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Why Tiny Homes Are the Future of Profitable Real Estate



The pressing need for more rental housing in the Greater Toronto Area (GTA) has garnered significant attention, with an estimated demand for over 300,000 new rental units in the next decade. To address this housing crisis, the federal government's recent decision to remove the GST on the construction of new apartment buildings, coupled with Ontario's pledge to do the same with the HST, is a welcome development. However, there's an additional proposal that could further invigorate the apartment building industry.


Recent revelations indicate that the Canada Mortgage and Housing Corporation (CMHC) sent a briefing note to Federal Housing Minister Sean Fraser, suggesting the resurrection of a tax measure from the 1970s and 1980s known as the Multi-Unit Residential Building (MURB) program. The MURB program allowed investors to claim depreciation and certain costs related to apartment building construction against their income, thereby encouraging the creation of approximately 195,000 units at a cost of $2.4 billion in forgone taxes. The program, which provided investors with significant tax refunds in the initial year of ownership, was initiated in 1974 and concluded in 1982.


The potential reintroduction of the MURB program has sparked interest and optimism among housing stakeholders. This program, in conjunction with the removal of GST/HST, holds the promise of catalyzing more purpose-built rental units by engaging the private sector in the delivery of rental apartments on a significant scale.


Additionally, policymakers should consider reinstating another rental housing program, the Limited Dividend Company (LDC) model, to further bolster affordable rental housing projects. CMHC utilized this model to incentivize private investors to construct and manage housing targeting low- and moderate-income individuals. The program, which operated from 1938 to 1975, offered owners of affordable housing government loans at below-market interest rates in exchange for renting units at affordable rates below certain income thresholds. This approach was a win-win for both developers and tenants.


As the rental housing deficit in the GTA is projected to swell by 177,000 units over the next decade, the urgency of ramping up the construction of purpose-built rentals cannot be overstated. The current high cost of housing and limited supply continue to impede access to housing for many working families, leading to a shortage of rental units and escalating rents.


Monthly rent for an average one-bedroom apartment in Toronto has surged to $2,550, marking an 18 percent increase from the previous year. Two-bedroom apartments now cost an average of $3,350, while three-bedroom units command $4,198. This affordability crisis is causing many to seek housing solutions outside major cities, perpetuating the problem of high demand and limited supply.


To alleviate this crisis, the solution is clear: more homes and apartment buildings must be constructed rapidly. This necessitates addressing systemic issues, streamlining development approvals, and reducing taxes, fees, and levies on housing projects. A recent report by CMHC asserts that Canada will need nearly 3.5 million additional housing units by 2030 to restore affordability, emphasizing the importance of tackling these obstacles at both federal and municipal levels.


Systemic challenges at the municipal level, including slow digitization and inefficient development approvals, hinder the construction of new housing. Excessive wait times for approvals and mounting development charges are significant roadblocks to residential construction. Over the past two decades, municipal development taxes have surged by 700 percent, with taxes now comprising up to 30 percent of a home's cost, making Canada's charges the highest in North America.


To spur apartment building construction, revive tax measures, and foster a more robust housing market, it is imperative to dismantle systemic barriers and reduce the high fees on new housing projects. By embracing a multifaceted approach that combines revived tax incentives with streamlined processes and lower financial burdens, Canada can take significant strides toward addressing its housing crisis and making affordable rental units more accessible to its citizens.


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