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‘Missing middle’ zoning: Addressing housing affordability or hampering development?

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In the fall of 2023, with a stroke of the legislative pen, British Columbia’s government rezoned most single-family neighbourhoods in the province to permit 3 to 6 units per lot.

 

Policy move to address ‘missing middle’

 

It’s an ambitious and sweeping policy move, intended to increase the housing supply and address the “missing middle” of the housing continuum — that gap between increasingly unaffordable single-family homes and small condominiums. Municipalities have until June 30, 2024 to align their bylaws with this provincial legislation.

 

The multiplex trend and restrictive land-use policies

 

In recent years, Vancouver and Victoria had already approved broad-swath rezonings to enable “multiplex” (duplex, triplex, etc.) development in single-family areas. This multiplex trend is not isolated to Western Canada, with municipal and regional governments across North America passing similar laws, including Toronto, Minneapolis, California and Oregon.

A 2023 report from the Canadian Mortgage Housing Corporation (CMHC) highlighted restrictive land-use policies as a contributing factor to elevated shelter costs in general, and in Vancouver and Toronto (Canada’s two most expensive housing markets) in particular. In this context, “blanket” upzonings can give builders a legible pathway to creating more residential density in undersupplied areas.

 

The planning rationale: An example

 

To help us understand the financial and urban planning rationale behind “missing middle” zoning, let’s review a representative example of an 11,000 square foot (sf) lot in Vancouver, currently improved with an aging 4,000 sf home.

Vancouver’s multiplex zoning permits a floor-space ratio (FSR) of 1, meaning you can build 11,000 sf on this lot, or six units of just over 1,800 sf each. Now we have six homes instead of one, some or all of them suitable for a young family, nestled on a tree-lined street.

In a major metro region like Toronto or Vancouver, these homes wouldn’t be cheap, but they would be materially more affordable than a new single-family home in the same neighbourhood. Even factoring in today’s elevated construction and financing costs, this sample project is, most likely, viable. It can get built.

 

Several fees apply

 

However, in our example, in addition to the typical slew of government fees (including Development Cost Levies, or DCLs, which contribute to infrastructure upgrades), the builder would have to pay a density charge to the municipal government of over $460,000 (or $76,000+ per unit). The purchaser would also have to pay GST to the federal government on the finished home. The quantum of GST would vary with the purchase price, but in this case would likely exceed $100,000 per unit.

Multiplex projects also incur other fees over and above what would be required to construct a single-family home on the same parcel, including development permit fees. These extractions make “missing-middle” projects both less feasible for the builder and more costly for the end-user.

 

The broader issue

 

This relates to the broader issue, explored in an earlier article, of the costs and restrictions imposed by various levels of government on the supply of housing. Given the numbers cited above, government charges are likely a contributing factor (along with design constraints) to why there have generally been relatively few projects initiated under multiplex zoning provisions. 

 

How ‘missing middle’ policy has played out

 

According to housing journalist Uytae Lee, in the first 11 months after California’s enabling legislation came into effect, there were just over 280 “missing middle” permit applications submitted – in a state with a population of some 39 million people. 

Closer to home, in Victoria, B.C., there were merely three applications in the first six months after the introduction of multiplex zoning. One builder, cited in a Postmedia report, indicated that the Victoria policy’s design parameters (including setbacks and height) created “unbuildable conditions” for multiplex projects. (It should be noted that the low uptake prompted Victoria’s city council to drastically revise its “missing middle” program last September.)

And while it’s too soon to judge the efficacy of Vancouver’s policy (which came out last fall), in the context of already elevated construction and financing costs, it’s fair to say that project feasibility and unit affordability are not enhanced by the taxes and charges outlined above. 

 

We have to decide what we want. Since it’s clear that we have a chronic under-supply of housing, we should remove unnecessary design barriers and reduce government fees and charges, starting with those that are extraneous to the infrastructure enhancements required by increased housing density. Otherwise, bureaucratic extractions and constraints will continue to impede much-needed supply in the middle rungs of the housing ladder.

 


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