A Home for Social Finance in Social Housing

Note: Adam Spence contributed to this post as well.

The Canadian Housing and Renewal Association (CHRA) held its annual Congress in St. John’s last week, where colleagues from a sector with some of the highest potential in terms of uptake and success of social finance in Canada, connected and shared their experiences. Pre-Congress sessions included Finding the Money, Renewing the Mission: Social Finance, Social Enterprise & Affordable Housing, kicking off a week of workshops in the lovely, foggy capital of Newfoundland and Labrador.

As participants at this Congress, we wanted to take the opportunity to provide an overview of the sector and its predisposition to social finance, and share what we learned last week.

Canada’s social housing sector is faced with dwindling public resources and an increasing number of individuals and families in need of support. Those of us working to ensure that all Canadians (including the most vulnerable) have safe, affordable, and decent homes are looking at ways we can be more creative around financing. Social finance presents a tremendous opportunity.

For decades, social housing has been a pillar of social finance in Canada and around the world. As a sector, it delivers proven impact and return. By providing safe and affordable homes for our neighbours living on the margins of society, those with supportive needs, and those unable to meet monthly housing costs, there is a clear social impact. Employing mortgage and debt financing provides a modest financial return on significant bricks and mortar investment for government financing, alternative lenders, or mainstream financial institutions.

A Clear Need for Social Finance

There is a clear need for more financial resources to support the construction and repair of social housing in Canada:

There are long and growing wait lists for housing. In Ontario, over 150,000 households are on the social housing wait-list – up 7.4% in one year according to Ontario Non-Profit Housing Association.

Much of the social housing stock is in need of significant repair and ongoing maintenance to keep up aging properties. A large portion of Canada’s public housing was built in the mid-20th century. It is clearly in need of updating. The essential maintenance and capital replacement shortfall is estimated at $1.2 billion in Ontario alone.

The sector as a whole requires significant financing to support the growth and development of new stock to meet demand and to retrofit existing buildings to upgrade and improve facilities in order to meet basic standards, address environmental impacts and energy efficiency needs, and improve access for an aging population.

Fortunately, there is an alignment in the demand for financing with the potential supply of capital.

An Alignment with Impact Investors’ Interests

There are several factors that could drive impact investors’ interest in housing:

Track record. The social housing sector has a strong track record of success with decades of service to Canadians, aligned with a proven ability to effectively manage funds and take on debt financing.

Market size. The social housing market is very large: there are approximately 257,000 social housing units in Ontario alone, and the outstanding mortgage balance was $7.2 billion. Individual deals in housing would be, on average, larger than other impact investment deals for nonprofits or for-profit impact ventures.

Risk-return profile. Social housing has an attractive risk-return profile for impact investors. Although the returns can be relatively modest (even though 3-5% per annum is quite strong), they are generally bricks and mortar real estate investments with ongoing revenue streams. (Although it should be noted that many providers are seeking for more stable revenue streams.)

There is great potential to tap into impact investors on the supply-side of the market that are interested in housing. Few other non-profits have the capacity or interest in financing in the millions of dollars, whereas the housing sector requires these levels of investment to continue to produce homes that are safe and affordable. A Canadian investor study conducted by the MaRS Centre for Impact Investing demonstrated a high level of interest in housing. Over 70% of investors surveyed were interested in public housing investments.

Looking at Examples of Social Finance in Social Housing

There are a number of interesting examples of social finance and social housing that were outlined in discussions and presentations at the CHRA Pre-Congress.

There was a primer presentation on Social Finance for Social Housing looking at examples in the US and Canada, including the $450 million TCHC Regent Park Bond, $1 million YWCA community housing bond, the NYC Acquisition Fund, and affordable housing bonds in the US.

A presentation from Seth Asimakos at the St. John Community Loan Fund showed the potential of mixed-use space for nonprofits that includes affordable housing, and the potential for community loan funds to engage in financing for smaller scale affordable housing developments. It was also quite exciting to learn about the proposed nonprofit hub and incubation space, the St. John ‘Thinkubator’.

There were some very interesting developments highlighted from Quebec. We already know that Quebec’s social economy is well developed and housing remains a key pillar to its inclusionary approach to social and economic justice. From Quebec, Francois Vermette of Réseau québécois des OSBL d’habitation and Charles Guindon of le Chantier de l’Economie Sociale spoke about recent advancements in the 2012 Quebec Budget. This included a three (3) year, 1,200 unit pilot project which will help leverage private funding alongside social housing subsidy and mortgage loans through credit enhancements provided by government. Their approach provides necessary capital for operations or development, ensures ongoing control of housing is maintained by non-profit housing providers, and makes the investment more attractive for investors. When paired with straight grant dollars, this will provide funding for the construction of 3,000 social housing units in 2012/13.

So what kind of opportunity is there in affordable housing?

The kind of capital required for housing is lower risk and potentially appealing to a wide range of investors (as seen from the TCHC $450M bond to the $1 million community housing bond issued by the YWCA Toronto). We have also seen an increased interest in the ideas of patient capital and impact investing with relative instability in the mainstream markets. However, the dollars now flocking to social finance are here to stay and people are talking about a more human capitalism on a more local level.

There are risks, of course, in a move toward alternative financing in the social housing sector. Research is required to assess the real potential of these opportunities but in the meantime, conversations happening at forums such as CHRA are helping develop both the opportunity and share successes on the impact of social finance in the housing space.

MaRS Centre for Impact Investing - Social Finance & Social Housing

View more PowerPoint from Social Finance

Photo credit: http://www.flickr.com/photos/jorgeestevez/4395832977/

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