5) Description of housing product/service offering: Options for Homes operates in one of the most competitive housing markets in the world, Toronto. We have introduced two innovations, one in property development and the other in finance, that make our homes affordable. Our goal is to deliver quality buildings to buyers at the lowest possible cost to them. We don't profit from our sales. We pass on the savings to buyers. Our condominiums include necessary features but exclude expensive and unnecessary amenities. We also avoid expensive marketing that easily adds 10% to the cost of a home. However, we do not compromise on quality. We use the same contractors that build the most expensive condominium towers in Toronto. Our financial sustainability comes from the modest development fees that we include in the cost of units. In this way we deliver quality buildings that sell for 10% to 20% less than competing buildings of similar quality. Our financing innovation involves the use of an Alternative Mortgage. We don't want speculators to profit from our low cost approach. If we sell our units at cost, speculators can flip them for an instant 10% to 20% profit. Instead, we compare the price of our unit to the selling price of a similar unit in the marketplace. The difference in the two, a figure other developers keep as profit, becomes the Alternative Mortgage. This mortgage is recorded as a junior lien to the bank mortgage. Mortgage lenders have agreed to consider the Alternative Mortgage part of the buyer's equity. It has eased the qualification for conventional mortgages. The Alternative Mortgage is a payment-free loan. It is not paid back until the unit is rented or sold. On repayment, the seller pays the Alternative Mortgage and interest proportional to the appreciation in the home's value, to another non-profit, HOA. If the home falls in value, the Alternative Mortgage is not paid back. HOA uses the money it has collected to help more buyers and as seed capital for new projects.

6) Description of innovation: Our housing development approach and our financing mechanism are unique. We have created an affordable housing program that is self-sustaining and does not require a Government subsidy. Most Government housing programs either focus on rentals, which often create undesirable housing communities and also do not contribute to increasing the wealth of tenants. Programs that attempt to promote homeownership often deliver homes at a discount. Beneficiaries purchase the homes, sell them for a quick profit and end up back in rental homes. Programs that try to prevent this sort of speculative activity impose so many restrictions that they prevent homeowners from benefiting from increases in the values of their homes. In other words they prevent the accumulation of wealth. Our two innovations - the delivery of quality housing at cost; and a financing approach that combines affordability with a disincentive for speculation - help low income people become homeowners and to benefit, over time, from the increase in value of their quality homes. In Toronto we have developed condominiums in areas that were considered marginal. In all cases, within three years, the values of our condominiums increase significantly and the quality of the communities created in our developments affects the surrounding area. In our developments, more than 95% of our units are owner- occupied. The buyers also represent a mix of incomes. This has made for stable, supportive and desirable communities in our developments. Thus while many Government-promoted affordable housing developments often deteriorate into low- value neighborhoods, our developments keep increasing in value. The sense of community increases and the surrounding area is improved. Desirable communities increase in value, and increase the amounts of Alternative Mortgages paid to our sister company, HOA. HOA's money is used to help even more deserving buyers.

7) Benefits to clients: We use networking and low-cost marketing to reach beneficiaries. We mail out thousands of flyers. We also have an effective website www.optionsforhomes.ca that people use to contact us. Finally, we depend on word-of- mouth, especially from our satisfied buyers. We hold information sessions every two weeks to offer people the opportunity to buy into existing projects, or discuss prospective developments. We hold these information sessions on weekends at churches, libraries and community centers, helping to keep our marketing costs low. We often get hundreds of people to attend our information sessions and from those who attend we get buyers. At our information sessions we explain our financing approach and begin the task of identifying the help people need. In many cases, because it can take two years between the time people commit to buy and the time they move in, we work with them to clean up their credit, increase their savings and therefore be in a stronger position to buy. One of the challenges in what we do is that people have to qualify for mortgages even if they are low income earners. Sadly, there is a strong correlation between income and the ability for qualify for a mortgage. There are always people that need our help but cannot take advantage of our system because they cannot qualify for a mortgage. Ultimately the ability to provide housing to even those that do not qualify for mortgages would require far more resources than we are able to muster at present. In East Africa good news spreads easily. We will have no problem getting interested clients. The challenge is offering affordable mortgage finance. The cheapest mortgages in Uganda are at 16%. This is choking the housing market. We are starting Homeownership Savings Clubs. People who save for three years will get a mortgage that is three times their savings. Our rates will be several percentage points lower than "market" rates. We will return savings to savers, with interest, after 10 years.

8) Key operational partnerships: We have partnered with mortgage lenders (banks) to offer conventional mortgages to our clients on the understanding that any additional help we offer is classified as equity. This makes mortgage qualification easy. We have also established an excellent relationship with one of Toronto's leading condominium builders. The company prefinances some of our construction work and also defers certain payments, thus reducing our interest expense during construction. We also use innovative approaches to land acquisition. We always employ a Vendor-Take-Back (VTB) mortgage that allows us to tie up land without paying for it in full, another measure that improves our cash flow. Finally, we have convinced municipal, town and provincial governments to begin offering financial support to first time homebuyers to supplement our Alternative Mortgage. Some jurisdictions are offering grants. Others have agreed to defer taxes and development charges (which in Toronto can be more expensive than the land itself). We treat these concessions in the same way as the Alternative Mortgage. They all serve to increase the buyer's equity but are payable in full when the home is sold or rented. When they are repaid, they are ploughed back into the system to assist more buyers. Our relationships to Governments, while not absolutely necessary for our model to work, improve afforability. More equity from several sources makes homes more affordable.

9) Financial model: We offer the Alternative Mortgage through our affiliate, Homeownership Alternatives (HOA). The Alternative Mortgage usually offers the equivalent of 10% to 15% in equity to a buyer. We also work with municipal and provincial governments to offer additional assistance in the form of grants and soft loans. When combined, this help can represent as much as 40% to 50% of the value of the property in some of our developments. We negotiate agreements such that when homeowners pay back loans and grants, that money is ploughed back to help other people buy homes.

          • Costs as percentage of income: 200

          • Financing: Options for Homes is financially self-sustaining. We meet our operating costs from modest development fees charged to each unit we sell. However, our capacity to assist more buyers is a function of the amount of money that HOA (Home Ownership Alternatives) accumulates, which is a function of time. As more of the homebuyers we assisted in the past sell their homes and pay their Alternative Mortgages, they contribute more funds to HOA. HOA can then assist more first time homebuyers. HOA also provides seed capital to start new developments. In some cases HOA purchases land and offers some construction financing. It has increased our capacity to do more affordable housing projects. We hope to develop a similar institution in East Africa.

10) Effectiveness

          • Project outcomes: Our program has benefited over 1,520 clients in the Toronto area. We are especially proud of the people that we have helped become homeowners that would otherwise not be homeowners. In 2002, Options for Homes received an award from Canada Housing and Mortgage Corporation, a government entity that is charged with "making housing possible in Canada." With the award, the Government of Canada endorsed our approach. It has been great for marketing. Numerous articles about our program have appeared in the Toronto press. Our model, while novel and unique, is now accepted as a legitimate affordable housing delivery approach. Our credibility enables us convince municipal and provincial governments to offer affordable housing finance assistance to low income buyers in their jurisdiction.

          • Number of clients in past year: Our developments take two to fours years from inception until the sale of the last unit. Therefore, judging by our record since the founding of Options for Homes, we help an average of 150 people become homeowners each year.

          • Percentage of clients that are poor or marginalized: 40

          • Potential demand: We want to implement our model first in East Africa and then in other developing countries. In East Africa, annual demand for housing exceeds 1 million units a year but formal housing development accounts for less than 5% of it, all of which is targeted at high income earners. As a result there is a massive and growing backlog especially for middle and low income earners. Our target is to deliver at least 10,000 units of affordable housing each year within the next 3 years. Our initial clients will probably consist of the lower-middle to middle income brackets, which, by Canadian standards, are low income earners. Still the application of our model will significantly increase housing supply. We hope that our focus delivering a solution as opposed to seeking profits will motivate other developers to step in and meet the chronic housing needs of East Africa.

11) Scaling up strategy

          • Stage of the initiative: Scaling Up stage.

          • Expansion plan: We seek to become the largest affordable housing developer in Africa. We are negotiating for a site in Uganda where we can build 3,000 units. If our Homeownership Club is successful, we will complete and sell all 3,000 units within 5 to 7 years. We are also looking for additional sites in Uganda and Tanzania. We plan to be delivering over 10,000 new housing units each year in East Africa. We plan to be operating in the region long enough to turn our workers into homeowners. To achieve this goal, we need to deliver quality housing at prices that are significantly lower than existing current rates. We need to achieve economies of scale within a labor-intensive delivery system. It is a tradeoff because there is a limit to the cost-effectiveness of labor-intensive construction. Still, we believe the best way to develop Africa's economy is to increase homeownership and real estate wealth.

12) Origin of the initiative: Michel Labbé, the founder of Options for Homes, was trained as Urban and Regional Planner. He has been producing affordable housing for 26 years, the first 13 working on subsidized rental projects with a non-profit housing corporation in Toronto, Canada. A trip to work in the Townships of Johannesburg, South Africa, and the disappearance of government grants shifted Mike’s focus to affordable ownership housing. Mike has developed a model that provides mixed income housing to thousands without a permanent government subsidy. Mike believes that the profit motive impedes affordability. This is why Options is a non-profit. Options focuses on affordability without having to worry about the pressure of meeting shareholders’ profit targets. Options for Homes is therefore a social enterprise, commercial and self- sustaining, whose objective is to increase the wealth of homeowners.

Contact Information:
Michel  Labbe
President
Options for Homes
(Not-for-profit commercial housing developer)
Canada
Website: www.optionsforhomes.ca