VICTORIA – Essential workers in BC struggling to afford a home in the community where they work may soon have access to a new first-time homebuyer mortgage financing solution. A mortgage investment corporation (MIC) launched by the non-profit BC Construction Association (BCCA) aims to make securing a mortgage easier for BC’s skilled tradespeople, medical care providers, educators, and emergency responders, while at the same time provide the growing impact investment market with a tax-free vehicle that supports housing affordability.
Despite their in-demand skills, steady employment and higher than average wages, thousands of essential workers in BC cannot afford to own a family home near their workplace. Often, they must either commute long distances to work, live in unreliable rental housing, or move elsewhere. This can leave employers with reduced access to skilled labour, create instability in families, and deprive communities of vital professional services.
Lisa Stevens (Chief Strategy Officer, BCCA) and Peter Elkins (Co-founder of Capital Investment Network) had previously looked to a MIC as a possible solution for the southern Gulf Islands, whose communities have trouble finding service providers who can afford to live there. When Stevens joined the BC Construction Association, a non-profit serving a booming multi-billion-dollar sector where the availability of skilled labour is the No. 1 challenge, she saw the need for affordable housing was equally pressing, but on a much larger scale.
Stevens and Elkins set course to prove the potential of the Impact MIC to address first-time homebuyer mortgage qualification challenges faced by tradespeople across BC Unlike banks and credit unions, MICs are not subject to the federal mortgage stress tests which thousands of BC workers struggle to meet. Additionally, shares in MICs are eligible for government deferred and tax-sheltered savings plans such as RRSPs, RESPs, RRIFs, TFSAs and RDSPs. While MICs typically generate revenue by attracting higher-risk customers willing to purchase higher-rate mortgages, this MIC sought to be an impact-investment that would thrive by offering tradespeople and other gainfully employed essential workers the competitive-rate mortgages they couldn’t get from a bank or credit union.
“Our goal is to create a social impact investment vehicle that offers value for investors while also helping tradespeople and other professionals to establish roots in BC communities,” said Stevens. “Guiding our approach is the belief that these highly skilled and hard-working earners should be able to afford housing, and organizations that employ and represent them are willing to invest in a financial vehicle that helps them succeed.”
Tax-free impact investment vehicle supports housing affordability for BC tradespeople, teachers, firefighters
Elkins knew that creating a MIC that would attract impact investors and others beyond the construction sector would require a rethinking of the typical MIC business model, along with extensive research into the structure, financing, regulation, management and marketing of MICs in Canada and similar investment vehicles abroad. To help address this complex challenge the BCCA team partnered with the Gustavson School of Business at UVic to create a capstone project for the school’s 2019 MBA program. As an applied project that involved exploring multiple disciplines and courses – such as strategy, management, law, collaboration, finance and HR – to address a real-world problem, the project fit in well with Gustavson’s mission to champion research that makes a difference and transforms lives.
Over the course of five months, faculty professors and 23 students devoted thousands of hours to conducting a gap analysis, financial research and surveys with MICs, potential investors, HNWIs, financial advisors, Foundations, tradespeople and constructions companies. That work became the foundation of the business case for the Impact MIC, Canada’s first impact-investment mortgage fund.
Whereas MICs typically offer higher mortgage interest rates, shorter terms for fixed rates and lower loan to (home) value ratios compared to banks, as a fund dedicated to helping essential workers, the Impact MIC will offer more favourable terms by roughly matching bank mortgage interest rates and term lengths for fixed rates, while also offering longer amortization periods (25-40 years) and a higher loan-to-value ratio (up to 90 per cent).
Elkins expects competitive shareholder dividends, along with the Impact MIC’s tax-deferred/sheltered benefits and the important community benefit, will attract $500 million in capital over the next 10 years from the growing number of banks, pension funds, wealth managers, family offices, contractors, developers and individual investors for whom impact investing is a growing priority.
“The BCCA Board has approved funding to move the Impact MIC forward,” confirms Chris Atchison, President, BCCA. “We’re proud to pioneer an affordable housing solution with the potential to improve the quality of life for thousands of skilled tradespeople and other essential workers across the province, benefitting every BC community.”
“The Impact MIC is a business solution with potential application to other industry sectors,” added Elkins. “We look forward to exploring partnership with organizations that support highly-skilled essential workers, and to connecting with individuals and organizations interested in a competitive and tax-free or deferred return with the potential to create significant positive social impacts.”
BCCA is planning to make mortgages from the Impact MIC available as of April 2020. For more information, potential partners and investors are encouraged to contact Peter Elkins, Acting CEO of the Impact MIC, at firstname.lastname@example.org or visit https://www.bccassn.com/resources/mortgage-investment-corp/