Blended Financing for Impact: The Opportunity for Social Finance in Supportive Housing
It all started with a wicked problem and an ambitious goal.
In late 2011, the Mental Health Commission of Canada (MHCC) commissioned Turning the Key [PDF], a report designed to inform Canadians about the current housing and community support needs of people living with mental health challenges in Canada.
The report’s findings were clear. There are too many Canadians with mental health issues who cannot find homes. Hundreds of thousands of our neighbours are inadequately housed and 119,000 of our fellow citizens who face mental health challenges are homeless.
There is a powerful moral and economic imperative for action. Canadians with mental health challenges can face grim living conditions, including chronic health challenges, extensive use of emergency rooms, and greater risk of imprisonment. The economic cost is unsustainable: collectively, we are accumulating hundreds of millions of dollars in lost productivity, increased health care costs, and remedial costs (such as for prisons).
It is a clearly wicked problem, and the solutions are relatively simple. We need to create affordable housing for individuals living with mental health issues, while also ensuring adequate income supports are available for this type of housing. The report set an ambitious goal: developing and funding 100,000 supportive housing units and related supports over the next 10 years. A monumental commitment of policy, capital, and sheer determination would be required to meet this objective. One pre-determined pathway to support this objective: social finance.
A number of supportive housing providers in Canada struck a Social Finance Working Group in spring 2012 to explore social finance opportunities in the supportive housing sector. The objective of the Blended Financing for Impact project was to provide a clear pathway for supportive housing providers to learn about and engage in alternative methods of financing for improving and developing new dedicated housing units in Canada.
The project was coordinated by the MaRS Centre for Impact Investing and Housing Services Corporation (HSC) and led by a number of supportive housing providers and mental health organizations in Canada.
The Blended Financing for Impact report identifies and outlines a number of social finance models, identifies principles for an effective social finance strategy for the supportive housing sector, highlights challenges to further adoption of impact investing, and offers recommended actions to increase the supply of supportive housing through the use of social finance strategies.
So why is social finance relevant for supportive housing?
There are a number of factors that drive interest in social finance:
- There is significant need for housing with limited public resources to meet demand. In Ontario alone, 156,000 citizens are on the affordable housing waiting list, and across the country, 120,000 citizens facing mental health challenges and addictions are homeless. There is also tremendous need and potential for housing stock maintenance and improvement, given the significant levels of deferred maintenance and opportunities for energy efficiency. Unfortunately, there is limited potential for large infusions of new money for housing from government, and operating funding growth is constrained.
- A growing social finance sector has the potential capital and interest needed to develop new housing. Capital dedicated to impact investing in Canada is expected to grow from $4 billion in assets today to $30 billion in the next ten years in Canada. Alongside grant funds and various other levers available to government, private capital seeking positive social impact as well as modest financial returns can help meet the gap in financing for housing development and acquisition. [Note: Social finance opportunities must complement existing funding and support approaches. They are not intended to replace government dollars or traditional funding.]
- Social housing represents an investment opportunity like other real estate opportunities in line with many investors’ interests, with one vital differentiator: demonstrable positive social impact. There are few investments that have the proven ability to generate a modest financial return, while reducing poverty by providing someone with a comfortable, safe place to live.
- There are successful blended financing models in Canada. Examples of social finance in affordable housing in Ontario include the Toronto Community Housing Corporation (TCHC) $450 million bond issue, YWCA's $1 million community housing bond and $30 million loan, St. Clare's Multifaith Housing (Leonard Avenue), Centretown Citizens Ottawa Corporation (Beaver Barracks), LOFT Community Services and many others. These early adopters have created models for others to follow.
What are potential actions?
The report outlines ten priority actions (and a comprehensive list of other actions) for all levels of government, housing providers, and potential investors to expand capital availability, allow for scaling and sharing of successful models, increase financial capacity and expertise for governments and providers, decrease operating and capital costs, and increase the ability of housing providers to earn revenues, without significant financial impact to government treasuries or the bottom line of community organizations.
Examples of priority actions include:
- Increase the number of rent supplements provided to supportive housing providers through long-term agreements (from 5 to 20 years) and allow housing providers to use rent supplements as leverage for financing the development of new units.
- Existing federal or provincial government capital raising institutions and facilities can be employed to raise financing for a Supportive Housing Capital Fund to support acquisition, development, and operating efficiency improvements such as retrofits to lower energy costs, for supportive housing providers in Canada.
- Establish an Equity Leveraging Working Group amongst large housing providers to share lessons and explore new mechanisms for leveraging existing stock for financing new unit acquisition and development.
- Collectively examine the feasibility of creating a Housing Development Corporation serving the entire sector or geographic regions, providing technical expertise on development and financing for new units.
If you would like to learn more, please visit http://socialfinance.ca/housing to download the full report or access the project toolkit.