Despite construction everywhere you look, Canada is facing one of the biggest housing shortages in its history. The problem is so bad that even with interest rates over 5%, it has barely made a dent in slowing the rising price of real estate. Rental market prices, already unaffordable for many, continue to soar with no end in sight. The demand for housing is disproportionately inflating prices to the point of irreversible damage to our economy and way of life. No one will be spared from the effect as the increasing need and costs of government-subsidized housing are passed on in the way of taxes. Long periods of high inflation caused by higher wages are inevitable just to allow people to afford basic shelter.
The most obvious solution is to limit immigration to Canada until the housing supply can be built back up, but while unable to house the current number of Canadians, the federal government has set a goal of accepting 500,000 new immigrants in 2024. This will have an immense impact in driving housing and rental prices higher, bringing Canadian closer to an economic disaster.
Building more affordable units is the next obvious solution but the definition of more affordable needs to change as we currently know it. Micro units, engineered for space utilization ranging from as low as 250 square feet would enable more units to be built quicker, in less space, and at a lower cost.
This current ad for an RV shows that it is possible to build a new 2-bedroom unit of less than 400 square feet for under $60,000.00 CDN. This concept could easily be adapted to new condos and detached homes.
RVs LIKE THE ONE SHOWN ABOVE COULD ALSO BE PART OF THE SOLUTION
Government incentives in some areas currently allow property owners to not only build small rental units on their property but will pay them $30,000 toward the cost. If municipalities allowed a tenant-owned RV to be kept on the property instead of constructing a permanent small rental unit, all an approved property owner would be responsible for, would be running a sewage line, cold water supply, and as little as a 30 amp hydro connection to the area the RV is to be set up (assuming the RV is set up for propane heating and cooking). The RV tenant would be responsible for the purchase of their RV and all the maintenance to it.
A government incentive of only $10,000 over 10 years would cover most if not all of the basic costs of the property owner to “T” off the underground sewage pipe outside their house, and run the water and electricity from their house to the RV site. This income-generating improvement would also add value to the property when the owner sells.
In order to address some of the obvious concerns, the RV site would have to be approved by the municipality, many downtown urban properties would not qualify because of the layout or space. Also, RV tenants would not have the same rights as other tenants. They would have a minimum of a 1-year lease at which point, unless the property owner allows them to stay, it is assumed that they will leave and have no rights to remain past the term of the lease. This important stipulation would provide an incentive for the RV tenants to treat the property owner and neighbors with proper respect.
Assuming the property owner charged $800.00 to $1,000.00 a month to the RV tenant, interest on the RV as shown above (60,000.00 x 5%) equals $250.00 a month. This new 2 bedroom warrantied rental unit would cost an RV tenant $1,050.00 to $1,250.00 a month, putting it in the price range of a single person working full-time at minimum wage. Of course, the RV tenant would also have to pay down some of the principal on the RV cost every month, but this builds equity and does not represent the lost costs of renting.
The $10,000.00 tax-free government grant would pay the property owner $10,000.00 per year for each of the next 10 years the property is rented out. The property owner would have to declare the profit portion of the $800.00 to $1,000.00 a month ($9,600-$12,000 a year) rent as taxable income each year to receive the grant. In many cases, this would end up with the government collecting more in income taxes than it pays out for the grant and could continue to remain a source of tax revenue well after the 10-year grant period ends.
If municipalities took a further step and allowed an RV to be placed on an empty building lot, set up with only sewage, water, and hydro, it would complete an affordable tiered system for Canadians to achieve traditional home ownership. RV tenants need to only save up enough to purchase their own serviced building lot at which point they would move their RV there and save the cost of renting an RV tenant spot. Once the lot was paid off they could save to have a house built on the same lot or sell the lot and the RV and buy a house somewhere else.
Newly built subsidized government housing is also necessary, building micro units would make them more economical to build and they would use less energy. They also need to be more durable to address the current challenges of subsidized housing maintenance so RVs would not be a suitable choice. Every subsidized unit built becomes an expense to the government (taxpayers) forever, so subsidized units should be comfortable but not take away a person’s motivation to do better.
If interest rates remain high, every day for the next 4 years, more current homeowners, that locked in their mortgages at low rates will be faced with paying 5% or more on the balance they owe. An example is $500,000 @ 1.5% = $625 a month interest / $500,000 @ 5% = $2,083 a month interest. With demand continuing to push up prices, making affordability increasingly impossible, the chances of a catastrophic economic fallout become more likely.
Dave Lister
listerlogic.com