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By John Dickie

Across Canada, enrollments at universities and colleges are increasing each year. In Ontario and other provinces, residence building is often not keeping pace. In some cities, the growth of student rentals in low-rise property near the universities and colleges is creating life-style issues and conflicts with long standing residents. In several Ontario cities, these conflicts have led the City to impose a licensing regime on landlords.

Two possible solutions to the problem are to expand spaces in residence, or to develop private rental housing dedicated to the student market. That latter approach is a growing trend in both Canadian and U.S. markets.

The Canada Mortgage and Housing Corporation (CMHC) has recognized the value of this growing sector. In January 2010, CMHC announced a new program to ensure mortgages for student housing projects of up to 85 per cent of lending value, whether built by private developers or by the educational institutions.

The key terms of the program are the following:

• Interest rate: Fixed or floating with a ceiling.
• Amortization: Up to 25 years (or longer with university guarantee).
• Location: On campus or within walking distance.
• Unit size: Some unit size restrictions to ensure that off-campus projects can also suit the non-student market.
• Property management: Five years experience in operating similar projects is required.
• Minimum debt coverage ratio: 1.30 for terms of 10 years or more, 1.40 for terms of less than 10 years.

Through this new program, CMHC is helping the rental housing industry respond to the growth in demand for student housing with new development, either by private developers or by educational institutions. Apparently, this was the main goal, and the take-up rate has met CMHC’s expectations.

The program is also open to existing projects where mortgages are being renewed, but the unit-size conditions exclude many existing student housing projects off campus.  To qualify, off campus projects should consist of units which contain three bedrooms or less.  Projects with a mix of two, three and four bedroom units may also be accepted, but not projects with primarily four bedroom units (or larger units).

CMHC believes that the smaller units produce essentially the same net revenue due to savings in management costs, repairs and maintenance, as well as being more suitable for non-student rental use. That is a problem for the owners of existing projects where developers built the non-qualifying unit sizes.

If the rental housing industry takes advantage of the CMHC program, or responds to the demand using other financing options, that should accommodate students, and prevent conflict with long-standing residents. Reducing that conflict would be very helpful in reducing the political pressure for licensing and other municipal control measures, which many in our industry would like to avoid or to roll back.