The approach bypasses traditional banking institutions
As Canada grapples with an ongoing affordable housing crisis, some non-profit organizations are turning to an innovative financial tool to fund new projects: community bonds. This approach, which bypasses traditional banking institutions, allows housing providers to borrow directly from community members who want to support local initiatives.
In Ontario’s Haliburton County, a popular summer destination known for its picturesque lakes, the contrast between wealthy cottagers and struggling year-round workers has highlighted the urgent need for affordable housing solutions. CBC News spoke with Places for People, a local non-profit that has embraced the community bond model to address this issue.
Fay Martin, vice-president and founder of Places for People, explained the dire situation: “We do have people sleeping in tents and in hunt camps and in RVs and in places where they ought not to be sleeping.” To combat this problem, the organization recently raised $850,000 through community bonds in just three months, using the funds to consolidate debt and purchase an eight-unit apartment building.
The mechanics of community bonds
Community bonds function similarly to conventional bonds, offering fixed terms and interest rates. However, they are issued by non-profits and directed towards specific community projects. According to CBC News, this model is gaining traction across Canada, with Tapestry Community Capital, a Toronto-based organization that assists non-profits in setting up bond campaigns, reporting a significant increase in interest.
Ryan Collins-Swartz, co-executive director of Tapestry, noted that community bonds are particularly appealing to younger supporters who may not have the means to make large charitable donations but want to invest in causes they believe in. Typical community bond terms range from two to seven years, with interest rates between 2.5% and 5%.
The advantages of this funding model extend beyond financial benefits. Martin emphasized that community bonds help generate local support and foster a sense of ownership among residents. “To me, there’s no use developing housing if the community doesn’t welcome that housing,” she said.
Risks and considerations for investors
While community bonds offer a promising avenue for funding affordable housing, financial experts caution that due diligence is essential. Unlike traditional bonds, community bonds are not evaluated by credit rating agencies, so investors must carefully assess an organization’s financial stability before committing their funds.
Despite these considerations, the community bond model is expected to play an increasingly important role in addressing Canada’s housing crisis. Patti Dolan, a portfolio manager with Wellington-Altus Financial in Calgary, has projected that as rents continue to rise and rental markets tighten across the country, more organizations will turn to community bonds to finance affordable housing projects.
As the model gains traction, Tapestry Community Capital has announced partnerships with 11 additional housing providers from Victoria to Winnipeg to Barrie, Ontario, all planning to utilize community bonds for housing preservation or development.
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