Toronto wants more multiplexes built. But how will they be financed?

City favours seeing more multiplexes, but no municipal, provincial incentive money for building them.

Craig Race is all for seeing Toronto put more homes on existing lots.

That’s what the architect did with his own property, splitting the east-end home into two units.

He and his family live in one of those units, while the other is rented to somebody else.

Toronto has moved to ease the process of revamping homes in this manner, following a council vote last month allowing duplexes, triplexes and fourplexes across city neighbourhoods.

Those in the business of designing and building homes are enthusiastic about the potential that comes with rethinking what can be done with homes in residential neighbourhoods.

“These new changes are awesome,” said Race, who estimates he has designed some 20 multiplexes to date, including his own.

While allowing more multiplexes does nothing directly for affordability, it is intended to add to the housing supply in Canada’s largest city by adding gentle density to existing lots.

But building a multiplex is not a budget-friendly undertaking and that raises questions about how the people seeking to build them will finance their construction.

More certainty

Toronto’s move to permit a wider adoption of multiplexes — which is now in full effect — greatly simplifies their development and takes away any guess-work about whether they can be built on a given residential property.

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For Race, that eliminates “the biggest risk” of such projects — not knowing if approval will be granted. City planners have also identified this certainty as being key for people who want to build in this manner.

That clarity also saves time and money for multiplex builders and builders-to-be, as they no longer need to seek rezoning or go through a minor variance process. The cost of building has also been lowered via changes to development charges.

Yet multiplex projects can still involve costs reaching hundreds of thousands of dollars, when all of the work involved in adding multiple units to a single-family home is factored in.

Given these costs and the complexities involved with building, Joe Walsh, a veteran Toronto mortgage broker, expects multiplex projects are most likely to be pursued by builders, developers and investors with professional experience in this realm.

“They have the desire and expertise to hunt out the opportunities and create the units,” Walsh said via email.

Homeowners, on the other hand, may look at adding units “if the cost is not too high,” he said.

Toronto city Coun. Jamaal Myers has been thinking about the math involved with multiplexes.

He wonders if more can be done to make their development more enticing — with an eye to spurring more affordable end products for people to live in.

“It’s really about, how do we work with the private sector to sort of incentivize them that this makes financial sense,” said Myers.

“What’s the right mix of tools and policies that we need to do in order to get there?” he added.

To that end, city staff are reviewing the possibility of allowing multiplexes of up to six units in his Scarborough North ward, as part of a potential pilot project.

Rising interest rates

With rising interest rates, future projects would presumably be factoring in a higher cost of borrowing money if needed.

Baxter Robinson, an assistant professor in the department of economics at Western University in London, Ont., said Canada’s central bank remains focused on battling inflation and that has implications for borrowers.

“The Bank of Canada doesn’t seem to be in any rush to lower interest rates,” said Robinson in an interview after the central bank raised its benchmark interest rate to its highest level in more than 20 years.

Higher interest rates mean higher costs for loans. That makes any type of loan-supported construction more expensive, Robinson said.

Walsh said rates for private construction mortgages have gone up, but not substantially above where they stood a year ago.

Considerations for lenders

When assessing a possible mortgage for a construction project, Walsh said a lender would be looking at the plan for the property, the budget involved and who is going to be doing the construction.

An appraisal is very important to this assessment as well, he said.

He said a mortgage in this scenario would typically be offered in draws, meaning it is delivered in parcels as the work progresses.

While various levels of government have signalled support for seeing more housing built in Canada’s largest city, there’s no incentive funding for multiplexes available from Toronto’s municipal government or from the provincial government.

The City of Toronto said it “does not currently have an incentive program for homeowners to build multiplexes,” though it noted city council has asked staff to develop options to incentivize making at least one unit in a multiplex affordable to rent or buy.

Ontario’s Ministry of Municipal Affairs and Housing said it “does not provide funding to finance market housing projects.”

Whatever challenges exist in building and funding multiplexes, they represent one method of creating more places for Torontonians to call home.

Myers said he knows a growing number of people who are either moving away from the city, or thinking about doing so, amid the high cost of living that makes it unaffordable for them to raise their own families here.

“To do that, it’s virtually impossible here, unless you have a very, very high income,” said Myers.

And that speaks to larger questions about the city and its future.

“What kind of city are we building and … who are we building it for?” he said. “Because it’s not the people living here who grew up here.”