I represent Trillium Housing…

I represent Trillium Housing, an organization that promotes and delivers ownership housing affordability through the provision of regular-payment-free, share equity mortgages. The federal First Time Home Buyers Incentive program was inspired by the Trillium Housing initiative.

We support the shift to an affordable housing definition that is locally focused and based on household income.

We have two suggestions with respect to the definition of ownership housing affordability.

First, it is important to establish a flexible and creative definition for delivering housing affordability. In the case of Trillium Housing, we have innovated the Trillium Mortgage, which cuts the annual accommodation cost for home purchasers as it is regular-payment-free. At discharge of the Trillium Mortgage (voluntarily or once the regular first mortgage is fully repaid or at resale or the home owner ceases to occupy the unit as their residence), the Trillium Mortgage principal is repaid plus its proportionate share of any appreciation in the value of the home. As an example, at an interest rate of 5% a Trillium Mortgage worth $100,000 would reduce accommodation costs by $581.58 per MONTH. That is a reduction of annual accommodation cost of $6,979. Our model is not unlike that used by other non-profit organizations such as Habitat for Humanity and Options for Homes, which also provide affordable homeownership

As currently structured, the proposed definition will NOT support the delivery of housing affordability using the payment-free, share equity mortgage as the "price" definition does not recognize the housing affordability delivery through a share-equity mortgage. In the example provided above, the annual accommodation savings of $6,979 would NOT be considered when determining whether housing affordability is being delivered under the specific language of the proposed definition.
We propose that instead of identifying a “purchase price” that would be published for each municipality, the Province should publish the maximum Annual Accommodation Cost (which is already being calculated by the Province to determine the “purchase price)). This would enable proponents and programs like Trillium Housing, which reduces the accommodation costs (but not the price of the unit) to meet the definition and qualify for the incentives to deliver housing affordability.
This approach more fully meets the intention of the updated regulation, which is to provide incentives to the development of more affordable housing. It could also be responsive to other local innovations that provide support to reduce accommodation costs (such as a housing allowance).
This threshold would also be more comparable to the Rent threshold defined in this regulation, facilitating a more meaningful comparison of outcomes between the two definitions.

Another area for improvement is with regards to the use of a 30% limit on housing cost as a percentage of household income. The 30% threshold is an important and well recognized threshold for low income families paying rent.
First, the threshold does not recognize that a mortgage payment includes both an interest payment AND a repayment of principal – which provides the home owner a growing Family Asset and equity. For instance, at a first mortgage rate of 5%, in the first five years over 30% of monthly housing costs go to building the equity in the home. This family equity creation is NOT equivalent to a rent payment where there is ZERO asset creation.
Secondly, home buyers on average have higher annual incomes than renters and have a greater amount of disposable income. By setting a cap of 30%, the Provincial government would REDUCE the choices families have on how they wish to use their income. Families should maintain the right to choose how they spend their hard earned money. It is a better public policy outcome to have families choosing to “invest” more of their income into a home rather than have a government imposed cap of 30% of income to home costs allowing for more income to be spent on consumables.

Furthermore, for ownership housing and mortgage finance, even the federal government does NOT limit housing costs at 30% for home purchasers. The government threshold imposed on federally regulated mortgages published by CMHC is the Gross Debt Service (GDS) ratio which is currently set at 39% (and the Total Debt Service ratio is 44%). A 30% cap for the provincial criteria for home ownership would be out-of-step with federal regulations.
With a limit already enforced at by the federal government, we propose that the Province adopt the same threshold and reference the GDS ratio in its regulation. This is in line with the three reasons above. It will also greatly simplify the administration and verification process for the application of this regulation.
 

As an example, let us compare the results of the two policies on a real world example. Currently Trillium Housing is selling units at our project in Durham Region. According to the Provincial Policy Statement – Housing Table, the 60th percentile income in 2020 in Durham Region was $116,000. Using that income threshold and dedicating 30% of income to housing cost, then maximum annual accommodation would be $35,000. We are setting annual property taxes and other housing costs at about $7500. It would be reasonable to expect the proposed regulation to mandate a house price threshold in Durham of about $400,000. This is based on income at the 60th percentile. In 2022, according to MMAH, the average home price in Durham was $759,439.

The Trillium Housing proposal would set an Annual Accommodation Cost limit for ownership housing. We propose that the existing, federally-mandated GDS ratio of 39% be utilized in the new Regulation. This would provide in Durham region a maximum Annual Accommodation cost of $45,240 for the 60th percentile of income ($116,000x0.39).

Today in Durham Region, Trillium Housing has available a 2 bedroom unit for $709,000, the market price for this unit. Using the same assumptions as above (5% down, 5% interest rate) and adding a Trillium Mortgage at a loan-to-value of 25% ($177,250), the remaining first mortgage annual cost would be $34,600. Using the same assumptions as above annual accommodation costs would be $42,100.

Without the Trillium Mortgage the annual accommodation costs of this unit would be $56,000. Using the federal mandated GDS the income to purchase this unit would be over $140,000.

This example demonstrates how the use of innovative financing tools, such as the Trillium Mortgage, can substantially reduce Annual Accommodation costs. We propose amending the proposed definition for Affordable Ownership Housing to permit consideration of innovative financing tools that reduce Annual Accommodation cost without affecting the true market price of housing. We believe this will provide a better market signal to the incent developers to build entry level priced units in combination with innovative financing tools.