Why rent-to-own is (and isn’t) one solution to B.C.’s housing crisis

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When hopeful first-time homebuyers were invited to apply for eight rent-to-own units in a project under construction in the City of North Vancouver, developer Farzad Mazarei didn’t anticipate the avalanche of responses.

“We had between 700 and 800 applicants for those eight units. It was overwhelming to see how many people are basically waiting for the slightest opportunities to get into the market,” said Mazarei, CEO of Cascadia Green Development, which is building the large Innova project near Lonsdale Quay.

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The life stories shared by the aspiring buyers, and their struggles to own a home in pricey British Columbia, will “stay with me for the rest of my life,” he said.

“We had teachers who were going through a difficult time in life,” he said. “They were taking care of their family members, with a challenging environment, who were dealing with serious health issues.”

Choosing the successful eight candidates was gut-wrenching. Priority was given to first responders from the North Shore, such as firefighters and nurses, “who took care of us during the pandemic years,” Mazarei said.

“It was a difficult process. It was one of the most challenging parts of that development for me.”

Demand for the program was high because it allows first-time buyers a way into the tough housing market: All the rent the selected candidates pay over 24 months, along with an extra $10,000, is put toward their down payments so they can then buy their units.

While rent-to-own is more common in other jurisdictions, such as Ontario, it has recently been floated by both provincial and federal politicians as one solution to B.C.’s missing-middle housing crisis.

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But it has been slow to gain a foothold here, notably because of the extra financial risk for developers already struggling with high interest rates and a flagging economy.

Jennifer Millar, though, is a huge fan of rent-to-own.

The model allowed her, at age 39, to buy her own home for the first time, a four-bedroom Chilliwack house with enough room to operate her daycare. A private company, Fraser Valley Rent 2 Own, purchased the house she wanted, where she lived and paid above-market rent for three years, before she was able to buy the house herself using a portion of the accrued rent money as a down payment.

“That changed my life. This is amazing to have my own place,” said Millar, a mother of two teenagers.

Ron Geddert has run Fraser Valley Rent 2 Own for 12 years and done about 30 of these deals, a small number compared to his colleagues in other provinces who, he estimated, have done thousands of such sales. B.C.’s expensive real estate makes the model trickier here, he said.

“I have colleagues across the country who won’t even touch B.C. because of how challenging it is,” said Geddert, founding president of the industry group Canadian Association of Rent to Own Professionals.

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“Because the cost of housing is so high and, proportionally at least, wages are so much lower than elsewhere in the country.”

The federal government introduced a $200-million fund in 2022 to help developers create rent-to-own units in new buildings. Postmedia reported at the time that $100 million in contributions could be accessed immediately to build up to 1,300 units, and another $100 million in loans was available later in 2022 for an additional 1,500 units across Canada.

Several people interviewed for this story, though, said the uptake on the federal program has been slow, as developers are skittish to take on these extra costs when the cost of borrowing has gone up and condo sales have gone down.

“We are not aware of a single project from that $200 million that has come to British Columbia. In fact, even they (Ottawa) found it was very difficult to get projects going forward with their $200 million,” said B.C. Housing Minister Ravi Kahlon.

Nearly two years after the $200 million announcement, Postmedia asked for an update on how much of the money has been issued and how many new rent-to-own units have been promised. In an email, Canada Mortgage and Housing Corporation said only that it continues to review applications from across the country, and will provide more details “as formal funding announcements are made.”

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In B.C., there are a handful of success stories. One is 50 Electronic Avenue in Port Moody, where developer Panatch Group received 500 applications for 30 rent-to-own homes in the 358-unit project.

Lifeline for first-time buyers

B.C. United Leader Kevin Falcon, who formerly worked for the developer Anthem Properties, recently said that if he becomes premier he’d require builders to earmark up to 15 per cent of units in new developments as rent-to-own.

Eligible first-time buyers would pay market rent for three years, then all that rent money would be used as a down payment for the unit. This would be made possible by the province covering carrying costs so developers are not hit financially, he said.

“There are some costs associated with it for sure, but the beauty of it is, it provides that ease of access for those first-time buyers to get what is most challenging for them, which is that down payment,” Falcon said.

“When I was at Anthem, we actually did this in a project in North Van and, with full candour, it’s very expensive. And it doesn’t make any sense for developers to try and do it on their own, and that’s where the provincial government can play a role.”

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Anthem’s North Vancouver District project, a 341-unit development under construction on Mount Seymour Parkway, will offer 25 one- and two-bedroom units to people who can use the rent paid after 24 months as a down payment. Candidates must live or work in North Vancouver, be Canadian citizens or permanent residents, and agree to live in these homes for at least two years.

Anthem has received more than 900 applications for the 25 units. Successful candidates won’t be selected until closer to the building’s completion in 2025, a spokesman said.

North Vancouver District Mayor Mike Little is not aware of any other rent-to-own projects in his municipality.

The Chard development on Capilano Road originally advertised having 20 rent-to-own units but the new building will now be entirely rental with no ownership options, he said.

Little isn’t convinced supporting rent-to-own is the best use of contributions that developers provide to cities in exchange for approval to build big projects. He would prefer having affordable rental units that are available in perpetuity inside those developments, rather than rent-to-own units that will become part of the general market if the original buyers sell after a few years.

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“So we’re going after non-market units, different rental tenure options for the life of the building. Whereas, rent-to-own tends to be a one-time benefit to whomever wins the lottery,” Little said.

Rent-to-own was not mentioned in the province’s plan last month that promised to use $2 billion in low-cost government financing to quickly construct at least 4,000 affordable rental units.

Kahlon said affordable home ownership will come in the later years of the plan. The government is examining rent-to-own programs in other jurisdictions, such as Europe and Singapore, but he added the plan must include a variety of ownership options.

Rent-to-own “has been an opportunity for people to get into home ownership, but it’s going to require significant investments from government,” he said.

‘Difficult to make them viable’

Kahlon argued Falcon’s proposal to use government money to encourage developers to create rent-to-own will not work. He said the division of B.C. Housing that seeks innovative partnerships to build new middle-income housing, has had little response from private developers willing to pursue rent-to-own.

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“Quite frankly, there’s not a whole lot of private sector builders that have come forward with these types of projects,” Kahlon said. “It’s very difficult to make them viable.”

A few private developers have taken the plunge, though, with a project in Langford and another one in Port Moody offering rent-to-own units.

Falcon envisions this will happen more if a B.C. United government provides developers with monetary backing. And he gave an example of how it could work financially for first-time buyers: If they pay $3,000 rent for a $900,000 unit, after three years that would add up to $108,000, which they would then use as a down payment to buy the unit.

If Falcon’s vision of new buildings being 15 per cent rent-to-own ever becomes reality, then there should be a public lottery system to choose the winners to avoid any perception of favouritism to people with connections, said one Vancouver realtor.

“This is going to be the hottest ticket in town,” Hasan Juma predicted on YouTube. “They are going to be worth more than gold in the Vancouver real estate market. Every first-time buyer is going to be lining up and trying to get their hands on one of these units.”

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The formula used by Fraser Valley Rent 2 Own over the past dozen years to help people buy individual homes is very different from the government proposals for large developments, said Geddert.

He works with clients who can’t get a mortgage for a variety of reasons, which include no money for the down payment, a poor credit rating, or a spotty work history.

A realtor helps clients find a home they like in a price range they can afford, and then Geddert’s company buys the home. Over the next two to four years, the clients live in the home and pay above-market rent — a portion covers Geddert’s costs and the rest is put into savings.

Geddert then works with the clients to improve their credit rating or work history, and after several years they have enough money saved for a down payment and can qualify for a mortgage.

Geddert makes money by selling the home to them at a “modestly” higher price, an amount that’s agreed upon in the original contract and is often, he said, lower than how much the house has actually appreciated during the rent-to-own years.

The squeeze in recent years between income and rising real estate prices means his clients who want detached homes are now buying in places like Merritt, Kamloops or Vernon.

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“People can’t afford single-family homes here, so it’s mostly condos in this area,” he said of the Fraser Valley.

‘We were so happy’

Millar is effusive when she speaks about how Geddert and his rent-to-own process worked for her.

He purchased the house she wanted in Chilliwack and over the course of three years helped her build her credit score while she paid rent, a portion of which went into a savings account. She was then able to qualify for a mortgage and buy the house from him.

“We celebrated at Burger King, me and my kids,” she laughed. “We were so happy.”

In North Vancouver City, it was taxing to whittle the 800 Innova applicants down to eight candidates, who were all desperate to own.

Developer Cascadia asked questions about income and assets, where they lived and worked, and any personal comments they wanted to share. The list was narrowed to about 50 people, and then names were randomly drawn to choose the eight winners, Mazarei said.

He did not apply to the federal government’s $200 million fund for the Innova development.

“We explored this program but the uncertainties and complexities of the application process threatened to delay our project significantly and to thereby increase costs beyond what was viable,” Mazarei said, adding he will consider it for future projects.

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He acknowledged that including rent-to-own units is expensive for developers, but said he lowered that risk by having a supportive lender, Community Savings Credit Union.

The financial makeup of projects that include rent-to-own is different from more traditional buildings, said credit union CEO Mike Schilling. But that can be mitigated by determining if there is a good relationship between the developer and city hall, and ensuring the project has captured the interest of the public.

“We had over 700 applications for the eight units under the rent-to-own scheme, so it clearly shows us a lot of demand for these types of projects,” Schilling said. “So what that means is that perhaps we can put some of our resources in now. We can give more generous terms, frankly, to this development because it’s got so much going for it in other aspects.”

Schilling added he doesn’t have much sympathy for developers who say these deals are too expensive, arguing the system can work if cities support builders who then, with the right financing, create housing that people desperately need.

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“This one program — our one credit union, one developer, one city — is not going to solve the issue of housing affordability,” Schilling said.

“But what we can do is we can demonstrate that this is a program that works for everybody. And we can challenge other lenders, other cities and other developers to follow suit.”

In addition to the eight rent-to-own units in Innova, there are also eight units available through a separate “affordable home ownership program,” in which candidates receive zero-interest loans for a portion of their unit cost, reducing the amount they need to borrow from the bank, Mararei said.

To support this program, Cascadia’s $2.5-million community amenity contribution for the city was used for loans for the eight unit owners, which are to be paid back to the city over 25 years.

Mazarei said he would like to pursue more innovative projects like this, but that is contingent on municipalities speeding up permitting, instead of developers facing expensive waiting periods before construction can start.

“Long delays in city approvals remain the biggest threat to our being able to deliver (more affordable) units,” he said.

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Important to ‘provide hope’

Innova is the first building with rent-to-own units in North Vancouver City. It comes after city council unanimously passed a motion introduced by Mayor Linda Buchanan and Coun. Angela Girard in 2021 to work with developers to create more rent-to-own options.

While Buchanan hears from many developers that economic conditions are not ideal right now, she plans to keep discussing with them how the city can support more of these projects.

“Housing solutions are very complex,” she said. “It requires financial institutions to come to the table and then work with government and the private sector, in terms of the building community, to look at ‘How do we make this work?’”

Buchanan is particularly determined after hearing Innova received nearly 100 applications for each of its rent-to-own units.

“Demand is significant. And that’s a lot of the conversation I have with particularly young people. They’re frustrated and they’re kind of losing hope just because they don’t see a path of getting into home ownership,” said Buchanan, the mother of four adult children in their 20s.

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“We have to be looking at every opportunity to provide them hope that, ‘Yes, this is possible.’ And I want it to be possible because … if they’re working in our community, I want them living in our community. And I don’t want to lose them.”

lculbert@postmedia.com

With files from Katie DeRosa, Postmedia

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