Skip To Content

Could the Missing Middle be the Solution to Canada’s Housing Crisis?

22 August 2023

The factors leading to Canada’s housing crisis are as varied as the potential solutions. The most pressing challenges are faced by Canada’s largest cities, where intensification strategies must be feasible in a way that is acceptable to existing residents. Urban planners have been focused on the ‘missing middle’ – medium-density housing somewhere between single-family residential properties and high-rise condominiums – as a solution. By allowing for ‘light’ intensification, cities can increase density, build homes that are more affordable, and potentially create greener communities.

Middle housing includes duplexes, triplexes, four-plexes, row houses, townhouses and other medium- density housing types, which have largely disappeared during the past 60 – 70 years as single-family homes became the dominant form of housing. These rare but sought-after building types offer diverse housing options, support locally serviced retail and transit options, and help to address affordability, since smaller homes cost less to rent or purchase and to maintain.

Addressing Canada’s missing middle 

Auckland, New Zealand is seen as the leader in missing middle housing development, which centres on the belief that allowing more units to be built, either to own or rent, will reduce housing costs in cities where middle-class families have been priced out of the market. 

In Canada, we’ve seen some of the country’s largest cities recommend massive rezoning of single-family neighbourhoods to create more missing middle housing:

In January, the City of Victoria passed a rezoning plan that allows up to six homes – and in some cases, twelve – on one lot without a time-consuming rezoning process. However, as of July, there has not been a single application from a detached homeowner looking to turn their property into a multi-unit residential complex. The city has imposed building height limits, parking regulations, setback restrictions, and added costs that are significant deterrents and have effectively blocked any development. 

In Vancouver, a potential housing bylaw change would allow builders to construct multiplexes from previous single properties. The change would allow four to six homes to be built on most residential-zoned lots in an effort to add larger buildings and more residents to low-density residential side streets. While this policy impacts roughly 60 per cent of the city’s buildable land, limitations around floor space ratios, rental rates, and concerns over infrastructure suggest that very few units will be built. 

Under the policy, secured rental housing (which is protected by a legal agreement that ensures it can only be used as rental housing), a below-market homeownership unit, or a set-rate density bonus payment will be needed to access additional density with a multiplex application. Density bonusing allows developers to build additional floor area in exchange for cash contributions towards amenities like community centres, libraries, parks, childcare centres, and affordable housing. While there is no definition of what the bonus payment would be, development fees of as much as $135 per square foot are currently charged on new development in Vancouver’s Cambie Village neighbourhood.

In addition to development charges there would be a requirement to pay GST on the new construction and meet Vancouver’s ‘passive house’ energy regulations. Owners would also face higher property taxes and be limited to rent increases of only 2% per year under provincial regulations. A public hearing on the changes will take place in September. If approved, city planners expect the change to have little impact – only 150 multiplexes are predicted to be built each year in Vancouver, which will not go very far to solve the city’s affordability challenges.

Toronto appears to be taking a different route. In May, city council voted in favour of allowing multiplexes of up to four residential units to be built in all Toronto neighbourhoods. Previously, 70 per cent of the city was zoned as single-detached. Council also approved a maximum height of 10 metres to allow for a third storey, and a fourth storey is permitted for those areas that have greater height limits.  Multiplexes will be exempt from floor space index maximums, which limit the allowable density of buildings.  

The greatest challenge to adding more ‘gentle density’ in Toronto will be development charges. Toronto will exempt multiplexes with four or fewer units from development charges, which can range from $22,000 to $44,000 per rental unit, depending on the size of the unit. What is not clear is whether these projects are economically feasible. Smaller multiplexes do not face development charges but have higher per unit fixed costs, while projects with more five or more units face development charges but have more units to cover fixed costs. Since these multiplex units are too small for commercial developers to build, small developers and homeowners will drive this type of development. For homeowners, the first hurdle will be capital gains tax on the deemed disposition of the property. The second hurdle – for both homeowners and developers – will be funding. Bank financing for these kinds of projects is limited given completion risk.

Federal support needed 

In 2016, CMHC launched the Rental Construction Financing Initiative (RCFI) to stimulate new rental housing supply. Intended to encourage purpose-built market rental construction, the RCFI program offers a 10-year loan at a highly favourable (below-market) fixed interest rate and an amortization period of up to 50 years. Interest-only payments are required during the construction phase, and regular principal and interest payments begin only after 12 months of stabilized rent payments. The program also provides pre-approval for a private lender insured loan at the 10-year renewal date with no insurance premium. 

With a minimum loan size of $1,000,000, this program is designed for larger projects. What is needed is a similar program targeted toward smaller missing middle housing projects. Without a financial incentive, these projects will not be delivered with the scale required to make meaningful changes to the housing stock. If cities are serious about rapidly expanding the supply of units, the federal government will need to deliver a funding program to encourage and support that new supply. 

Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

Contact Us

Contact us today to set up an appointment.

    Thanks for contacting us! We will get in touch with you shortly.