The Fallacy of the Canadian Dream for First Nation Homeowners

Posted on March 4, 2014 by andrewl

This is the final article in a three-part series on First Nation housing. The first article was written for national leaders about how to correct the First Nation housing crisis. The second article was written for community leaders about better managing their housing stock and programs. This final article is for community members who struggle with getting ahead in a First Nation home.

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First, let’s look at the “Canadian Dream,” which is largely based on buying a home and making that the centrepiece of an investment strategy. Indeed, most Canadians generate the bulk of their wealth from their homes.

The “Canadian Dream” goes something like this: in your twenties (hopefully), after scrimping and saving, you will buy your first home. It will be at a good price and in a decent neighbourhood. Then, you will work steadily to pay down your mortgage: “I owe, I owe, so off to work I go.” Over time, your home’s value goes up. For some, it goes way up.

After 20 years of paying off your home, you have raised your kids and hopefully put something aside for retirement. When you finally decide to sell your home (called “downsizing”) any profit you make from that sale is tax-free. Along with your company pension, you should have socked enough away to live a comfortable retirement.

Those who entrench themselves in the “Canadian Dream” live a comfortable life. It’s a good life.

Now let’s compare that with the “First Nation Dream” of home ownership.

First and foremost, First Nation homes are not wealth generators. Their values do not go up over time. This is because the land that First Nation homes sit on has little or no market value.

Still, you want a piece of the “Canadian Dream.” So you go down the path of buying an on-reserve house. Whether you go through CMHC or the bank, you will have to pay back the costs to build your home—this can total a few hundred thousand dollars—which has no financial payback for you down the road. Your home will never have the market value of what you paid.

Sidenote to the Canadian taxpayer: First Nations do pay for their own homes. The rules have changed since the 1980s in that CMHC now lends the money to build the home but it is expected that the loans will be repaid in full by the homeowner (or the Band, if the homeowner defaults).

Thus, since the 1980s, First Nations have spent their prime working years paying off a home that does little for creating wealth the way other Canadians enjoy. This flawed system of First Nation home ownership has created a paradox in First Nation housing: an off-reserve home is an asset. An on-reserve home is a liability.

Another critical difference between the “Canadian Dream” and the “First Nation Dream” is that the latter does little to promote the mindset of wealth generation. For example, pursuing the “Canadian Dream” encourages a whole string of positively reinforcing behaviours, such as saving money, leveraging equity and planning for retirement.

Indeed, it’s a sad state to see an Elder today who has worked hard to pay off his home but has nothing to show for it, other than a CMHC house.

So until the on-reserve housing system changes fundamentally, First Nation individuals must find other ways to attain the “Canadian Dream.”

First and foremost, you should start acquiring good assets. In general, good assets will increase in value over time. Bad assets depreciate over time. I see a lot of bad assets when I drive through the Rez: high depreciating vehicles and way too many recreational toys.

Second, live within a modest budget. This probably means cutting back on a few of your most frivolous expenses. If you can reduce even 15 percent of your discretionary expenses and shift those savings to buying good assets, within a short time, you’ll see a positive shift in your circumstances. For example, cut a bit of your entertainment budget and buy a GIC from an on-reserve bank.

Finally, find ways to bring in more cash. For example, if you run a business, take a part-time job. If you work full-time, start a part-time business. There are myriad ways to make a little more cash. Even a 5 percent increase in annual income can have a big impact on your long-term wealth.

It’s as simple as ABC:
Assets: buy good ones, avoid bad ones
Budget: live simply, like your Elders
Cash: bring in a little more

One of the most important books I have read on financial planning was “The Millionaire Next Door,” which proved that the average millionaire was not a flashy jet-setting business tycoon. Rather, he was frugal, owned modest things, and invested smartly and conservatively. In effect, when it comes to financial planning, the turtle does win the race.

Finally, I had the pleasure of meeting a First Nation “Millionaire Next Door” recently. He was a quiet, humble elder, about 67 years young. He never made a ton of money, working mostly for his Band and in a few off-reserve labour positions. But he lived a frugal life, saved smartly and invested in some off-reserve property that made him a very decent return. When he finally cashed out on his property, he just banked the money.

So, it can be done!

Andrew Leach, MBA, is a successful First Nation management consultant specializing in turning messy situations into prosperous ones. Visit his website at www.andrewleach.com or drop him an email at .

Fixing Your Band’s Housing Crisis

Posted on March 4, 2014 by andrewl

This is the second in a three-part series on First Nations Housing.

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Housing is the toughest government program that First Nations oversee. The reason is simple: First Nations are expected to collect monthly rents from their own relatives.
Worse, the Band is responsible for all rents that are not paid by delinquent tenants. This formula has spelled disaster for many First Nations. Some Bands have lost millions because of unpaid rent. For many Bands, there seems to be no end in sight to their losses.

A few First Nations have found a way out of this mess. They have pulled themselves out from massive debts and now operate decent housing programs. There is a common theme to their turnaround stories. Here are the five biggest housing mistakes that First Nations make—and the solutions to overcome these mistakes.

Mistake 1: Lack of Political Will to Evict

Some band members don’t pay their rent and some abuse their neighbours. Worse, some members get involved in illegal activities that put other community members at risk. When First Nations let problem tenants get away with bad behaviour, they send a clear message: It’s okay to behave irresponsibly.

When dealing with persistently bad tenants, the only option left to Councils is eviction. Yet many Councils fail to pull that trigger. Sometimes it’s because of fear. Sometimes it’s because the Council has too soft a heart. The result is the same: the Band incurs major losses.

Create political will by pressing Council to evict bad tenants and by not defending bad tenants—even if they are close friends or relatives. Ultimately, let everyone know the actual amount that the band loses every year from lost housing income. In effect, show that the benefit to solving this problem greatly outweighs the price.

Mistake 2: Poor Policy Development

First and foremost, housing policies are valuable only if they are used. So, don’t waste money creating policies if you’re not fully committed to using them. This may seem obvious. However, I have seen far too may communities get into a housing crisis because they didn’t follow their policies.

Second, developing housing policies can get bogged down, sometimes for years. To prevent this from occurring, assign the right person the task of developing housing policy. A good housing policy development process shouldn’t take more than a few months from start to finish.Finally, make sure that your policies are clearly understood by all. This includes Council and community members, who often need several rounds of consultations and messaging. It is much better to over-communicate than under-communicate your pending housing policy changes.

Mistake 3: Poor Governance Structure

Role clarity is a critical part of governance structure. Make sure that the roles of Council and the housing committee are clear and distinct.

Poor governance structure exists when Council overrules its housing staff, even though the staff followed housing policies.

Poor governance structure exists when the housing committee has lots of meetings but gets little done.

Speaking of housing committees, they are a mixed bag. If they are set up properly and have decent committee members they can serve an excellent purpose. But I have seen far too many that were either poorly structured or had poorly trained committee members.
There is no cookie cutter governance model for First Nations housing. Just be sure that roles are clear and that good people are chosen for key positions.

Mistake 4: Hiring and Keeping the Wrong Staff

Housing officers must have a wide range of skill sets. They have to be organized, literate, good with numbers, good with people and good at problem solving.
That’s a tall order to ask, especially when these positions don’t typically command big salaries (especially with small bands, which have correspondingly small budgets to work with).

If I had to choose one quality for a housing manager it would be that the person be organized. A second quality is to have good people skills. The housing manager needs to be able to work with politicized Councils, problem tenants and cagy contractors. A reasonably mature, organized person is a necessity for any First Nations housing office.

Any hope of getting your housing mess turned around is virtually impossible without a strong housing manager.

Mistake 5: Poor Record Keeping

Filing systems and record keeping are fairly simple endeavours, if they are properly set up and maintained. Each file should contain the tenant’s application, the rental agreement, the forms that confirm rental amount and a record of the tenant’s payments.

The record of payment is the most important record to maintain. Not having it can lead to hefty arrears and huge losses for the Band.

Indeed, if you take a look at why most First Nations get into housing trouble, it often starts with poor record keeping.

For example, if a tenant fails to pay his rent and doesn’t get any notice about it (because of poor record keeping), he soon learns that not paying rent is acceptable.

Staying on top of your rental income starts with good information. And that means keeping good, accurate records of your housing files.

Summary

Make any of these five mistakes and you are setting your Band up for housing failure. Alternatively, here are five steps to creating a successful First Nation housing operation:

Set Up an Effective Governance Structure
Set Up a Good Information System
Hire the Right Staff
Have Good Policies in Place; Use Them
Evict Bad Tenants

Why First Nations Housing is so Messed Up

Posted on March 4, 2014 by andrewl

A Three-Part Series by Andrew Leach, MBA

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In this three-part series, I will clearly show what must be done to address Canada’s on-reserve housing crisis.

In this first article, I will compare Canada with the Native American Housing experience.
Last year, I had the tremendous honour and opportunity to organize the World Indigenous Housing Conference held in Vancouver, Canada. As the lead organizer, I worked closely with governments and indigenous leaders in Canada, the United States, Australia and New Zealand. I visited many indigenous communities in each country, examining their housing stock and programs.

I learned a lot from this experience. Probably the most important thing was that there is a direct relationship between the state of our housing and the level of control that we have over it.

It’s really that simple. The horrible conditions that we see on the reserve are a symptom of the root problem: lack of control over our housing affairs.

In Canada, First Nations face a choking bureaucracy—mostly CMHC (Canada Mortgage and Housing Corporation)—that is ill-equipped and not structured to support the complex issues facing on-reserve housing.

To illustrate the linkage between autonomy and performance, let’s look at our neighbours, the United States, and their experience with Native American housing.

In the United States, the Native American Housing and Self Determination Act (NAHASDA) was passed in 1996 and has since achieved excellent results. Prior to NAHASDA, United States tribal housing was much like Canada’s: widespread poverty, horrible living conditions and massive underdevelopment.

But the enactment of NAHASDA led to a remarkable turnaround in the Native American housing sector. With greater autonomy—through less restrictive block funding that is controlled and distributed by Native Americans—today’s tribal homes are in far better shape. Today, three times as many homes are being planned and built on tribal lands. Furthermore, tribal members give an 87% approval rating to the NAHASDA. The Act has also led to improved Tribal-US government relations, with respect to Indian housing.
NAHASDA is widely considered a success and was reauthorized in 2001 and 2008.
The most important aspect of NAHASDHA is that it allows each US Tribe to determine its own housing needs and to act on those needs in a manner that they know will work best for them.

Obviously, there is ample precedence for devolving programs from the Canadian government to First Nations. The recent transfer of British Columbia’s entire First Nations health portfolio is one example.

Thus, Canada needs to take a closer look at the Native American Housing model. And let’s not forget what underpins that model; it’s called a “Self-Determination” act for good reason.

Even if the Canadian government suddenly shifted its policy in First Nation Housing, it would take years to get this issue turned around and headed in the right direction. In the meantime, many First Nation families are suffering from depressing, unacceptable living conditions.

In addition to sweeping changes needed in the government-First Nations housing relationship, we must establish interim measures to help alleviate this crisis. I cover this in my next two articles.

This article was for national housing leaders and those who can influence them.
In my next article, I will write to First Nation community leaders, on what they must do to make the best of a bad situation. My final article in this series will be for First Nation homeowners and tenants.