Improving Access to Capital and Housing

The Indigenous Land Title Initiative (ILTI) will create a First Nation title registry to provide legally guaranteed title and priority of registration to ILTI lands. A Torrens registry system combined with individual ownership will provide greater security to access mortgage financing, and improve property values. ILTI will support mortgage financing and facilitate a housing market and business development.

There is significant demand for on-reserve housing. Estimates of excess demand for First Nation housing have ranged from 50,000 to 200,000 homes. To date, government initiatives to fill this demand have fallen short. In 2008, the federal government set aside $300 million for the First Nations Market Housing Fund. It was expected that this was to result in 25,000 new homes in 10 years. As of May 2015, the most recent data demonstrates that only 99 homes have been built. More recently the federal government committed $300 million additional dollars to build First Nation homes. It is expected this will help build up to an additional 2,000 homes. It could take up to 100 years of similar commitments to meet the excess demand.

The main causes of this situation are the restrictions preventing a market based housing system on First Nations lands. In particular, the current tenure, seizure restrictions and registry system makes it more risky and less efficient for lenders to provide mortgages to potential First Nation homeowners. These restrictions also do not provide a sufficient market for resale and consequently depress property values.

ILTI addresses all the causes of First Nation housing market failure. First, it provides better, more tradable tenure options. Second, it facilitates an open real estate market. Third, seizure in the event of mortgage default is enabled. Fourth, and perhaps most importantly, it establishes a more efficient Torrens registry system to implement the infrastructure for an effective housing market.

The expanded property right options and Torrens registry system provide the foundation of an improved First Nation housing system. The proposed First Nation Torrens system would replace the Indian Lands Registry System (ILRS) for ILTI First Nations and perhaps others. A Torrens registry will provide legally guaranteed title to ILTI lands and priority of registration. This will provide legal certainty to First Nation land ownership and efficiently facilitate all land-related transactions. By contrast, the ILRS does not provide any of these assurances. A Torrens registry system combined with all tenure options has three distinct residential mortgage financing advantages compared to deeds registry system (ILRS) combined with leasehold ownership:

  1. Lower Transaction Costs – A Torrens title system has lower mortgage financing transaction costs compared to a deeds registry system. The use of a Torrens registry system is, at minimum, 17 days quicker for mortgage financing research than the ILRS.
  2. Greater Security to Access Financing – Torrens title and registration provides greater security to lenders in the event of a default. The legal process for foreclosure has been clearly established in the Torrens system throughout Canada. Default protection for First Nations under the Indian Act and deeds system must compensate for the uncertainties of leases and the chain of title on a deeds document.
  3. Higher Property Values – Where First Nations decide to create guaranteed individual tile under ILTI, property values will be higher than leaseholds. All things being equal, leaseholds lose considerable value as their term declines. For example, with 30 years left on the lease, and assuming similar legal, administrative and infrastructure environments, the value of the lease is only about 65% of fee simple title. For First Nations, these values would certainly be lower because, in addition to leasehold title, their legal, administrative and infrastructure environments are generally less developed than guaranteed title lands off First Nation reserves. The result is less financing for residential leasehold title on reserve.

These results are further exacerbated in the event the First Nation provides a certificate of possession (CP) to facilitate home ownership. This is because CPs cannot be seized and have a smaller market. Although some First Nations Land Management Act (FNLMA) First Nations are commendably using innovative methods to convert CPs to leases to provide access to mortgage financing and a housing market, they are experiencing higher transaction costs, less access to financing and lower property values with this approach as well.

ILTI will allow participating First Nations to grant ownership of lands to individuals, which will provide them the equity they need to finance and build/renovate their homes. It will also enable access to entrepreneurial capital for members by removing the restrictions of the Indian Act and allowing them to secure property-backed loans as opposed to requiring loan guarantees from council or others. As a result, some current FNLMA First Nation are advocating for the ILTI option to be made available because they believe it will better address their housing shortfalls.

ILTI also provides a solution for First Nations that are “cash poor but land rich” by facilitating land development partnerships, for example in situations where one party contributes the title to the land and the other party contributes the working capital. In sum, ILTI will better support mortgage financing and better facilitate a housing market, entrepreneurial activities and bequests on First Nation lands. As a result, ILTI will create the conditions to develop and sustain a First Nation middle class.