Canada needs more rental housing fast and it’s pretty obvious that there’s a big focus on missing middle type of projects, especially in Toronto.
The latest priority project in the pipeline might mean that each house on major streets can be allowed to build up to 30 units each.
Crazy right? Well, if you’re interested in learning more about this and staying ahed of the curve, keep watching.
What Is The Major Streets Project?
You’ve probably heard the government’s renewed focus on creating more housing, especially in areas near transit. But did you know that Toronto is unique in this regard? Toronto has been leading the way with some unique initiatives like laneway suites, garden suites, multiplexing, and rooming houses.
The next change might give houses on major streets a 180 degree transformation (both physically and from an investor perception standpoint) because they have been highlighted as the next target housing project in Toronto.
Instead of the typical 4 units in the main house +1 ADU in the backyard, the city is looking into encouraging more density on major streets. If this project becomes gets approved, you’ll be allowed to build 6-storey apartments and townhouses on all major streets in Toronto that are currently designated as neighbourhoods, which is basically where you currently see low-rise homes.
Here’s a map that shows what’s considered a major street and you can get this info in Map 3 of Toronto’s Official plan. We’re not just talking about Yonge or Bloor. Smaller streets like Dovercourt or Mortimer would also qualify because they’re deemed as more accessible by transit, which makes the opportunities a lot more interesting.
Timelines & Specifics
Next, let’s talk timelines.
The proposal report was released last week on September 28th. From this point on, the city will be hosting consultations in October and there’s a survey that you can respond to up until November 10th. So if you have anything to say, this will be your chance. If all goes smoothly like the multiplex project, we should see implementation as early as Q1 of 2024!
So, what specifically is changing?
The idea is to alter Toronto’s official plan, revise our residential by-laws, and tweak zoning permissions on main streets to make room for this increased density. Here’s a quick rundown of what was in the proposal report:
- The maximum number of storeys will go up to 6.
- The maximum number of units will go up to 30.
- They’ll increase build length and depth.
- The floor space index (FSI) requirements, which limit how much area you can build relative to your lot size, will also be removed.
From our end, there are a few questions that still need answers.
For example, parking requirements are currently waived for up to a fourplex. Once you enter the apartment space, right now you will need more parking spots. Will this be changed given that these new units are supposed to be more accessible by transit?
What about development charges? Right now, DC’s are waived for up to the fourth unit and this is a big reason why fourplex conversions make a lot of sense. If DC’s are charged for these bigger multiplexes, is there a discount to incentivize investors to get this done?
It seems like possibly not since the proposals report mentioned there’s no financial implications tot the city from this change but how DC’s are handled will very much swing an investor from taking on these projects, so the city needs to take a closer look at this part.
Now that we’re on the topic of returns, let’s touch on that a bit.
Say you add 1,500 square footage of space, which could translate to two 2-bedroom units that could rent out for $2,500 each. If we assume that it costs around $400 per square foot to build, you’re looking at a build cost of $600,000.
That’s equivalent to a 9% cap rate on the new portion. And if the existing portion could hit a 6% cap rate, you’d average a 7.5% cap rate which is pretty attractive.
The other important thing is that you’d now be in the commercial mortgage space, which might actually be better from a scalability standpoint in the long run.
Just keep in mind that this is definitely not for you typical real estate investor. You need substantial capital likely more than $1 million. You’re basically in the development space, so you’ll need to have the time and expertise here too.
How We Can Help
The bottom line is that things are getting pretty exciting for Toronto’s freehold real estate. More and more investment options are popping up, making investing in Toronto houses even more interesting these days.
So, if you’re curious and want to learn more, don’t be shy! Just reach out to our sales brokerage that focuses on investing in freeholds in Toronto, and we’ll chat about all the different options out there and zero in on what might be best for you.