FIRST WE TRIED TINY CONDOS, NOW ARE TINY HOUSE RENTALS GOING TO HELP OUR HOUSING CRISIS?
The latest is a report from the Task Force for Housing and Climate, which is made up of politicians, academics and private sector stakeholders, with over 140 policy actions they recommended for federal, provincial and municipal governments.
While all of this effort is welcomed given the extent of our housing affordability crisis, it once again shows that good intentions alone are not enough when it comes to housing policy. It takes very little for policies to incentivize the wrong behaviour in the market rather than the behaviour we want to see.
Take for instance, the task force’s recommendation to eliminate unit maximums on all forms of residential housing.
First, some background on our need for more family-sized housing supply in Ontario and other regions of Canada, that is, homes large enough to accommodate a 4-person family.
Most family-sized homes are currently low-rise homes (detached, semis, rowhouses) and the number built yearly has declined over the past twenty years, from 50,000 annual competitions to under 30,000.
Where such homes already exist, many have advocated for more permissive zoning to allow more low-rise options to fill the gap.
In most municipalities in Canada, the vast majority of land allocated for residential housing only permits single family homes, particularly detached homes. The federal Liberal government’s Housing Accelerator Fund requires municipalities to remove this single-family zoning restriction by allowing up to four units on any residential lot to access funding. The City of Toronto legalized fourplexes throughout the city in 2023.
A fourplex that permits up to 1,500 sq ft per unit (as an example) would allow one single-family owner-occupied home to be converted into four family-sized units.
While some home owners may look into this as a solution to housing multiple generations of family together, this move is largely meant to encourage investors to provide more low-rise housing options for rent.
The Task Force’s recommendation appears to be rooted in the belief that governments should get out of the way and let investors build whatever type and size of housing is most profitable — if we are encouraging four units, where there was once only one, why not encourage as many as possible?
If unit maximums are removed, that same investor could build 15 to 20 small studio apartments rather than four family-sized units, or more likely, any number in between.
While this sounds good in theory, we have already seen why this move did not help provide family-sized housing rental units as was hoped for during the GTA’s condominium (condo) boom over the past few decades.
Stepping out of their past role of building permanent rental housing, all levels of government in Canada had hoped that mom-and-pop investors buying condo units would provide some of this needed family-sized housing. But instead we have seen the ever shrinking size of condo units instead; investing in small micro condos of 500 sq foot allows an investor to acquire more and rent out each for more than can be collectively charged for a larger unit. Families have effectively been shut out of this supply boom because it’s more lucrative to build tiny condos than family-sized condos.
Now we risk re-running the same ineffective play in the low-rise home segment of the market.
Building five 300 square foot studio apartments could earn significantly more revenue than one 1,500 square foot apartment (while the former would mean more construction costs, the additional revenue earned over time would offset this).
Does this mean lifting unit maximums is a terrible idea? Not exactly!
My argument is that lifting unit maximums on every residential lot in every region in Canada so that ‘the market can do its thing’ is risky.
But in some cases, lifting unit maximums with conditions may be an optimal strategy for building the homes and communities we need. If governments want to rely on the private sector to build student housing near universities and colleges, lifting unit maximums may be an appropriate strategy to build small, less expensive rental units that meet students’ needs.
In other cases, in areas of large lot sizes which permit a relatively high interior square footage for each unit, increasing maximum unit sizes would be an optimal strategy. For example, a property permitting four 2,500 square-foot units may be uneconomical to build because the rent on such a large unit may not be adequate to support the construction costs. But if the maximum number of units for a property like this is increased to eight units each 1,250 square-foot in size the project is more likely to be financially economical for the investor and can result in eight family-sized rentals.
After years of restrictive zoning requirements that has stalled our ability to build denser housing and the communities we need, it’s understandable that experts and eager politicians hope that the unleashing the market will provide a win-win solution to our housing shortage.
However, as with far too many of our housing policies, it’s this failure to understand and forsee the full dynamics of market when it comes to housing that has contributed to our shortages in the first place.
Proceeding recklessly now will only ensure the same unintended consequences and worsening housing crisis.
Story by: Move Smartly
