Ontario currently has several regions that provide financial incentives to homeowners, in the form of “forgivable” loans to add legal second suites. These programs are designed to encourage homeowners to add well constructed and safe second suites to contribute to the supply of affordable housing, which we are desperately short of.
Whether they are successful with this program or whether it's viable for you is quite possibly a different story. But before we get into that, we’ll explain:
- What the incentives are;
- Typical criteria to be eligible;
- Where they’re located; and
- How they all stack up to each other
In the end, I’ll share with you what my thoughts are on them, and whether this is something that would be suitable for your conversion project.
The Amount – Depending on the location, the loan can range from $7,000 to $50,000.
Forgivable Loan – With a huge string attached (see Typical Criteria), this loan can be partially or fully forgivable (turning it into a grant) after many years.
Each location has its own criteria, but the following are pretty consistent among all places:
Rent amount – The maximum rent that you can charge is based on Average Market Rents (AVR) set by the CMHC. This is the big one that most investors have an issue with, which makes this program a show stopper for many investors because it’s quite low compared to the actual market rent.
Municipality approved – It must comply with by-laws, building codes and requires a building permit (no surprise here).
Legal residents – Tenants must be legal residents of Canada (probably a good idea).
Approved first – You need to be approved for the program before construction begins, which means existing units don’t comply.
Income cap – The tenant cannot exceed a certain income.
Where They Are Located
Currently the incentives are only in a few select locations – some are entire regions, and some are cities, The following list shows current locations and associated program:
- Halton Second Unit Pilot Program
- Peel Renovates Second Units
- Niagara Secondary Suites Program
- Simcoe Secondary Suites Program
- Prince Edward County Secondary Suites Grant
- Kingston Secondary Suite Affordable Housing Grant Program
- Bruce County Secondary Suite Affordable Housing Grant
How They Stack Up
Here I will just outline some of the bigger places and show how they compare – they are all pretty similar for the most part
Is It Worth It?
When these programs were periodically introduced in the past couple of years as part of the province’s Long Term Affordable Housing Strategy, I was quite excited that we we’re heading in the right direction. I had a gut feeling though that it was going to be a disappointment, and that’s sort of what happened.
I feel these programs are more lip service for affordable housing rather than actual progress.
Given the restrictions on rent, the length of time the property needs to be owned, and the income level of the tenants, it really paints the homeowner into a corner on what they can or cannot do with their own homes.
A Better Solution
I’ll be careful not to get into a discussion on political ideology, but perhaps similar to many other things, it’s probably a better idea for our policymakers to step out of the way a bit more, rather than make futile attempts at trying to solve problems with more rules and “programs”.
All this feels more like transferring our tax dollars from the left pocket to the right, while taking a cut in the middle.
Given my experience working with investors, homeowners, city building and planning departments, tenants and even discussions with NIMBY neighbors, I feel comfortable suggesting that the following steps are much better than these types of programs.
These are incremental solutions, but will do much better in providing more affordable units.
- Reduce or cut permit fees for second unit applications (if you’re going to spend money, use it to make the process less expensive for homeowners)
- Give city building officials more latitude to approve common sense solutions, and not be so tied to every word in the provincial building code as gospel (This has to be mandated by the Ministry of Municipal Affairs and Housing)
- Cut out many of the non-safety related items in the code for legal second suites. For instance, room sizes, natural lighting requirements, and ceiling heights (there aren’t going to be any NBA draft prospects wanting to live in a basement apartment – so let them decide on that)
- Make the process of applying for minor variances of city by-laws much easier and less costly (2 months and 2 thousand dollars is too silly by all measures of common sense if I’m short on parking by a foot. If the variance is truly minor, have an expedited system to pass those applications on the spot.
- A ton of other things, but these are a start (the idea is to cut the red tape to get the real progress we need).
At the end of the day, we’ll get there. It’s just a matter of how long it’s going to take, and how much waste we will have, while people suffer from not having adequate housing.
Where They Do Make Sense
Where they have worked to some degree is for owner-occupied homeowners who are converting the second suite and already have a relationship with the occupant, perhaps because they are a relative, family member, or close friend. This is where rent below actual market value still works for both parties.
Even though the idea of a forgivable loan sounds enticing, and the end of the day, it doesn’t really work with these programs. It certainly doesn’t make sense for most investors (including ones I’ve worked with)
As we all know, there’s no such thing as free money.