The Canadian government has paid great attention to the quantity as well as the quality of public housing available in the country for many years, at all levels of governance. In this regard, the Central Mortgage and Housing Corporation formed and run under the aegis of the Federal government plays an important part in monitoring all aspects of public housing in Canada at the Federal level. At the same time, housing has also been affected by the increasing participation of provincial governments in many of the provinces. At this time, some form of housing authority is operational in every province in Canada, a detailed discussion of the nature and work carried out by all of these provincial authorities individually will not be undertaken in this article. However, the operations of the Ontario Housing Corporation, which is by far the largest of its type in Canada, will be discussed as an example.
Housing acts in Canada have a long history, with the first National Housing Act - NHA - passed in 1938, followed by the acts of 1944, and 1954. Later, this act underwent further revisions and underlies the basis of the present housing acts to this day. All of these National housing acts were passed to "promote the construction of new houses, the repair and modernization of existing houses, and the improvement of housing and living conditions" in Canada. One of these revisions in the various housing acts was the setting up of the federally administrated Central Mortgage and Housing Corporation - CMHC- in 1946. This federal crown corporation had the responsibility of overseeing and administering housing activities under the national housing act for entire country. Under the provisions of the NHA, the CMHC has been vested with power to administer a number of activities that includes undersigning guarantees, conducting special studies on housing, insuring mortgages for approved lenders, and disbursing housing related direct loans. The CMHC up till 1974, was already employing thirty two hundred people and had an annual capital budget crossing about 1.4 billion dollars, and had outstanding loans above 6.75 billion and had also insured loans crossing 11.9 billion dollars.
Some of the more specific functions performed by the CMHC include the disbursement of direct loans to individuals, to government bodies and to corporations. The CHMC can also take an ownership position in land or building blocks. It also has the authority to endow grants or to subsidize specific housing related activities inside Canada.
One of the most important sections under the current National housing Act is section 58 which dictates the rules for lending followed by the CMHC. This section of the NHA states that "where in the opinion of the Corporation a loan is not being made available to a person-who otherwise qualifies for loans- ...the Corporation may make such a loan." Section 58 can be said to serve two ends, first, it is one way in which the government pumps funds into the mortgage market when the private sector is unable to infuse enough funds and secondly, it also serves as a source of funds for citizens who are unable to get adequate financing from lenders approved by the government. The CMHC also adjusts the interest rates for loans disbursed under the provisions of section 58 on a periodic basis. The interest rates on these loans given under section 58 have been lower than the overall market rates in recent years.
Lately, the CMHC has restricted direct lending to citizens under section 58; however, the section remains a major instrument for loans given out by the CMHC in geographical areas that are not adequately served by lenders approved by the government. Loans under this section are in general, given only to potential borrowers who have been refused loans at least twice by approved lenders in any area.
Normally, loans are rejected by lenders if the said lender has already utilized all sources of funds that can be disbursed under available schemes or if the loan desired by the applicant is considered marginal for some reason or other. An approved lender may reject a loan application which may be approved by the CMHC. This may be due to different reasons, including differences in the methods by which the available income of the loan applicant is determined by the lending party-for example, by differences in determining how much of the spouse's income is included in the assessment or the difference may lie in how the value of property is assessed by the lender. Direct loans disbursed by the CMHC in general, must meet all the guidelines that normally apply to any NHA insured loans given out by approved lenders within the country.
The goals of the CMHC have changed in the last ten years, the goals now is to increase the direct funding of housing for low income individuals instead of giving out loans to all individuals who qualify for insured loans.
Some of the specific goals of the Central Mortgage and Housing Corporation to promote housing in Canada include:
1. To make loans available to organizations involved in the creation of low rental housing in Canada. 2. To increase low rental housing availability by providing loans and grants to government and quasi-government agencies involved in funding such projects. 3. To join with provincial governments in increasing the ownership of housing 4. To support the Assisted Home Ownership Plan, by making loans available to low income homeowners.
The CHMC promotes low rental housing projects as per Section 15 of the NHA, under which it can give up to ninety five percent of the cost of a project to any organization involved in the creation of low rental housing projects, if the organization creating such housing is an NGO- non-profit organizations, the CHMC will provide one hundred percent of the cost. All NGOs involved in such projects also automatically qualify to receive "'start-up" funds from the CMHC that can reach a maximum of $10,000 and a grant of up to ten percent of the cost of the intended project. The CMHC primarily supports low rental housing projects because they are aimed at people who have limited financial resources-such as the elderly and the handicapped aside from other similar groups. The CMHC restricts the rentals charged by the borrower, who pays a comparatively low rate of interest on the loan. At the same time, the CMHC may also place income limits on residents for qualification to low rental housing under such projects.
Lending to governmental and other agencies is covered under Section 43 of the Act. This section empowers the CMHC to give loans to a government in a province, to a municipality or to a public housing agency for the purpose of constructing a public housing project in a certain area. The load covers up to ninety percent of the total cost of construction or ninety percent of the acquisition cost of the project. The CMHC ensures that such projects serve the intended beneficiaries by placing limits on the dollar loan amount per housing unit and by making sure that the rentals charged are related to the actual incomes of the tenants living in such projects. If financial and operating costs cannot be met through these rentals paid by the tenants, the CMHC provides grants under Section 44 covering up to fifty percent of the operating losses incurred by the developer. Ontario received the largest proportion-sixty five percent-of funds through such loans in the period from 1964 to 1974 of the program, followed by Quebec which received seventeen percent of such funds under the same program in that decade.
The CMHC also participates in partnerships under section 40 of the Act. This section permits the CMHC to partner with any province in the joint ownership of public housing subject to a maximum of seventy five percent ownership in any project. In this type of joint ownership, the rents charged to the tenants of the housing project are related to the income levels and all deficits are covered by financing from federal and provincial governments in proportion to their ownership in the project. Different provinces have made use of funding under this scheme, from 1950 to 1974; the maximum amount of projects funded under this section was highest in British Columbia, which received twenty eight percent of the funds followed by Ontario at twenty percent, with Nova Scotia third at nineteen percent and Saskatchewan at fifteen percent. The provinces of Ontario and Quebec have made very little use of this section of the Act in recent years.
The NHA was revised in June 1973, when sections 34.15 and 34.16, pertaining to the Assisted Home Ownership Program (AHOP), were included in the act. Under the program, the CMHC and approved lenders can provide direct loans to individuals; it also enables the CMHC to provide repayment assistance to moderate income families enabling them to purchase their own homes. The CMHC sets the interest rate charged under the AHOP and the interest rates charged under the program is meant to be close to the current market determined NHA interest rates. Under the AHOP, all qualified borrowers may have their interest rates reduced in progressive stages to a minimum of eight percent-on a need basis. At the same time, all homeowners under the program may also qualify for direct grants of up to $600 per year as assistance in repayments.
Loans given by approved lenders were included in the AHOP program by the CMHC in April 1975. The rules for lending by the approved lenders under the AHOP were expected to be similar to those for direct loans given by the CMHC, though this scheme had not yet been implemented at the time of writing this article.
The cost of Housing is affected by two major factors, one is assembly of land and the other is servicing of land. There have been many amendments to the NHA to enable the Federal government to assist borrowers with regard to these two factors, these amendments have sought to bring serviced land into the market at more reasonable prices so as to make housing cheaper. The CMHC has a mandate under the provisions of Section 42, to give loans to provinces, to municipalities as well as to public housing agencies that can reach a maximum of ninety percent of the cost of assembling and developing any land considered suitable for housing projects. The repayment of the interest on such loans is to be carried out at least on an annual basis and the repayment amount for the loan is to be sourced from the development and sale of land. Under this program, allocation of funds by the CMHC is given first priority in respect to land that can be rapidly developed and brought to the market. The total expenditure incurred by the Federal government under this program shows a rapid rise from $7 million spent in 1972 to $162 million spent in 1973, with expenditures easing off to $81 million in the year 1974.
Under section 40, provisions for a joint federal and provincial land assembly have been laid out. It is provided that seventy five percent can be owned by the Federal government while twenty five percent is to be owned by a province. The Federal and provincial governments are to share the proceeds from the sale of land proportional to their ownership in terms of percent owned.
Before the year 1935, the majority of mortgage lenders were limited to giving out loans that could be a maximum of sixty percent of the value of the property being mortgaged. This changed with the coming of the Dominion Housing Act of 1935 that permitted the provision of loans for new residential construction going up to eighty percent of the value of the property. Under this act, such loans could be made jointly by the government and private lenders. Interest rates charged by both parties differed under this act; private lenders gave out loans at market rates while the portion of the loan given by the government was at an interest rate that was below the prime mortgage rate. The private lender and the government shared the losses incurred on such loans. The joint lending plan was modified by the National Housing Act of 1938. This modification of the act encouraged lending in isolated communities, and included provisions under which the government involved itself in direct lending for the development of low rental housing projects in the country. Further revisions to these programs took place through the National Housing Act of 1944, which modified and extended the scope of such programs. Mortgage loans which were not available through approved lenders were now to be given by the government. The CMHC was founded in 1946, to administer the provisions of the Act in Canada.
Substantial changes came to the mortgage market with the introduction of the National Housing Act of 1954. Under the provisions of this act, all banks in Canada were permitted to become mortgage lenders under the NHA. Under this Act, there were provisions for insuring mortgage loans on new and existing housing, and the maximum loan amounts as well as the loan to value ratios were increased to a significant extent. The reasons for these changes were encourage the increased participation of the private sector so as to increase the injection of private funds into mortgages and also to give a much more liberal financing regime for Canadians who wanted to own homes. Direct loans on a major scale were not given out by the CMHC till 1957.
One immediate result of the changes in the NHA in 1954 was that, Canadian banks became much more active in terms of mortgage lending. This trend declined by 1956 due to the small growth in bank assets and as a result of the heavy demand for business loans, both factors undermined and cut back bank mortgage lending in the country. One results of these factors, along with the pressure by the business and government sectors for long term funds, was a drastic decline in the availability of NHA loans. The CMHC started to significantly expand its direct lending activities when housing starts continued to decline in 1957. The result of the participation of the CMHC and its increased introduction of funds was a rise in housing starts to pre-1956 levels. Housing starts went to record highs when the CMHC again raised its levels of lending in 1958; this increase was also helped by the revitalized private sector. Starts financed by private institutions declined under heavy demand for funds by 1959, however, the high rate of CMHC direct lending remained and ensured the availability of funds.
There was a decline in housing starts in 1960 as well. The reason for this decline was mainly due to banks leaving the mortgage market and a rebound would not occur till 1967. Canadian banks were not allowed to lend at a rate of interest crossing six percent, though the mortgage interest rates seen in the period crossed six percent. This situation was not helped when the CMHC came up against the ceiling on total permissible direct lending by the end of 1959. The problem was eased only in the middle of 1960, with the introduction of legislation allowing the raising of this ceiling. The direct lending program under the CMHC underwent a drastic decline in 1960 as a result of this ceiling. The CMHC again started to intercede with renewed vigour in direct lending activating by 1961, because all the chartered banks stayed out of the mortgage market and, due to the low levels of institutional funds that were not enough to meet the demand of the market. By 1961, revisions of the NHA in 1960 had resulted in the introduction of the first loans for student housing and for new sewage treatment projects in Canada.
The level of involvement of the CMHC in direct mortgage lending intensified in the period from 1962-1967, it was the most active player in lending in this period. The CMHC also started to finance builders who had not pre-sold the houses in their projects by 1963. When the NHA was revised in the year 1964, it led to the CMHC becoming much more active in providing loans to provincial as well as local governments for the purpose of public housing projects. By 1964, the CMHC had started urban renewal loans; however, this segment of funding never became a significant area of activity for the corporation. From 1965 to 1966, the CMHC expanded its direct lending activities and this segment showed strong growth in these two years.
The CMHC underwent a major shift in momentum during the year 1967, as the level of direct lending provided under Section 58 reached new heights that have never been reached again. The year 1967, also saw amendments made to the Bank Act which allowed major banks to re-enter the mortgage market and to they started to give conventional mortgage loans for the first time in Canada. Mortgage lending by chartered banks and other financial institutions increased significantly in 1968 and 1969 due to the heightened asset growth and the lure of mortgages as investments. The interest rate ceiling for NHA insured loans was also removed around this time, and the loan to value ratio rose, while all insurance fees were halved. The entry and increased lending activities of the private in the lending sector permitted the CMHC to reduce its lending under Section 58 lending at this time and this resulted in the redirection of its efforts to public and low rental housing projects. The majority of these public housing funds were channelled via the Ontario Housing Corporation to public housing projects in Ontario-which made major use of these funds at this time.
Loans given out under section 58 underwent a continual decline in the period 1970-1972, and there was also a significant reduction in the funding of low income and public housing projects. This situation was a reflection of rising concern in the cost and availability of serviced land, as more and more resources were channelled to land purchases and servicing, funds were also used in the financing of new sewage treatment plants and trunk sewers in many areas. The NHA underwent further revision in 1973, which led to substantial increase in lending under the AHOP plan and from land banks. Land assembly is a target area of the CMHC, which has indicated that it will invest $100 million annually for the next five years in this sector.
While the focus of this article is on the direct lending measures undertaken by the CMHC, it should be realized that the CMHC is also interested in meeting the quality of life aspect of housing in Canada. This concern can be gauged from the strong commitment the CMHC has to the National Building Code, to the way in which it ensures minimum standards for insured loans, its commitment to research on housing, and it's Neighbourhood Improvement Program.