July 22, 1946 (20th Parliament, 2nd Session)


Clarence Decatur Howe (Minister of Reconstruction and Supply)



Under parts I and II.
Before we leave the subject of joint loans, I wish to discuss for a moment a few other points. The first of these is loan coverage. Since the inception of the National Housing Act, loans have been readily available in every city throughout Canada and in most of the larger towns. Until recently, however, some difficulty has been experienced with applications from residents of small towns and villages, especially those in outlying areas. In view of the desirability of making National Housing Act loans available on a national basis, and as a result of negotiations between Central Mortgage and Housing Corporation and the lending institutions, an arrangement has been made for the handling of applications in all parts of the country. The arrangement is working extremely well, and I am pleased to report that we no longer receive complaints from individuals whose applications cannot be serviced. I would also like to express the appreciation of the government to the eight or ten lending institutions which have taken on this important responsibility.
In the past there has been some difficulty over the lack of authority under the National Housing Act to make loans on leasehold land. This has been particularly true in national park areas, such as Banff and Jasper. The Department of Mines and Resources, quite properly, is unwilling to transfer in fee simple title to lands within national parks. We therefore seek an amendment to the act to authorize the corporation to make National Housing Act loans, under certain terms and conditions, for the construction of houses on land under leasehold.
My third point deals with cooperative housing developments. Under part I of the act, joint loans are available to cooperative housing groups formed for the purpose of building houses or apartments for occupancy by members of the groups. Under certain circumstances, loans for cooperative rental housing projects may also be made under part II (section 8), provided that the cooperative is already formed and has interests other than housing.
Applications are being received from cooperative groups for loans at 3 per cent for periods up to fifty years under section 9 of the act. This section provides for loans to limited-dividend companies for low rental housing projects.
Generally these applications are from groups of individuals being formed into a cooperative to build houses for their own occupancy with the equity being supplied by themselves. The form of the arrangement involves a lease to the member of the cooperative but in most respects the position of the member is that of a home-owner. These applications have been declined because section 9 was not designed for this purpose, its conditions cannot be fulfilled under such circumstances, it was never intended that the tenants of a low rental limited-dividend project should be its owners and the position of the tenant with respect to both his equity and continued occupancy is unsatisfactory.
An individual going into such an arrangement has no security of tenure because under the terms of section 9 he cannot continue to lease a unit in the low rental project if his income exceeds five times his rental. This condition exists to assure the low rental character of the project. Even if the tenant's rental-being paid in lieu of principal, interest and taxes-is current, he has no protection against foreclosure with loss of equity and tenancy if the project as a whole goes into default which might be occasioned by default of 5 per cent or 10 per cent of the tenants. In most of the applications we have received there is no indication of any reasonable measure of protection on this score. Nor are there funds other than the tenants' equity to assure completion of the project in a period of rising costs.
The position of the tenant when the loan on the project is repaid is not happy. Under the section he, as part owner of a limited-dividend company, or having an interest in it through a cooperative, may not receive more than his equity with 5 per cent interest. If the residual value of his house was greater than this amount he would have to make a corresponding payment to retain possession. If it was decided to sell the property as a whole the position would be even more difficult. To avoid this trouble it has been suggested that at this time we should provide that the units revert to the tenants at the end of the amortization period. This is not feasible in light of the intent of the act.
There are other reasons why we should not approve such applications. They, like the ones I have outlined, all add up to one
Housing Act

conclusion. Section 9 was not designed for home-owners. Nor was section 9, with long term money at 3 per cent, designed as a substitute for part I of the act which provides loans to home-owners at 4J per cent for a term generally twenty years but under some circumstances up to thirty years. If we provide cooperative home-owners with 3 per cent money, our position becomes difficult with other home-owners.
Our position is very clear. We will not approve applications for loans under section 9 to limited-dividend companies where the prospective tenants directly or indirectly are financing the equity of the project nor where factors exist which are not compatible to a limited-dividend rental project as defined by the act. On the other hand we are ready to approve such applications under appropriate sections of the act, such as section 4 (3) which makes provision for loans to persons incorporated for the purpose of instructing and managing a cooperative housing project.
I would now like to deal with direct loans made by the corporation to limited-dividend companies. Section 9 of the National Housing Act authorizes advances by the corporation up to 90 per cent of the lending value of a low-rental housing project. The term of amortization may be extended to fifty years, and the interest rate is 3 per cent. Three of these loans have been approved, and another ten of them are under discussion.
The rapid advance in the costs of construction has made it increasingly difficult for applicants under this section to meet low rental housing requirements since rents are set up on an economic rental basis. Present conditions, therefore, are not conducive to a large volume of loans to limited-dividend companies if economic rentals are to be obtained. While there is provision for the provinces, municipalities, social agencies, trusts or persons to contribute to a rent reduction fund, this government, as a matter of policy, is not prepared to introduce subsidies either in the form of a grant towards capital cost or subsequent contributions to a rent reduction fund.
All applications from limited-dividend companies are carefully examined by the corporation, and although I do not anticipate a large volume of this type of loan during the next year, I do feel that some loans will be made. Certainly we are anxious to have this type of construction undertaken and the corporation is making every effort to approve applications within the principles laid down in this section of the act. In addition I expect

that in the future many loans of this type will be made upon land made available through the slum clearance provision of the act.

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