How Ontario's New Rules Affect 2-Units and Multi-Units

There’s no need for me to get into the general details of what the new rules in Ontario means. You’ve probably heard and seen enough – especially when it comes to things like prices, effects on landlords, and taxes.

What I will do is outline some of the important changes in terms of how they will affect the properties that you and I are interested in, which are 2-unit and potentially multi-unit buildings.

Keep in mind that these are simply my opinions, so as always take it with a large grain of salt. Many investors and existing homeowners generally see these new rules as onerous and detrimental to their properties, but there’s always a silver lining.

My goal here is to provide an objective assessment, but at the same time try to identify the positives that may come out of these changes.

1.       15% Non-Resident Speculation Tax

This might actually be a good thing for those of you looking to buy a property. This tax seemed to have helped cool the market in BC a bit last year, so it might also help you as well.

There may be a temporary respite from the frenzy that is the GTA housing market – from Niagara all the way around the Golden Horseshoe to Coborg. You might actually be able to find a decent property without the added pressure of too many foreign investors competing with you in multiple offers.

If this is the case, enjoy it while it lasts. There’s still 100,000 people immigrating to the GTA annually, and they have to live somewhere.

Might similar stats beset the GTA market? Source: Globe & Mail, RBC Economics

Might similar stats beset the GTA market? Source: Globe & Mail, RBC Economics

2.       Expanded Rent Control

This won’t make much of a difference to older homes, since rent control already applies to many of the houses that are being used for conversions to 2-units. Many of them were built before 1991. If you’re building a new property, or if you purchase anything built after November 1991, then you will feel the impact of this new rule.

3.       New Rules For Landlords

The key thing here is standardized lease agreements. This can get a bit tricky when it comes to 2-unit buildings, since you have things like separate utilities and shared facilities. Normally when it comes to 2-unit properties, qualifying things in the lease agreement is helpful, which might include provisions for additional work to be done to complete the second unit, or dictating the use of facilities.

At this point, we are not clear on whether these standard agreements will be done specifically for 2-units. We’ll have to wait and see on this.

4.       Development Charge Rebate

Development charges have already been waived on secondary suites province wide, making it almost a no-brainer to add in a legal unit to any single family home that qualifies.

Here's a recent permit letter from the City of Hamilton indicating the outstanding fees owing on one of my client's properties. Notice all the exemption in fees that would have been charged in the past - potentially saving you $10,000+ 

Here's a recent permit letter from the City of Hamilton indicating the outstanding fees owing on one of my client's properties. Notice all the exemption in fees that would have been charged in the past - potentially saving you $10,000+ 

The province is now stepping in to help subsidize the development charges (sort of a like a city tax) for multi-unit buildings. This can come in handy for any larger scale developments (4-units and up), although the $125 million budget for this won’t go very far. Another wait and see.

5.       Vacant Homes Tax

I don’t think many of you are silly enough to leave a house vacant – so no issues here.

6.       Creating A Housing-Supply Team And Advisory Group

This is an interesting one. So a provincial “task force” to work with municipalities to figure out what are some of the obstacles to building.

If I had to point my finger at a single issue, it would have to be by far – bar none – beyond a shadow of a doubt: OUTDATED ZONING, specifically outdated parking requirements.

This is from first hand experience and from other developers, urban planning consultants, and architects I have spoken with. All it takes is for a parking spot to be six inches too small, and allow NIMBYs (not in my backyarders) to attend a Committee of Adjustments hearing, and stymie any development.

Many developers give up, because of these silly by-laws. So many potentially great housing options can be added, if it wasn’t for outdated mid-century zoning by-laws that are still in place.

The Ministry of Municipal Affairs and Housing needs to step in here and recognize, like with second suites, that cities can’t set the rules themselves, and needs to reset these rules. 

It's certainly something I'm pushing for actively within the cities I'm working with, as well as at the provincial level. I really hope this changes soon!

These are the type of post-war bungalows that are ideal for converting to 2-units, but parking is always the bottleneck in cities that don't allow tandem parking (like Hamilton) - you have to either be creative or deal with it at a Committee of Adjustments hearing

These are the type of post-war bungalows that are ideal for converting to 2-units, but parking is always the bottleneck in cities that don't allow tandem parking (like Hamilton) - you have to either be creative or deal with it at a Committee of Adjustments hearing

7.       Working With CRA To Tackle Tax Avoidance And Speculation

I think it’s better to focus on playing by the rules and focusing on legitimate opportunities – so no change here.

8.       Review Of Real Estate Rules

This can only benefit you if you’re a buyer if the real estate professionals you are working with act accordingly with their code of ethics. A review of this is a good thing. We can all probably agree there has been less than ethical practices in real estate transactions.

9.       Tax Fairness For New Apartment Buildings

Currently the tax rate for apartment units is much higher compared to single family homes. The goal is to make it more fair. What this means is that most likely if you have a home where you add a second suite, eventually your property taxes will go up.

At this point, I’m not aware of MPAC assessing value based on second suites, but I foresee that they may be able to get info from the cities, and value the property accordingly.

On the flip side, if you’re into developing smaller-scale multi-unit buildings, you may be able to get a break in terms of taxes.

10.   Provincial Land For Affordable Housing

Another interesting one. Depending on how much land is actually available, would there be opportunities for investors and small scale developers to acquire and build duplexes and other multi-unit housing with less onerous by-laws? Will need to stay tune to this one.

11.   Encourage Diverse Development

Home construction has been based on standard family sizes for decades, but times are changing. There are less people per household, more single individuals,  more multi-generational households, etc., but the housing stock does not represent this diversity.

The province encouraging this diversity can present interesting opportunities for development or re-development.

Politics As Usual

It's worth keeping in mind that a lot of this is optics, and politicians doing what they do best - distract you and make it seem like they're making a difference. Although there are always some benefits and detriments to their actions, most of it is outside of their control.

It's hard for them to not take action in this housing market, but their actions will probably have limited affect, since there are so many factors that are entirely out of their controls. I outlined these things in my last article Strategies To Invest In A Bubbly Market

In the meantime, your job should be to simply be aware and take cautious action accordingly, and figure out ways to profit from policy changes.

These changes will be ongoing and evolving, so I'll likely follow up on this post with updates in the months to come. Stay tuned!

With this type of market, it's hard for them not to at least pretend to do something - Source: Globe & Mail, RBC Economics

With this type of market, it's hard for them not to at least pretend to do something - Source: Globe & Mail, RBC Economics

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