It was a rainy fall day in October 2015. I was inching through downtown traffic when an agent from one of our offices called me. One of my jobs was to help our agents when they had clients who had real estate needs outside of our service area.

“What’s the situation?” I asked. The agent explained that her friend and her friend’s husband had both died of cancer within some 12 months of each other, orphaning two young children. The children were being adopted by an unmarried uncle on the other side of the country. While he was a successful professional with a well-paying job, his urban bachelor pad wasn’t going to be sufficient, especially since he was also in the process of relocating his parents from Europe to the United States to help him raise his nephew and niece. 

We worked closely with our affiliate in the destination market to find an agent who was very knowledgeable about real estate and, importantly, also deeply empathetic. Around six months later, an email arrived containing a very rewarding photo: the uncle, his parents and the children smiling in front of a generous suburban home, on a snowy day.

Part psychologist, part salesperson: Transactions often weighted with emotionally fraught situations

It has been said before and it bears repeating: a home is the biggest investment most people will ever make — an investment often weighted with emotionally fraught situations. This combination tends to lead to intense and transparent interactions.

The best agents will readily tell you they are part psychologist, part salesperson. On a recent listing presentation, one of our agents spent hours with a woman who was going through a nasty divorce, listening to her and advising her gently on what small improvements and tweaks she could make to increase the saleability of her home. Our agent may or may not get the listing assignment, but she knows on a human and professional level that she’s truly been of service. 

Dealing with the ‘3 Ds’: Divorce, death & debt

In the course of working with their clients, real estate agents often encounter the “3 Ds”: divorce, death and debt. While it may sound trite, it isn’t: these are delicate human situations of almost sacred importance.

With most professionals — dentists, lawyers, accountants — if you need to meet them, you go to their office. But agents often come to their clients’ homes, even if they’ve never met them before.

They’re invited in, literally and figuratively into all the joys and misfortunes it contains. They help a couple find a new place for their growing family, the living room where their child will take his first steps, the bedroom where their daughters will sleep. For another family, they help navigate a marriage breakup and the division of the home — what is (usually) the biggest financial asset and also the one with the most relational baggage.

The soul of the real estate agent (it’s not the legal framework and compensational mechanics we see in the news)

Organized real estate has been much in the news over the last year. The class-action lawsuits in the U.S. and similar, earlier-stage actions in Canada focus industry and media attention on the legal framework and compensational mechanics of the real estate business.

For agents, these factors are background noise, secondary to the trusted advisor work they perform on a day-to-day basis. Good agents don’t do it for the money; they do it because they love to help people, even (or especially) in complex, tragic and delicate situations.

Making a living is a byproduct of the help agents offer families — this is the soul of the real estate sales professional.

As political parties jockey for position in advance of the next federal election (taking place in October 2025, at the latest), the housing supply in Canada continues to be a major topic in the public discourse.

Since the last election, the Liberal Government launched several major housing-related initiatives. These include a $4 billion Housing Accelerator Fund (HAF), and more recently a $6 billion Housing Infrastructure Fund (HIF), intended, among other goals, to provide Provinces and Municipalities with alternate sources of funding to the infrastructure-related charges often imposed on housing developments.

And, the recently announced 2024 federal budget contained a slew of housing-related commitments and allocations, including plans to explore utilizing government-owned land for housing development. 

Fund distributions require long, labourious processes — we need clearer, bolder steps

In the shadow of a forthcoming election and the climate of generalized discussions about a housing crisis, the federal government clearly feels the need to be seen as “doing something.”  It’s important to remember, though, that the legal mechanics of housing delivery are typically a municipal prerogative: development, building, electrical, plumbing, occupancy and other permits are all issued by local governments. 

Generally, the federal government isn’t directly involved in approving new housing. Accordingly, the funds mentioned above mainly operate to incentivize certain policy directions at the municipal or provincial level (i.e. allowing multiplex residential zoning, as of right).

Distributions from these funds require applications, negotiations and bureaucratic interplay between different levels of government — inherently non-alacritous and labourious processes which may explain why, for example, the HAF didn’t make its first funding announcement for almost a year and a half. Veteran housing analyst Steve Pomeroy estimates the HAF will have a limited impact on the immediate housing supply.

Since the federal government clearly has both an impetus and a desire to facilitate an increase in the housing supply, perhaps it’s time to consider clearer and bolder steps.

A federal CAC subsidy

Municipalities collect Community Amenity Contributions (CACs, sometimes also known by other names, like Density Bonus payments), the monetary or “in-kind” contributions developers make for increased density on a development site. For example, CACs would come into play when a developer wants to build a 12-storey building with a commercial and residential component, in an area currently zoned for four storeys of residential. 

Ostensibly, municipalities put CACs towards the community infrastructure required by increased residential density: parks, community centres, etc. Instead of adding costs to the housing supply, the federal government could step in and fund the CAC contribution.

A missing-middle project on the west side of Vancouver entails a CAC of some $70,000+ per unit (over and above the Development Cost Levies (DCLs) already charged for infrastructure upgrades). An average condominium unit in Vancouver’s Broadway Plan area would carry a CAC of somewhere in the range of $80,000 per unit. In recent years, municipalities like Toronto and Vancouver collected hundreds of millions in cash and “in-kind” CACs.

Under a federal CAC subsidy program, municipalities would:

1. reference the new homes approved and delivered in their market,
2. outline the CACs they would have charged and what they would have spent them on (e.g. a new community centre) and
3. ask the federal government to provide the funding.

This proposed framework is an extension of an existing rationale within the HIF process, which ties funding to a three-year freeze in development charges. Granted, a federal CAC subsidy would entail administrative oversight, but at least it would also have a tangible impact on affordability by removing the CAC cost layer from housing supply.

Eliminate the GST on all forms of housing

The government took a step in the right direction with the removal of GST on rental developments. However, bearing in mind that according to the CMHC, we have a chronic undersupply of housing more generally, the federal government should consider eliminating GST on all forms of housing.

Many fundamental goods and services are already GST-exempt, including certain food items, medical and dental care and basic financial services. Given that shelter is a fundamental need, why shouldn’t it also be exempt from GST?

Whereas at least CACs and DCLs contribute to the civil and community infrastructure that supports housing density, GST merely increases the cost of shelter for the end user. For a new unit of housing valued at $700,000 (approximately the current national average housing price according to CREA), the GST would be around $35,000.

Granted, there are some GST rebates for lower-priced homes, but these are only partial. Eliminating GST on shelter requires no bureaucratic administration and will directly and simply reduce the cost basis of the housing supply. 

Funding CAC contributions and removing GST present clear and present opportunities for the federal government to “move the needle” on housing affordability. Sometimes, simpler is better.

In the fall of 2023, with a stroke of the legislative pen, British Columbia’s government rezoned most single-family neighbourhoods in the province to permit 3 to 6 units per lot.

Policy move to address ‘missing middle’

It’s an ambitious and sweeping policy move, intended to increase the housing supply and address the “missing middle” of the housing continuum — that gap between increasingly unaffordable single-family homes and small condominiums. Municipalities have until June 30, 2024 to align their bylaws with this provincial legislation.

The multiplex trend and restrictive land-use policies

In recent years, Vancouver and Victoria had already approved broad-swath rezonings to enable “multiplex” (duplex, triplex, etc.) development in single-family areas. This multiplex trend is not isolated to Western Canada, with municipal and regional governments across North America passing similar laws, including Toronto, Minneapolis, California and Oregon.

A 2023 report from the Canadian Mortgage Housing Corporation (CMHC) highlighted restrictive land-use policies as a contributing factor to elevated shelter costs in general, and in Vancouver and Toronto (Canada’s two most expensive housing markets) in particular. In this context, “blanket” upzonings can give builders a legible pathway to creating more residential density in undersupplied areas.

The planning rationale: An example

To help us understand the financial and urban planning rationale behind “missing middle” zoning, let’s review a representative example of an 11,000 square foot (sf) lot in Vancouver, currently improved with an aging 4,000 sf home.

Vancouver’s multiplex zoning permits a floor-space ratio (FSR) of 1, meaning you can build 11,000 sf on this lot, or six units of just over 1,800 sf each. Now we have six homes instead of one, some or all of them suitable for a young family, nestled on a tree-lined street.

In a major metro region like Toronto or Vancouver, these homes wouldn’t be cheap, but they would be materially more affordable than a new single-family home in the same neighbourhood. Even factoring in today’s elevated construction and financing costs, this sample project is, most likely, viable. It can get built.

Several fees apply

However, in our example, in addition to the typical slew of government fees (including Development Cost Levies, or DCLs, which contribute to infrastructure upgrades), the builder would have to pay a density charge to the municipal government of over $460,000 (or $76,000+ per unit). The purchaser would also have to pay GST to the federal government on the finished home. The quantum of GST would vary with the purchase price, but in this case would likely exceed $100,000 per unit.

Multiplex projects also incur other fees over and above what would be required to construct a single-family home on the same parcel, including development permit fees. These extractions make “missing-middle” projects both less feasible for the builder and more costly for the end-user.

The broader issue

This relates to the broader issue, explored in an earlier article, of the costs and restrictions imposed by various levels of government on the supply of housing. Given the numbers cited above, government charges are likely a contributing factor (along with design constraints) to why there have generally been relatively few projects initiated under multiplex zoning provisions. 

How ‘missing middle’ policy has played out

According to housing journalist Uytae Lee, in the first 11 months after California’s enabling legislation came into effect, there were just over 280 “missing middle” permit applications submitted – in a state with a population of some 39 million people. 

Closer to home, in Victoria, B.C., there were merely three applications in the first six months after the introduction of multiplex zoning. One builder, cited in a Postmedia report, indicated that the Victoria policy’s design parameters (including setbacks and height) created “unbuildable conditions” for multiplex projects. (It should be noted that the low uptake prompted Victoria’s city council to drastically revise its “missing middle” program last September.)

And while it’s too soon to judge the efficacy of Vancouver’s policy (which came out last fall), in the context of already elevated construction and financing costs, it’s fair to say that project feasibility and unit affordability are not enhanced by the taxes and charges outlined above. 

We have to decide what we want. Since it’s clear that we have a chronic under-supply of housing, we should remove unnecessary design barriers and reduce government fees and charges, starting with those that are extraneous to the infrastructure enhancements required by increased housing density. Otherwise, bureaucratic extractions and constraints will continue to impede much-needed supply in the middle rungs of the housing ladder.

Over the last few months, Prime Minister Justin Trudeau spoke repeatedly about a Canadian housing crisis and the need to “build more homes, faster”. The removal of GST on purpose-built rental buildings was a good step, and a tangible manifestation of the political impetus to increase the supply of housing.

What’s happening

In the residential property market, transaction activity is down 15 per cent nationwide, and more in some markets. However, as my colleague Tony Letvinchuk pointed out in a recent Post Media interview, the transaction volume for residential development land is down much more substantially.

While data is somewhat less available for commercial real estate transactions, reports from Altus Group and others indicate an annualized slowdown in building land sales activity of some 40+ per cent in Toronto and 80+ per cent in Vancouver. This relates to other ongoing challenges to project feasibility faced by builders, including an increase in construction costs of approximately 50+ per cent since 2020, and increased financing costs (resulting from the rise in interest rates).

Increasing costs correspondingly decrease the amount that a developer could pay for a prospective site, contributing to the dramatic decrease in transactions of residential development land.

What it means

What are the implications of the slowdown in development land activity for the supply of housing? As discussed in a previous article, urban centres like Toronto and Vancouver are already facing rental vacancies in the low single digits.

Plus, according to Canada Mortgage and Housing Corporation (CMHC), Canada’s housing supply is on track to be several million units short of the level required to promote broader affordability. In June 2023, the Canadian population surpassed 40 million. It’s expected to continue to grow, primarily through immigration.

In the context of these factors, the precipitous drop in land sales is worrisome. A typical residential mid-rise project takes approximately five to seven years to complete, from land acquisition to occupancy. If developers aren’t buying land now, then — in the presence of continued population growth — the shortfall in housing supply could very conceivably be worse in a decade than it is today.

What can be done

So, what can policymakers do? While some factors — for example, the global supply chain of certain construction materials — may be largely outside their influence, the various levels of government do control the fees and taxes levied on development and construction of new homes.

Echoing a similar study in Ontario, a May 2023 report from tax consulting firm Ryan found that direct government fees, levies and charges constitute a staggering 29.25 per cent of a typical new Vancouver condominium’s cost. In other words, government fees make up about $327,000 of the cost of a new $1.12 million housing unit.

Instead of further increasing costs — as, for example, Metro Vancouver did in October with a significant “Development Cost Charge” increase — all three levels of government should reduce charges and taxes wherever possible. This will make housing more affordable and support the viability of prospective housing projects.

According to RBC, in 2000, home ownership costs accounted for 36.6 per cent of median Canadian HHI; this figure rose to 41 per cent in 2016, and by the Fall of 2022, it was at more than 60 per cent. The average unit price of housing in Canada increased more than 100 per cent in the last decade, from $365,700 to over $760,000. The Canadian Mortgage and Housing Corporation (CMHC), indicates that the national rental vacancy rate at the end of 2022 was 1.9 per cent, its lowest point since 2001. 

Population growth continues to outpace housing supply

Government has not been passive in the face of these challenges, approving various laws and regulations aimed at controlling the price of housing. These include, for example, British Columbia’s 20 per cent foreign buyer tax (first introduced in 2016) and the federal government’s 2023 nationwide foreign buyer ban. Yet, after years of successive governmental interventions, housing has become neither more affordable nor more abundant.

A recent article highlighted the correlation between Canada’s continued population growth and rising housing prices. In June of this year, our population surpassed 40 million and is estimated to reach 50 million by 2043. 

A study by Coldwell Banker Richard Ellis found that over the last 60 years, population growth consistently outpaced the growth in the housing stock. Looking ahead, CMHC estimates that, in order to support affordability, Canada will require 22 million housing units by 2030. However, at the current rate, the housing stock is only estimated to grow to 19 million units by that time — a shortfall of some 3.45 million units nationally. 

“In the context of this chronic undersupply of homes, banning — or heavily taxing — foreign buyers can actually exacerbate the underlying housing shortage.”

In the context of this chronic undersupply of homes, banning — or heavily taxing — foreign buyers can actually exacerbate the underlying housing shortage. Hold on a minute, some will say: shouldn’t precluding foreign investment leave more units available for local buyers? With respect to the supply of multi-unit “for sale” residential property (condos and townhomes), the answers are found in how projects are financed.

Generally, in order to obtain construction financing for condo and townhome projects, developers must achieve a volume of pre-sales commensurate with the quantum of the construction loan required. Regulations that artificially reduce the size of the potential pre-sale and investment market can make it more difficult for projects to achieve financing, therefore constraining the rate of housing delivery. 

Such a constraint poses implications not only for homeownership but also for the rental market: of the total rental housing stock, condos (as distinct from purpose-built rental buildings) constitute 19 per cent, nationally. In other words, lessening the supply of condos worsens the shortage of rental accommodation. This relates to the waterfront of “unintended consequences” of housing policy contemplated by CIBC Economist Benjamin Tal, as cogently described in a REM piece from earlier this year.    

“… the only way to meaningfully address housing affordability.”

The urgent policy priority for government should be aligning the business imperatives of housing developers with a regulatory framework that promotes increased volume and velocity in the supply of housing (as an aside, the recent removal of GST on rental buildings is a step in the right direction). This alignment — and not new taxes or restrictions — is the only way to meaningfully address housing affordability.