Welcome to my blog on housing, culture, and design! I’m Steve Fudge and I’m celebrating over three decades as a realtor and property consultant in Toronto, Ontario, Canada.
Sound the gong! Pop the confetti cannon! After much debate and anticipation, in May 2023 the City of Toronto introduced the ‘as-of-right’ to permit multiplexes up to four units in locations that were previously the domain of single-family dwellings! Here’s what the Globe & Mail had to say –> “Toronto City Council Approves Up To Four-Unit Multiplexes In All Neighbourhoods“.
This Zoning By-Law Amendment comes at a critical time in Toronto’s housing history, and is the result of a ‘Multiplex Study’ that was part of Toronto’s Expanding Housing Options In Neighbourhoods Initiative. The amendment permits multiplexes to be built in all areas designated Residential. The hope is that this will help ease the housing crisis by densifying neighbourhoods formerly occupied by predominantly single-family dwellings in ‘yellowbelt neighbourhoods‘ and diversifying options for Toronto residents.
Prior to this multiplex policy, one could have an accessory suite (basement apartment) in their residence and, providing it meets the required setback and access criteria, a laneway dwelling (as of 2019) or garden suite (as of 2022). Now one will be able to construct four units and, if done strategically, also a laneway or garden suite.
The height limit for residential buildings has also been increased to 10 metres – which is a height limit that already exists in some, but not all, city neighbourhoods. East York, for example, has historically had a height limit of 8.5 metres. Also, the as-of-right allows for up to two porches/decks/balconies per unit (which are sensible fire escapes) and they’ve also lifted restrictions on multiple front entrances for secondary suites.
In other words, before this new as-of-right, anyone adding a basement apartment could not install a door that faced the street unless it was pre-existing. This is because, historically, public sentiment (more like ratepayers) believed two doors to two units facing the street in a single-family neighbourhood was quite unbecoming!
Because Toronto Will Always Need More Housing
For over three decades, I’ve recommended purchasing freehold property in the central core anticipating that one day the City would increase the permissible density. After all, this is how cities grow. And given Toronto has become the new global frontier, demand will always be high – notwithstanding the occasional market wobbles that accompany things like pandemics and quantitative easing. The reality is that the scarcity of land relative to the estimates of population growth means the incoming supply of shelter will have to be created in more innovative ways. As a result, owning land represents a huge opportunity. The strategy to ‘buy & hold’ is a fundamental truth for Toronto real estate. And it will remain this way for decades.
With this new multiplex as-of-right, these properties will see their value increase because one can theoretically generate a greater return on investment, either through the creation of more income or more profit. For example, the construction of four condominium units will generally garner higher sums in total than the sale of one single-family dwelling on the same site. Incidentally, even had multiplex permission not been granted, the resulting scarcity of centrally-located single-family dwellings relative to the number of mid and high-density condominium units being constructed to accommodate a growing population would also inevitably increase the value of a property. In fact, it’s feasible that over time the single-family compound may get an even higher premium as it becomes rare. But this is decades away. Rule of thumb: having several hundreds of condo units lining your nearest arterial roads has all those occupants overlooking low-density residential neighbourhoods coveting a residence terra firma (even if there will now be 4 or 5 units on a lot)!
For win-win always anticipate opportunity.
Multi Units Again, But Different
While the multiplex in Toronto may seem new, it’s not. First, I don’t know exactly when the City of Toronto catalogued every dwelling for taxation purposes (does anyone know whether it was in the 40s, 50s, 60s, or 70s?) but Land Registry does identify many originally-constructed single-family dwellings as ‘Legal Non-Conforming’ duplexes, triplexes and multi-units because they were being used as such at the time the City was creating its taxation records.
There are also many areas in the central core where purpose-built multiplexes exist including established affluent neighbourhoods like Rosedale, Moore Park, and Chaplin Estates that were constructed in the 1920s through 1940s. And there are the ubiquitous ‘Toronto Special‘ duplexes to fourplexes constructed in the 1950s and 1960s that pop up as infill dwellings and in locations like St Clair West, Eglinton West and East York.
The city also has a history of allowing the severing of lots and, in the 2010s we started seeing –> Single Family Houses Being Replaced By Boutique Condo Townhomes (but this early trend hasn’t been embraced by developers). So don’t be clutching your pearls and gasping like multiplexes are a Quel Surprise, ok?
Will The Ability To Create Multiplexes Help Or Hurt Affordability?
While introducing more supply into the market should help demand, whether it helps keep prices more affordable is debatable as this Better Dwelling article explores –> “Toronto’s Real Estate Bubble May Have Just Got A Price Floor From Politicians“.
As this article states, real estate values are ultimately dictated by the “highest and best use”, which in this case means that what had been previously allocated for single-family homes, will now have the opportunity to house up to four units (+ garden suite or laneway home) which will propel property values upwards. This is true over the long term because any change in urban land use that allows more units and/or more density in-demand locations will go up in value. But there are a couple of factors to consider.
First, the escalation in the value of single-family sites will not be instant. It will take time for the tide of values to turn, and the amount of price appreciation will depend on a host of other factors including location, lot size, and market demand.
Second, although the value of the land will increase, the fact these single-family sites can now have four units+ means that more economical housing options will be available to the population at large than if the site only contained one single-family dwelling that had a total square footage of all four units combined (which is effectively what the as-of-right policy allows).
It Takes Time
Just because the opportunity to make a single-family property four units do not instantly drive a property’s value up.
First, this portends that developers and investors have deeper pockets than end-users, which simply isn’t the case. The end-user – typically a household of two or more purchasing for their principal residence – is the dominant buyer profile who has been locking down single-family dwellings in Yellowbelt neighbourhoods for decades. The demand for shelter by this group is abundant. And the price they pay doesn’t have to take into account soft costs, hard costs, and required return on investment into a proforma to determine if they can make a sufficient margin of profit for it to be financially feasible.
Nor do they have to ensure they’re attaining a certain cap rate to make it an intelligent investment after calculating the rents against their maintenance, repair, and operating expenses. Instead, the price they pay is one based on the possibility of four evaluating factors: 1) the rational prudent educated assessment of value based on nearby comparable sales; 2) the emotional premium for a particularly appealing ‘prince charming of bricks and mortar’, whatever that may be; 3) the motivation price to secure it when the buyers may imminently have nowhere to live other than with their in-laws and; 4) the exhaustion sum that accompanies buyer’s fatigue of trying to secure a purchase. Here’s my post called –> The Four Values Of Real Estate For Bidding Wars And Bully Offers In Any Market Climate (Plus Cats!).
At the time of writing this article, I am not aware of any study that analyzes property values before and after the introduction of as-of-right laneway housing in 2021 or as-of-right garden suites in 2022 in the City of Toronto that can demonstrate prices increased directly because of these value-added uses. Theoretically, properties that can accommodate these new shelter typologies should be worth more. However, they’re still relatively new so consumers, and even those in the shelter economy, are challenged on exactly how to calculate their worth.
It’s understandable, because not only does one have to weigh the hard and soft costs of building the dwelling against the income it can earn, but make some arbitrary assumptions about what the land the accessory dwelling is located on is worth when it can’t be severed from the primary residence. Furthermore, these housing typologies are recent so consumers haven’t been exposed to enough to this emerging niche market to peg a premium, especially when there are many variables to account for in a fluctuating market including a property’s lot size and its location; the size and condition of the existing dwelling; whether it has on-site parking in the form of front-pad parking, a mutual drive, a private drive or laneway access, but also the motivation of the Seller to sell and the desire of the Buyer to secure this particular parcel of land.
Furthermore, developers tend to be reluctant to take big risks on an untested market rather than building the ‘tried and true’ to garner an anticipated return on investment. Exactly how much profit margin is possible by creating multiple units is not a certainty given it’s a much more complex process (including navigating the bureaucracy that is city hall) than substantially renovating an existing single-family dwelling for a future single-family buyer. In a time of increasing hard and soft costs, it will take at least 3 to 5 years for developers to witness how early adopters are performing before it takes off. And only then will we be able to quantify whether redeveloping former single-family dwellings into multiunits is garnering superior returns. And if the answer is yes, is that still really a problem? It still creates more housing regardless of price point and, truthfully, we need housing of all types as much as ‘affordable housing’, right?
Unfortunately, ‘Affordable Housing’ Isn’t ‘Market Housing’ Anymore In Toronto
I believe housing is a right, not a privilege, just as education and health care are in Canada. I also believe in a Universal Income for all Canadians. Despite my beliefs, because I’ve been a realtor during a decades-long Housing Crisis – I am vilified for being ‘part of the problem’. And I acknowledge this in my March 2021 post The Affordability Conundrum For Toronto House Buyers: Location, Condition & Costs.
However, there are much bigger fish to fry than little ole me. Not too long ago I was being interviewed by some York University Academics (I am a graduate of York University’s Faculty of Environmental Studies) about Affordable Housing in Toronto where I expressed my disdain towards Canada’s 3 Levels Of Government In Shaping Housing Policy & Programs because, well, our behemoth of a bureaucracy is slowing down the country’s capacity to meet its shelter requirements. In fact, this is one of the bigger reasons why our lack of shelter options over time keeps going from bad to worse.
According to CMHC, “housing is considered “affordable” if it costs less than 30% of a household’s before-tax income.” But even CMHC knows this is unrealistic, given they provide instant approval mortgages to Buyers for sums up to 35% of before-tax income. And while I applaud all of the layers of government that have their programs and policies for creating affordable housing, including the City of Toronto’s Housing Now Plan, is anything anywhere actually getting built? As this CBC article called “No New Affordable Units Built Linked To Toronto’s Housing Now Plan, 4 Years After Inception” states “When Toronto launched its ambitious new housing strategy in 2019, it aimed to transform valuable city-owned lands into 10,000 affordable homes — but more than four years later, not a single shovel is in the ground”.
Seriously.
Quite frankly, instead of CMHC offering a lot of amazing research on what the country needs in the way of housing (they are cranking out a lot of great ideas and content, in fact), and providing funding to support the creation of affordable housing that has too many strings attached to incentivize private developers to build it, the institution and its political backers instead need to get back in the business of building social housing as it did between 1946 and 1993. Because, although as-of-right approvals to create multiplexes is a welcome first step, and will technically help to create supply, we need to build a lot of mid and high-density housing in order to create a meaningful amount of supply to house everyone in need of all types of shelter.
This CBC article –> ‘Toronto’s Expanded Multiplex Era Is Coming. But How Much Housing Will It Actually Provide?‘ addresses some of the challenges the city and country face in the midst of a decades-long housing crisis.
A Standing Ovation For Waiving Development Fees
A lot has been documented about the role of policy and overregulation contributing directly to high housing prices. This Financial Post article provides some sobering facts –> ‘High Cost Of Regulation Makes Housing In Canada Unaffordable‘. Above and beyond acquisition, material and labour costs, restrictions around land access and what is allowed to be built, along with fees, add a substantial amount to shelter costs. And the report referenced in this article lands the blame squarely on the doorstep of municipal governments.
Fortunately, the City of Toronto is waiving multiplex development charges, even if an owner converts or builds the units over time. It’s actions like this that will encourage development. Our friends at Storeys offer additional insights –> ‘Development Charge Exemptions For Multiplexes A Good Step, But Not Enough’.
Devil’s Advocate
I believe granting property owners the as-of-rights to build a laneway house or garden suite to either occupy or rent is a good thing. Except that as these accessory units get constructed – at a cost that ranges from $400,000 to $750,000 depending on size and quality – it reduces the number of purchasers who can subsequently afford them.
It’s very possible someone who might otherwise have been able to purchase the property without the newer second structure is SOL, leaving them to compete for a diminishing pool of single-family dwellings against a larger group of Buyers. Kind of like when, in 2021, only 6% of properties selling in Toronto’s 35 MLS Districts sold for at, or under, $999,999 in 2021 (dropping from 22% the year before, and climbing back up to 15.5% in 2022 due to rising interest rates. Here’s that post —> High-Ratio Homebuyers Take Advantage Of Price Moderation In Toronto Real Estate.
The same holds true with this multiplex as of right. As more and more multiplexes get built over time, the pool of freehold single-family houses will diminish, meaning they’ll truly become shelters for the rich. However, all those potential 4-unit condos in their place will be more affordable to families.
Multiplex Opportunities Emerging In The Real Estate Trenches
How would the creation of a multiplex work in practical terms?
We recently sold a 100-year-old 700-square-foot near obsolete wood frame bungalow in East York that we promoted as –> Refurbish A Quaint Cottage + Add A Garden Suite – Or – Build To Suit On A 30.8′ x 102.5′ Foot Lot In Danforth Village for $1,025,800 in April 2023 with 23 offers.
As part of our marketing efforts, I appealed to those who wanted to Build A New Multi-Generational Family Residence, Co-Housing For 4 Friends, An Income Property Or A Small Condominium In East York, Toronto because it offered the opportunity to potentially construct four units (one partially below grade) of around 1000 square feet each (effectively four 3bed homes) by applying for minor variances at Toronto’s Committee of Adjustment. This is exactly what one would do if one were building a luxury single-family Modern Masterpiece on this site similar to these 7 New Build Sales In Toronto’s East York Neighbourhood This Past Year.
In it, I wrote:
The property comprises a 2-bedroom bungalow of just over 700 square feet with a small shed and private drive situated on a generous lot with dimensions of approximately 30.8 x 102.5 feet or a total of 3160 square feet of land according to Land Registry. It is feasible that the new owner could go to the Committee of Adjustment and apply for minor variance approvals to construct a residence totalling 3160 square feet above grade plus a lower level of a similar size. This could translate into 4 floors of 1050 square feet each (including common areas) which would allow for four 3-bedroom residences.
And while one home provides a blank canvas for great possibilities, that potential expands significantly with up to four residences. In an as-of-right redevelopment scenario, there lies an exceptional opportunity for multi-generational living, for friends to age in place together while maintaining some autonomy, or for an excellent investment property. Better still, invest the capital at the time of redevelopment to allow each suite to be separately deeded. By developing it as a four-unit condominium, one could sell the suites over time as required and surround oneself with their chosen family.
In this respect, I believe the highest and best use of the site is one where the property is an ‘accordion dwelling’, meaning that it could be used as a Single-Family Dwelling, or by locking doors it could instantly become a multiplex. By redeveloping these sites in a manner that offers more possible permutations for as many potential markets is an intelligent means to ensure you get the highest price in the shortest amount of time.
One more point to consider. The City report also noted that by increasing density it protects regional greenspace by better using urbanized land – which is really important. It’s another reason to celebrate this announcement, even if it’s just a small step to combatting our housing crisis.
If you enjoyed this, you may like these other blogs:
Toronto Real Estate Then & Now: The Lost Decade Of The 1990s
Why More Condominiums On The Danforth Is Good
Dear Urbaneer: Who Is Buying Toronto Real Estate In 2023?
The History Of East York & Toronto Real Estate – Featuring Holborne Avenue!
Dear Urbaneer: How Can I Best Prepare My Home For Sale On A Budget?
Is The Toronto Condo Market In A Precarious State?
Topsy Turvy: Insights From The Toronto Real Estate Trenches
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