A new company backed by a former Bank of Canada governor wants to help Canadians co-own real estate through investments valued at just 2.5 per cent of a property's value.
The goal of Key, a Toronto-based company that launched Tuesday with Stephen Poloz as its global advisory board chair, is to help people build home equity years sooner and without being locked into traditional mortgages that can be hard to obtain without savings.
"Young people, new Canadians, frontline workers, they're stuck renting for most of their adult lives and the dream of being able to afford to buy a home shifted away from people," said Key chief executive Rob Richards.
When Richards, a general partner at Plaza Ventures, and co-founder Daniel Dubois, an ex-manager at Airbnb, started thinking about creating the company in 2018, they found it took about 21 years for the typical first-time Canadian urban homebuyer to save up for the recommended 20 per cent down payment.
The average time is now more than 30 years because national home prices have skyrocketed to an average $716,585 last month and can stretch to more than $1 million in places like Toronto, real estate bodies have said.
Richards and Dubois think they can tackle these prices with a model that starts with Key identifying attractive properties and getting their owners and institutional investors on board.
Then Key signs contracts with people who want to live in the properties, effectively making them co-owners with the investors and property owners.
The people who move in contribute as little as 2.5 per cent of the property's value to live there, plus additional monthly fees.
For example, a one-bedroom, one-bathroom suite measuring 52 square metres (563 square feet) the company is advertising at 400 Adelaide St E will involve a $13,425 initial investment.
Monthly fees for the suite valued at $537,000 sit at $1,911.01, with the bulk being funnelled to maintenance, taxes and residency costs and a small portion going toward their equity.
Each time owner-residents invest more, they own more of the suite, which also reduces their monthly rent equivalent.
The company makes money through professional property management and by driving efficiencies in how suites are managed.
Residents can buy the property they are living in and take on a mortgage after the third year.
If the resident decides to move out, they can do so as long as they give 75 days notice and when they leave, they'll receive their home equity plus any appreciation.
Based on how the Toronto real estate market has performed over the last five years, Key estimates its residents' equity will appreciate by 30 per cent over the next half decade.
"They're attaching themselves to the price, so that if the price continues to go up, at least they're not missing out of that potential," said Poloz.
He thinks that's important for many people yearning for flexibility and the chance to own equity in something tangible, even if they aren't wealthy or don't have plenty of money squirrelled away.
A desire to help people who that feeling will resonate with is part of why he opted to join Key, after leaving the Bank of Canada in June 2020 and landing numerous positions with big name companies.
"I was saving some capacity for things I'm a little more passionate about and this is one. This is something I really care about," he said.
"I care basically about the risk that people take on every day when they decide we got to get into the housing market."
While he thinks it will take some time and education for people to adopt the Key model, he thinks the need for such a service is there and is surprised no one came up with it sooner.
Despite Key just launching in Toronto, Richards and Dubois have worldwide ambitions because rising housing costs are an issue everywhere.
"We need to give people making $60,000 or $70,000 the opportunity to get a leg up," said Richards.
"It really is a global problem and we are going to be a global solution."