Multiplexes in Victoria not economically viable

Number of applications since the program was passed in March: zero

Six months ago, Victoria’s city council passed a missing-middle program, allowing up to six homes by right on a residential lot. This consumed a lot of staff time and political capital - but six months later, the program has received zero applications.

If the four major bottlenecks to building more housing are economic viability, rezoning, permitting, and construction, the bottleneck here is economic viability. The value of the new building, minus construction costs, needs to be significantly greater than the value of the existing property.

Coriolis did an analysis in April 2022, and concluded that the economic viability was marginal. There’s no increase in land value: in other words, there isn’t a strong reason for a property owner to sell to a multiplex project, instead of just keeping it as a single-detached house.

Coriolis thought that a multiplex project would likely be willing to accept a lower profit margin, 10% instead of 15%:

Multifamily residential developers in Victoria typically require a minimum profit margin of about 15% on total project costs in order to obtain construction financing and proceed with a new project.

Houseplex development likely requires a lower profit margin as there are fewer units to sell (less marketing risk), development can occur on a single lot (so no assembly is required) and the construction period is shorter.

Problem is, if a bank requires a 15% profit margin before it’ll make a construction loan, where’s the builder supposed to get funding from?

The value of the new building is restricted by height limits, floor space limits, and minimum setbacks. Katie DeRosa quotes Robert Berry of Homes for Living:

“What they legalized are such small buildings located right in the middle of the lot with such finite bylaw limits on the building itself that it’s … still much easier to build a big, expensive mansion — and a profitable mansion at that — than it is to build a fourplex or a sixplex.”

Victoria’s requirement for six metres between the front of the home and property line prioritizes a decorative front yard over more functional space in the backyard, Berry said. In comparison, townhomes in Montreal and Toronto are 1.5 metres from the front property line.

More

• Financial Analysis for Missing Middle Housing Initiative. Coriolis, April 2022.

• 'Poison pill' restrictions crushing hopes for more multi-unit housing in Victoria. Katie DeRosa, the Vancouver Sun.

• B.C. NDP signals it won't allow city 'poison pills' to multi-family buildings. Vaughn Palmer, the Vancouver Sun. Reaction from the province, which is expected to introduce province-wide legislative changes this fall, including allowing four-plexes everywhere.

• Homes for Living - pro-housing group in Victoria

• In Spokane, Matt Hutchins reports via Twitter that he couldn’t make a four-plex economically viable.

• In Toronto, Sean Galbraith reports that there’s a lot of interest from people wanting to build a four-plex.

• Previous posts: bottlenecks, Victoria approves Missing Middle, Toronto legalizes four-plexes.