Tax-free funds: a bypass for building affordable housing

At a time when the Quebec Affordable Housing Program (PHAQ) is struggling to deliver the expected results, tax-advantaged funds, which are more flexible in their financing criteria, are responsible for the construction of a growing number of social and affordable housing units in Quebec. Their contribution to the fight against the housing crisis has exploded in the last year.

In 2022, the Mainbourg Corporation was selected by the Société d’habitation du Québec (SHQ) as part of the PHAQ for a project of around fifty affordable rental housing units that were to be built on Notre-Dame Street in Old Pointe-aux-Trembles. However, this project has since “fallen through” due to the weight of the PHAQ, says the organization’s general director, François Claveau.

“The financial package wasn’t working: there was no patient loan and we couldn’t find it,” he explains, blaming the PHAQ’s heaviness. The project was then taken over by its partner, the Société de développement Angus (SDA). The SDA turned to the tax-advantaged fund of the Caisse d’économie solidaire Desjardins and obtained financial support from Quebec to cover the construction of affordable housing in order to make this project a reality.

“The rules of the program are circumvented by tax-advantaged funds,” which are more likely to agree to finance real estate projects than the SHQ, notes Mr. Claveau. The latter does not intend to propose new projects in the PHAQ until it has been simplified by Quebec. In the meantime, the Mainbourg Corporation has decided to launch new projects by turning “to Desjardins directly” to facilitate the acquisition and construction of hundreds of housing units in the eastern part of the city, confides Mr. Claveau.

“We are waiting for something that would make it faster” to use the PHAQ, adds Mr. Claveau. In the meantime, “there are so many needs that we will not prevent ourselves from finding another way to acquire and build housing” by turning to tax-advantaged funds, such as those of Desjardins and the Fédération des travailleurs et travailleuses du Québec.

The fast lane

The Mainbourg Corporation is far from being the only organization to make this shift in Quebec. Data compiled by The duty show that the number of social and affordable housing units associated with these tax-advantaged funds exploded last year. These funds are thus responsible for the vast majority of the 1,230 units finalized in 2023 that the SHQ counts, including those financed by the Rapid Housing Initiative, which is a federal responsibility.

Tax-advantaged funds, which notably supported the acquisition of the Manoir Lafontaine by the Interloge organization last year, thus represent the second largest financial contributor to the construction of social and affordable housing in Quebec currently, behind the AccèsLogis program, which is set to disappear and be replaced by the PHAQ. The latter has only allowed six units to be completed since its launch in 2022.

“This ambition of the SHQ to tie everything up before moving forward could lead to what we have seen, namely projects that take 5, 6 or 10 years [à voir le jour]as long as there is a small detail that catches the eye,” says CMétis CEO Philippe Dufort, whose project of a few dozen housing units in Métis-sur-Mer was selected in 2022 by the PHAQ among 40 other initiatives. Mr. Dufort notes that the SHQ’s “zero risk policy” means that the viability of many projects is threatened, as they are slow to obtain the financing required to move forward.

“For us, it was very tight. We were ready to move forward, but there was always something missing from the municipality, which had to provide us with a document, so it was taking a long time. Finally, we arrived on time, but it could have cost us our project,” says Mr. Dufort. However, these delays increase the costs of the project. His is currently estimated at more than $10 million.

Conversely, in the private sector, financing such projects is more flexible. “We get started and solve problems as we go along,” says Mr. Dufort. “Currently, this is a bit like what is happening with tax-advantaged funds. We see that it is developing more quickly on this side, because they operate through risk analysis,” notes the CEO of CMétis, who would like the PHAQ to take inspiration from these funds from the private sector.

Questioned by The duty On the PHAQ’s lackluster record, the office of the Minister responsible for Housing, France-Élaine Duranceau, emphasizes that “other vehicles” exist to finance the construction of affordable housing, citing “tax-advantaged funds.” Quebec also promises that “other methods of financing projects will be revealed in our government housing strategy shortly.”

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