Incenting Purpose Built Rental Housing – A Primer
Author : debby-jeon | Published Date : 2025-06-20
Description: Incenting Purpose Built Rental Housing A Primer on the Economics of Development CMHC Housing Policy Division April 20th 2016 Steve Pomeroy Focus Consulting Inc Carleton University Centre for Urban Research and Education CURE Ottawa
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Transcript:Incenting Purpose Built Rental Housing – A Primer:
Incenting Purpose Built Rental Housing – A Primer on the Economics of Development CMHC Housing Policy Division April 20th 2016 Steve Pomeroy Focus Consulting Inc. & Carleton University Centre for Urban Research and Education (CURE), Ottawa Outline Long term trend in rental supply Why rental development not viable Key terms used Elements of a pro forma and illustrative examples How different incentives might improve viability/affordability 2 Focus Consulting Inc. 2016 3 Rental Housing Production - Canada Focus Consulting Inc. 2016 Rental Trends - Ontario 4 Rental on average 6% of all starts since 2000 Focus Consulting Inc. 2016 Assessing the economics of rental development: Developing and using a pro forma analysis Focus Consulting Inc. 2015 5 Rental Pro Forma – Key Terms LTV = Loan to Value Ratio Cap rate = capitalization rate (to estimate lending value) DCR = Debt Coverage Ratio NOI = Net Operating Income RoE = Return on Equity CMHC MIF Premium = mortgage insurance Focus Consulting Inc. 2016 6 Main elements of pro forma Operating Budget (revenue & expenses: establishes potential cash flow and NOI available to service debt Capital Budget - establishes total capital requirements (covered by mortgage and equity/grant) Underwriting terms – establishes maximum loan capacity (lender and CMHC as insurer) Focus Consulting Inc. 2016 7 Operating Budget Focus Consulting Inc. 2016 8 Capital Budget – Land and Hard Costs Focus Consulting Inc. 2016 9 * Current hard costs $/sq ft range Basic wood-frame $100-$135 between Medium quality concrete mid-highrise $170-$220 Capital budget – Soft costs Focus Consulting Inc. 2016 10 * While a cost, these are amortized so not reflected in capital budget Lending and Underwriting Criteria Strongly influenced by CMHC insurance criteria Sets method for establishing maximum loan (based on a max LTV or 85% and DCR of at least 1.2 if 10 yr term (1.3 if only 5 yr term) DCR more important than LTV Some reduction-flexibilities if target affordable rents waive premium, lower DCR to 1.0, incr LTV to 95% Focus Consulting Inc. 2016 11 Focus Consulting Inc. 2016 12 How elements come together Operating Budget (NOI) Capital Budget (Total costs to be covered) Maximum Financing Capacity CMHC Underwriting rules Minimum Equity/Grant Required Viable Not Viable Illustrative Pro forma (per unit) Typical new market (rents - $1600/mo) Focus Consulting Inc. 2016 13 Assumes mix 1 & 2 Bed; rents @ 150% of AMR (of $1,075/month); Taxes at new multi-residential rate
