Supply shortage could see those home types become more prominent
Prospects for an imminent surge in housing starts across Canada’s major cities appear dim, a reality that some believe could spur an uptick in financing requests for construction of laneway homes.
Those properties – detached secondary suites built into existing lots – are viewed in some quarters as a viable means of improving the housing supply outlook at a time when the pace of home construction shows little sign of consistent improvement.
That could present new opportunities for mortgage brokers, according to a top executive in the banking space who believes Vancouver and Toronto in particular could benefit from a jump in laneway construction in the coming years.
Andrew Moor (pictured top), president and chief executive officer of Equitable Bank, told Canadian Mortgage Professional that the concept could prove an effective way of easing the supply logjam across those cities.
That would allow densification within city centres, he noted, rather than building further into the outskirts of the urban sprawl. “One of the ways to [do that] is build additional structures where people can live on smaller housing footprints,” he said. “We feel this is good. These can build more vibrant kind of local cities using this approach.”
Is laneway construction on the rise?
BC’s provincial government recently unveiled a new pilot program to boost secondary suite construction, hoping owners would then rent those properties out below market value.
In Toronto, however, the city rolled back its Affordable Laneway Suites pilot program, a similar scheme to forgive construction loans in exchange for below-market rent, in 2022.
Construction of so-called garden suites in the city has also lagged. As of February, just six of those suites had been completed from 244 applications over the previous two years, according to CityNews.
Even with interest rates trending downwards, and the income required to purchase an average home across the country declining slightly, Canada’s overall housing affordability outlook remains dismal.
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 6, 2024
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Equitable recently launched a new program for laneway home construction in the Greater Toronto Area, Greater Vancouver Area and Calgary, one Moor said had arisen because of the difficulties interested parties appeared to be facing in securing a loan for that type of building. “It has been challenging, as our understanding, to get the financing,” he said, “so people who’ve got a great project end up dealing with private finance. It’s obviously more expensive than dealing with a bank.”
Brokers shouldn’t hang their hat on a huge upsurge in business on the laneway construction front in the years ahead, Moor cautioned, although it’s undoubtedly a good option to have. “It does feel like this business is getting all this opportunity – big enough that we should institutionalize it,” he said.
“The way we’re thinking about it is not so much that we’ll do a huge number of these loans, although hopefully we’ll do a fair number of them. But it’s really about supporting our brokers and giving them another product to be more effective in the journal.”
In a new catalogue of 10 standardized home designs released by the BC government to help lower small-scale multi-unit housing costs, three designs included were concepts for laneway homes.
Few grounds for optimism on overall construction outlook
Focus on laneway home construction and other innovative housing types has intensified with overall housing starts this year remaining mired well below the pace set in 2021 and 2022.
Canada Mortgage and Housing Corporation (CMHC), the national housing agency, estimates that at least 3.5 million additional housing units are required by 2030 on top of the current pace to restore affordability – but economists surveyed by Bloomberg expect the annualized rate to increase to just 264,000 next year.
Actual year-to-date housing starts in Vancouver have fallen by 18% this year compared with 2023, CMHC said (although it noted last year saw a record for new home construction there) while in Toronto, that measure has dipped 9.5% year over year.
Unsurprisingly, homebuilder sentiment across the country is continuing to plunge against that backdrop. The Canadian Home Builders’ Association (CHBA) revealed a glum outlook among homebuilders on their future prospects – especially in Ontario and BC.
In those provinces, housing confidence on the single-family front was described by CAHB president Kevin Lee as “abysmal”, with a bleak future in the cards. “Everybody knows that Ontario has the largest housing deficit,” Lee told CMP, “and we’re not going to [improve] at this rate. In fact, it’s getting worse right now.”
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