New housing developments offer rental income to offset mortgage costs
As Canada grapples with a housing affordability crisis, real estate developers are getting creative to make new-build homes more “attainable.”
Ready-to-rent additions, or rental units built within new homes, may offer a practical solution to making homeownership more achievable in a challenging market, said Sean Mason, a developer in Bracebridge, Ontario.
Mason’s new project includes 36 townhomes, where homebuyers can secure a unit with a 10% deposit and benefit from mortgage terms amortized over 35 years. These homes, priced in the “high-$700,000s,” come with an additional rental apartment.
“It makes the larger units very attainable,” Mason told The Globe and Mail. “We think you can rent [the add-on unit] for as much as $2,500.”
The idea is to provide a built-in revenue stream to help offset the cost of the mortgage for buyers, similar to a homeowner renting out a basement apartment. Mason believes this dual-purpose design could make it easier for potential buyers to commit to a preconstruction contract.
This new feature can also add 19 much-needed rental units to Bracebridge, a town of about 15,000 people.
Community in crisis
Bracebridge, known for its seasonal attractions like Santa’s Village, has experienced a significant surge in home prices. The Canadian Real Estate Association reported that the benchmark price of a single-family home in the Lakelands district, which includes Bracebridge, was $477,400 in 2019.
By March 2022, this figure had nearly doubled to $901,900. Despite recent declines, the price remains high at $753,700 as of June 2024.
Arfona Zwiers, commissioner of community and planning services with the District Municipality of Muskoka, highlighted the challenges in making housing more accessible.
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“Housing that is going to be more accessible to people who need more affordable housing is multi-residential and sometimes smaller, and without luxurious upgraded finishes,” Zwiers said. “That housing may not be attractive for some developers to build.”
Lost rentals
The skyrocketing home prices have also impacted the rental market.
“You’re not getting a lot of multiunit housing. People who bought or inherited a second home were renting those out,” said Jayson Swain, a staff lawyer for the Lake Country Community Legal Clinic. “When the real estate market took off, landlords were tripping over themselves to sell. We lost a lot of supply through purchaser’s own-use evictions.”
With a vacancy rate of just 2%, and effectively zero in some areas, Bracebridge faces a severe rental shortage. Swain noted that many landlords are using loopholes to evict tenants and raise rents to market rates, leading to a surge in “own use” evictions.
Swain described the situation as dire, with tenants forced into substandard housing options, such as one-room bunkies without proper cooking facilities, renting for $1,600 a month, and even a converted chicken coop.
The community has seen a rise in homelessness, with 114 unhoused people living in encampments. The waitlist for affordable rentals exceeds 475 households.
In response, Bracebridge has developed a housing strategy to build 44 affordable rental units on community-owned land.
Zwiers estimated that changes to planning processes and developer incentives could lead to 450 new housing units in the next four years, potentially more with additional government funding.
Mason believes his townhomes, with their ready-to-rent features, represent a forward-thinking approach to small-town housing.
“Small towns like Bracebridge, more than two hours from expensive cities like Toronto, have traditionally prioritized single-family homes on large lots. But that type of housing is becoming unattainable for many residents,” he said.
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