The Canada Mortgage and Housing Corporation (CMHC), Canada’s national housing agency, has undergone a profound shift in recent decades. Prior to 1993, it was the main vehicle through which the federal government supported social housing in Canada. CMHC opened up homeownership opportunities for moderate-income Canadians by insuring and backing home mortgage guarantees. It was also the primary funder of Canadian housing research, providing an important window into the housing needs of all Canadians.
Today, the agency has taken a big step back from this once proactive role. It has been reduced to a cash cow for the federal government, providing billions in profits and tax revenue with only a fraction of that money going back to supporting housing for Canadians in need.
A housing revenue bubble
CMHC is one of Canada’s largest corporations, with over $290 billion in assets, mostly in the form of outstanding loans, and those loans mostly on single-family homes. According to its 2013 annual report, the crown corporation has contributed over $17 billion in profits toward “improving the government’s fiscal position” over the past decade. Last year alone CMHC earned $2.4 billion in profits and paid taxes of $584 million.
Despite these profits, social housing in Canada has been starved of federal support. At the height of its commitment to social housing in the 1980s, CMHC supported the construction of between 10,000 and 16,000 units per year. In 2012, it helped build only 603 units, the lowest level in at least 25 years. Over the next twenty years, the agency plans to phase out funding for operating agreements, which will cost housing non-profits, cooperatives and provincial housing agencies $1.7 billion annually by 2034.
CMHC also remits fees to the federal government for some of the services that Ottawa provides the corporation. For example, in exchange for guaranteeing its loan portfolio, CMHC pays the government 3.5% of the insurance premiums it receives from homeowners. In turn, CMHC owns Canada Housing Trust (CHT), which packages mortgages in bundles that are sold to private investment funds. This reduces the risk to CMHC of holding these mortgages, and is not unlike the American practice of bundling mortgages and selling them. The difference is that stricter banking regulations in Canada never allowed the bad loans practice of giving mortgages to people who could not afford them. The bankruptcy rate in this country has been significantly lower as a result.
As of September 2013, CMHC had retained earnings of $14.8 billion, held as capital against possible future losses in the mortgage business. It generally experiences defaults of less than $500 million annually, and recovers much of that through mortgage sales of properties in default. According to the agency’s 2013 annual report, based on a sensitivity analysis, “CMHC is assured collection of principal and accrued interest on 99% of its loans.” The current arrears rate (mortgage payments that are late more than 90 days) is a very low 0.33% or one-third of 1%. In most cases, homeowners will catch up on their arrears. If not, the properties are sold to recover as much as possible of the remaining mortgage held by CMHC.
CMHC and social housing
This year, Canada provided just over $1.7 billion in social housing funding to CMHC for various housing programs from the past 40 years. These subsidies are diminishing every year as the social housing agreements expire. The new program support in 2014 is only $253 million for current programs such as At Home/Chez Soi, which provides housing for homeless people with mental health issues. That amount is less than half what CMHC paid to the government in taxes last year, and only about 10% of its total profits. Clearly, new social housing is a very low priority for CMHC, and for the government.
The same could be said for housing policy development. CMHC has agreed to cut its total budget in this area by $24 million annually for four years, in large part by reducing policy and housing market research by almost 50%. Combined with the Harper government’s elimination of the long-form census, it will be increasingly difficult in the future to understand and meet Canada’s housing needs.
The Right to Housing (R2H) coalition has called on the federal government to recommit CMHC to its role in providing social housing. We were therefore heartened by recent comments from newly installed CEO Evan Siddell concerning the mandate of CMHC, which he said included helping Canadians meet their housing needs.
In a June 16 Globe and Mail commentary, Siddell wrote: “Proof of our commitment…is also apparent to the nearly 600,000 Canadian [households] that receive housing assistance. We feel the daily impact of helping our fellow Canadians find a home and have access to affordable housing finance, no matter where they live or the type of housing they need.”
Unfortunately, this proof of commitment is rapidly receding as CMHC continues to withdraw from social housing support. New investments are needed to bolster its obligations to Canadians. If CMHC is serious about preserving its mandate, we recommend the following course.
1. Keep the existing social housing stock available to the neediest renters, especially those with special needs
This means dealing with the expiry of existing operating agreements that are putting thousands of current tenants and their housing at serious risk. Data from the Canadian Housing Renewal Association and the Federation of Canadian Municipalities demonstrate the need is acute and increasing. Up to 31% of existing units are at risk of being unviable as federal operating agreements expire. We must protect what we've built!
2. Build today for the needs of today
Waiting lists for affordable housing are years long across Canada. We know from countless studies, and from the success of the Housing First approach adopted in Canada and the United States,that when people have a safe and secure home they can begin to deal with the rest of their lives. We know that kids need to stay in the same school as much as possible to ensure academic and social success in life. We know that safe neighbourhoods with decent housing provide for the broader needs of families for social inclusion.
We need a full range of affordable housing options, including rent-geared-to-income (RGI) projects currently integrated into many neighbourhoods, and portable housing allowances such as the one the Government of Manitoba is spearheading to make subsidies available to low-income families as well as those on social assistance.
The current profits of CMHC ($2.5 billion), if invested in social housing projects, could leverage up to three times as much for the agency. With appropriate regulation, there is a major role for the private sector in delivering social housing. Successful programs used in the past, such as the Limited Dividend Housing program of the 1960s, would work well in today’s environment of low interest rates.
Such an integrated program, even if only partially successful, would make a dramatic difference to thousands of Canadian families while providing significant economic stimulus. Nothing beats housing as an economic investment.
3. Plan for tomorrow
The one thing we know about the future is that it will be different! Yet the need for safe, affordable housing will always be the same.
CMHC needs research on changing demographics, family composition, new building technologies, new financing tools and other housing related issues to put forward policies and programs for tomorrow. Sadly, the capacity of the agency to perform this research has been deeply undermined by federal cuts. These cuts, including the 50% reduction in housing analysis funding for CMHC, should be reversed.
The bottom line
Instead of turning over a profit to the federal government, CMHC should return to its original mandate of helping all Canadians access housing. Without any new government expenditures, Canada could multiply its new social housing commitment by a factor of ten and, with the leverage of the market, by much more. This would give poorer Canadians, and most importantly their children, a chance for safe, affordable, stable housing.
That is the single most important contribution we could make to a healthy society, skilled workers and a brighter future for us all.
Tim Sale is a CCPA–Manitoba research associate, former provincial minister of housing, and chair of the federal working group for the Right to Housing coalition. Josh Brandon is a housing researcher with CCPA–MB.