency Health Services, College of New Caledonia, RCMP and Northern Development Initiative Trust (NDIT).
The B.C. Construction Association (BCCA) is aiming to make it easier for tradespeople, medical care providers, educators and emergency responders to secure a mortgage.
The BCCA adds the program will provide the growing impact investment market with a tax-free vehicle that supports housing affordability.
BCCA say those in demand with stable employment and higher than average wages are still financially struggling to afford a house in the communities near their workplaces with extremely high rental prices.
Interim CEO of Impact MIC Peter Elkins and BCCA Chief Strategy Officers Lisa Stevens looked into the possibility of launching a similar program on the southern Gulf Islands.
She quickly found the availability of skilled labour was the top challenge in the construction industry and the need for more affordable housing was also a top concern.
The duo decided to prove the potential of an Impact-Investment Mortage Fund could fill the gap between workers and housing in their workplace communities.
“Our goal is to create a social impact investment vehicle that offers value for investors while also helping tradespeople and other professionals to establish roots in B.C. communities,” said Stevens.
“Guiding our approach is the belief that these highly skilled and hard-working earners should be able to afford housing, and organizations that employ and represent them are willing to invest in a financial vehicle that helps them succeed.”
First-time homebuyers can run into problems getting a mortgage from a bank or credit union and the stress of being able to buy your first home can seem impossible, but Stevens and Elkins saw potential in Mortgage Investment Corporations (MIC).
MICs are not subjected to federal mortgage stress tests that B.C. workers can really struggle to meet.
They are also eligible for government deferred and tax-sheltered savings plans like RRSPs, RRIFs, TFSAs and RDSPs.
There can be a downfall with MIC's as it usually brings investors to the table and go after higher-risk customers that want to purchase a house with a much higher mortgage rate.
The Impact-Investment Mortage Fund is wanting to catch the eye of impact investors and more beyond the construction sector that also wants to redo the typical MIC model.
The companies say the Impact MIC will be able to help essential workers find better alternatives by being able to approximately matching interest rates given by banks and credit unions and will also aim to give longer authorization periods (25-40 years) while also having a higher loan-to-value ratio of up to 90 per cent.
A release says Elkins believes competitive shareholders dividends as well the Impact MIC's tax-deferred/sheltered benefits will bring in more than $500 million in capital revenue over the next 10 years.
How? From the growing number of banks, pension funds, wealth managers, family offices, contractors, developers and individual investors that think impact investment has a big future and is growing.
“The Impact MIC is a business solution with potential application to other industry sectors,” added Elkins. “We look forward to exploring partnership with organizations that support highly-skilled essential workers, and to connecting with individuals and organizations interested in a competitive and tax-free or deferred return with the potential to create significant positive social impacts.”
Stevens says the BCAA board has already approved the funding for the Impact MIC.
“The BCCA Board has approved funding to move the Impact MIC forward” she confirmed in the release. “We’re proud to pioneer an affordable housing solution with the potential to improve the quality of life for thousands of skilled tradespeople and other essential workers across the province, benefitting every B.C. community.”
They're planning to have mortgages available from the Impact MIC by April 2020.
Here are the differences between a Mortgage Investment Corporation and an Impact-Investment Mortgage Fund.
MIC
- A MIC is a company that pools the funds of investors. They are required to hold a minimum of half of their assets in residential mortgages, cash and insured deposits. The remaining assets can be mortgages on commercial or industrial properties, developments or other assets
- MICs were legislated into existence in Canada in 1973 to increase the “flow of mortgage funds” and provide a channel for small investors to participate more directly in real estate finance markets through private lending
- MICs typically provide shorter-term mortgages at higher rates to borrowers who have difficulty qualifying for loans from more stringently regulated financial institutions.
- Unlike banks and credit unions, MICs are not subject to federal mortgage lending rules and oversight, and MICs pay no corporate taxes when they distribute all their income as dividends to shareholders
- Shares in MICs are eligible for government deferred and tax-sheltered plans such as registered retirement savings plans (RRSPs), registered education savings plans (RESPs), registered retirement income funds (RRIFs), tax free savings accounts (TFSAs), life investment funds, locked-in retirement accounts, individual pension plans, and registered disability savings plans (RDSPs)
- In Canada, CMHC-insured homes have a maximum amortization of 25 years, which, with a 20% or more down payment, can be extended to 30-35 years, if the lender agrees. MIC mortgages can have longer amortization periods (40 years or more). This approach is similar to Europe, where 50, 60 and 100-year amortization periods are available
- MICs are overseen as investment vehicles via provincial securities legislation. (e.g. BC Securities Commission in B.C.). They may accept foreign investment funds, but all assets held must be Canadian
- There are over 250-300 registered MICs within the Canadian market charging higher interest rates, between 4%-15%, and generating a return on investment between 4%-10%
- MICs play a peripheral role in the residential mortgage market, accounting for under one per cent of total residential mortgages outstanding.
- For more information, see CMHC Mortgage Investment Corporations – Update, December 2018
IMPACT-INVESTMENT MORTGAGE FUND
- The Impact MIC will focus on providing mortgages at rates competitive to those offered by banks and credit unions (between 2.75% - 4%)
- The Impact MIC will focus 50% of its portfolio towards residential mortgages for essential workers associated with its partner associations. The remaining 50% will be focused on construction sector financing solutions such as loans for bridge financing and preconstruction, or to better manage prompt payment
- By increasing amortization periods, the Impact MIC can make monthly mortgage payments either less than or equal to a customer’s rent payments, thereby reducing the probability of defaults
- The Impact MIC is targeting a more than 6% return for investors on their TFSA, RESP, RRSP, and RDSP or cash investment
- Financing for the Impact MIC will be through an equal combination of debt and equity. Funds will be obtained from banks, credit unions or government at roughly 2% per annum. Equity will be obtained from private investors such as construction companies, high-net-worth individuals, corporations, pension funds and wealth managers
- The BCCA will be one of the principal shareholders of the Impact MIC.
- The Impact MIC will provide free services like financial coaching to help borrowers be careful about how they manage their finances
- Loans to the MIC will be guaranteed by the owners of the MIC who hold voting shares
- •Impact investing in Canada has grown from $8.15 billion in 2015 to $14.75 billion in 2017, an 81 per cent increase over two years. Source: 2018 Canadian Impact Investment Trends Report
