Could 'missing middle' become a profitable investor market?

The provincial government is actively looking at ways to implement medium density housing to combat the affordability issue plaguing Toronto, which could present an investment opportunity in a previously untapped market.

Minister of Housing Peter Milczyn and Minister of Municipal Affairs Bill Mauro both addressed media ahead of a Housing Forum event, during which “missing middle” housing – defined as row homes, townhouses, multiplexes and anything else considered medium density – was a topic of discussion. Building industry insiders and government believe medium density can help alleviate the downward pressure on families created by astronomical housing prices, as well as contribute to developing more mixed-use, pedestrian-friendly communities.

“In May, we released an updated growth plan for the Greater Golden Horseshoe and Greenbelt,” said Mauro. “These updated plans will guide us as we build thriving, livable, and vibrant communities with a wide variety of housing options for households of all sizes, ages and incomes. Complete communities that are mixed-use, walkable, transit supportive and that make more efficient use of land and infrastructure. To do this we need an effective and efficient planning appeals system in place.”

Minister Milczyn says that while the foreign buyer tax brought stability to an out-of-control market, more must be done. The province will begin opening up underused surplus lands it owns to develop 2,000 rental units downtown. The government also wants to crack down on landlords who evict tenants so that they can increase rents.

“We’re also looking at ways to cut the red tape and bring housing to market faster,” he said. “The Housing Delivery Group has a mandate to work on projects that meet provincial priorities, such as rental, affordable, family-sized and seniors-friendly units in order to get those housing types built faster, so that everybody in the province has a place to call home.”

However, at least one industry insiders is wary, primarily because of rental caps. Derek Ladouceur, a sales representative with REMAX Hallmark, says he welcomes missing middle housing – especially along subway lines –  but says government intervention usually stymies, rather than promote, activity within the market.

“If an investor has to cap rent, then it becomes a non-starter to take that risk because can you can only raise rent 1.25% per year,” said Ladouceur. “If they see the area is on fire and they want to raise it 3%, but more government gets involved and wants to cap what investor can make, investors just aren’t going to invest.”

Ladouceur isn’t completely skeptical, though. He cited the number of people migrating to the city each year and says if an adequate number of rentals are built then there shouldn’t be a problem.

“They need to figure out a way to build more,” he added. “We have over 100,000 a year coming to the city, so you need to build more than that. And if they’re not going to build more, they need to make it easier for investors to purchase row houses without an extra tax being thrown on them, or without telling them how much they can increase the rental rate.”

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