How Development Charges Are Affecting The Missing Middle

[00:00:00] Welcome to The Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Welcome back to another episode of The Canadian Real Estate Investor podcast. My name is Daniel Foch.

[00:00:17] I am joined here by Nick Hill and we have somebody else joining us in a minute, but we're going to do some housekeeping, some catching up on past terms that you'll need for the interview that we're going to do at the second half of this episode.

[00:00:36] Before that, we like to mention all of the fun things that we have going on. Today we're recording this the day after our June meetups. They were awesome. I launched in Oshawa with Tom Kustra, the legendary, and you launched in, I guess

[00:00:55] you won your 2-0 now with the turnout, but we had a good Oshawa. Oshawa was good. It was like 30-plus people, I think. How was Hamilton? Yeah. It's not bad. It's no 40 to 50 people like you had in Hamilton. But hey, 2-0, Dan, don't worry.

[00:01:10] There's plenty of events for you to come back and try to win a couple. But on a serious note, it was amazing. The events are just becoming very, very special. Every single time I go, I'm blown away by who shows up, the value in the room,

[00:01:25] the conversations being had. Yeah, Hamilton was awesome. We had Zach Wilms, Aaron and Josh from the Finley Mortgage team, and just a bunch of other powerhouses in the room. So I had a great time there.

[00:01:38] And you know, Dan, outside of the cities we were in, there was 20 other cities across the country that got together and talked real estate, which was just super cool. That meetup group, I think almost had 2,700 people now. So if you want to get involved, pretty easy.

[00:01:54] Join the meetup.com group. It is in the show notes. What else we have going on, Dan? For July, we are going to be in Calgary for a Stampede meetup. Yes. Yeah, special edition. I don't think we kind of tease that, I think.

[00:02:09] But yeah, that's going to happen. So both Nick and I will be there for the Stampede because the meetup falls right on the 9th, I think, which is like right in the middle of the Stampede. So we're going to be there. We're going to go out.

[00:02:21] And it'll be cool. I think there are going to be some mural painting. I think we're going to use some Sherwin-Williams paint to paint murals, which is cool. What else? Yep. I will be the guy in a cowboy hat and cowboy boots. I will 100% go full.

[00:02:36] That'll be easy to find because nobody else will be wearing that outfit. So people will just go, oh yeah, that's Nick. I'm doing it to blend in. All right. Sherwin? Yeah. The other thing on that Sherwin note, Dan, yeah, 40% off sale.

[00:02:51] And actually the day this is out is the last day that you can enter the giveaway. So if you're listening to this on Friday, June 14th, enter that giveaway, $2,400 or 15 gallons of whatever kind of paint you want from the best paint company in the world, Sherwin-Williams.

[00:03:09] So we've had a couple hundred people enter and you could be the winner. So make sure you go do that. Go also check out realist.ca. I think we're almost at 80 members in that premium community and over 500 in the free community.

[00:03:23] So just growth on all sides of things. And we're doing a free webinar on that on June 19th, distress deals. So if you want a free webinar, go to realist.ca and you can register and join the free

[00:03:37] webinar and there will be recordings available to realist.ca free members as well in case you can't make it at noon on the 19th. And EST hit me with a review here from somebody who is obviously well versed in their Reddit meme culture.

[00:03:54] So this is, yeah, we'll do this review and then we'll get into the episode. So you know how we like to read the reviews and man they just keep getting better and better. This one is from tips. That's T I P Z tips fedora five stars.

[00:04:10] This podcast will make you smarter with every episode that you listen to Nick and Dan don't just share information and opinions, but do what all great teachers do and ask thought provoking questions and peak your curiosity on new ideas and concepts.

[00:04:26] Before I started listening, unpacking Canadian economic trends and policy were foreign to me. Now I'm empowered to actively seek out more information on those topics and to discuss them with friends, colleagues, et cetera. The Canadian real estate investor podcast not only raises the bar on real estate

[00:04:44] knowledge, but also the other force that dictate our real estate environment topics I would be interested in for the future episodes. Oh, this is great. We got some suggestions here, Dan. The biggest mistakes you've experienced or heard of and lessons learned. Who? That could be a whole series.

[00:05:00] Well, just to interview, just interview me about my my portfolio. A DTA condo deep dive and what features differentiate condos from an investment perspective, one year, three year, five year horizons. Another interesting one, especially right now, because if you are paying attention

[00:05:19] to the GTA condo market, it is in a bit of a flux right now with a massive supply. I should be able to I should be able to have a pretty notable guest speak

[00:05:30] on that in the next like six months, given some of the work that I've been you know, the work I've been doing. I just can't really talk about it, but I love secret real estate agents. Dan, you really are that guy.

[00:05:41] And yes, we will keep that episode for for when we're able to have that guest on. And the final suggestion here is a GTA sub or deep dive will COVID upsizing trends be sustainable? One to three year, one, three, five years on the outlook.

[00:05:54] And he adds at the end of note, this review is not intended to be financial advice. I love that none of this is this is not financial advice. And just to answer that last one there, I have started to to write and

[00:06:06] research a really cool episode on the how to be able to spot trends by analyzing human behavior. I'll just give a quick teaser. Think about like the the floppy toppy hair, like that trend kind of thing. See everyone at the mall with broccoli and broccoli.

[00:06:23] And you want to go levered long on perm companies. You're getting that haircut. I thought that was your next thing. Yeah. Yeah. OK, so think about this. Think about what happened to the condo market when before COVID, when everyone

[00:06:38] was living downtown and working downtown and really was only needing these like three, four hundred square foot places to go back and sleep. Well, look what COVID did when you needed more space. Everyone left human behavior really does dictate trends.

[00:06:54] And there is ways by looking at history to see what trends have happened based off of what events and what human behavior does in response to it and how that affects the real estate market. So we will get to all these episodes. Amazing review, as always.

[00:07:08] Thank you so much. Tips for Dora. Yeah, tipsy. I will mention like that. I think the part about being empowered to like jump into those discussions with friends and colleagues, et cetera. I think that's like a underrated feature because,

[00:07:23] you know, everyone is talking about the housing market at all times in Canada, like and it's funny, like I'll be like in a line at something like, you know, or and you just hear somebody talking about the housing market and steps like just can see me like it.

[00:07:38] Don't say anything. Or like even if it's like at a party, you know, like, you know, where where you're at, like a family gathering or whatever. And people are like, oh, like, what do you think about that?

[00:07:48] Like you're, you know, you and I'm like, I have I don't know anything about that stuff. I have nothing to say. I'm just listening here, just frantically taking notes about consumer sentiment on my phone. Speaking of people who understand what is going on in the housing market,

[00:08:05] today's episode features a very notable guest, someone who we have quoted. He might actually be the most quoted person on the show. Maybe. No, no, no, I'm I'm the most I quote myself more than we. Right. Yeah.

[00:08:17] You and I mean, Michael Scott, too, because you guys like originated those quotes at the exact same time. Right. Right. Right. So Dr. Mike Moffitt, someone who we we have quoted on the show a lot and hadn't really been able to coordinate time to interview.

[00:08:32] And he's from the self sorry, the Smart Prosperity Institute, which is self-defined as a national research network and policy think tank based at the University of Ottawa. They deliver world class research and work with public and private partners, all to advance practical policies

[00:08:51] and market solutions for a stronger, cleaner economy. And so one of the notable things that came out of that think tank was the I can't remember the name of it. I'm going to pull it up, pull it up. But we did an episode on it.

[00:09:01] It was a bunch of awesome plans, many of which have actually been adapted by the adopted. I always miss interchange of words adopted by the existing government in their housing plan and a lot of provincial governments as well. So why why do we remember of that?

[00:09:18] He was a member of that task force that we mentioned, the, you know, the Avengers that come in to save the housing market. He was a main contributor. And actually, interestingly, somebody else we spoke with there from from Quebec, Vivre en ville, which I think translates roughly

[00:09:32] to living in the city. It reached out to me and we're going to have a discussion about about some of the policy things he mentioned as well. So we'll have a couple of those Avengers on the show, like, you know,

[00:09:41] how, you know, they really, really stretched out that Avengers timeline, like movie franchise. We're doing the same thing. It's a good strategy. Yeah, hilarious. I mean, we as you said, Dan, we've we've quoted Mike,

[00:09:56] Dr. Mike a bunch of times in the show, but we were able to get him live and in person because you and I, along with Tigger and our our analyst packed up the car at two forty five, three o'clock

[00:10:06] in the morning and drove to Ottawa for the OHBA event, where we got to speak to a number of amazing contributors and speakers at that event. So we're going to do an entire second episode featuring some of their comments, including the likes of the chief

[00:10:22] economist from Scotiabank, a couple of politicians in the mix and other leaders around housing in Canada. They all gathered at the OHBA event to talk about how to fix housing. Now you might be thinking, OK, Nickla's acronyms enough.

[00:10:38] We get it. Or you might be asking, what is this new acronym? Nick just introduced. Well, OHBA, Dan, tell them what it is. The OHBA is the Ontario Homebuilders Association. It's the voice of the residential construction industry in Ontario, representing four thousand member companies organized into twenty seven

[00:10:55] local associations across the province. Actually, Mitch, our partner on Realist.ca was once a president of one of those local associations for the wonderful city of Peterborough, Ontario, which is actually potentially the closest cash flowing market to Toronto. Maybe depends on how bad the traffic is to Hamilton.

[00:11:16] I love I love Peterborough. I was there last week. I'm getting a bathroom redone in one of my units. Would you say that you're a Peterborough? You know, we go way back to the Peterborough's. Another guy that may or may not be a Peterborough,

[00:11:30] I think he's more of an Ottawa or a London bro, Dr. Mike Moffat. Let's let's talk about our guests of honor here. Senior director of policy and innovation at the Smart Prosperity Institute and an assistant professor in business, economics

[00:11:48] and public policy at the Ivy School of Business in London. At Western University. Little known business school. Yeah. You know, coming success stories out of there. Mike's research at SPI, that's the Smart Prosperity Institute, focuses on the intersection of regional economic development,

[00:12:09] building child friendly, climate friendly housing and communities and clean innovation. Back in 2017, Mike was the chief innovation fellow for the government of Canada, advising deputy ministers on innovation, policy and emerging trends. He has held many other titles.

[00:12:26] He holds a PhD in management science from the same Ivy School as Alan Mauter and an MA in economics from the University of Rochester and an overall great guy and activist for disability rights here in Canada as well. Great hair as well.

[00:12:43] As someone else with what I would like to consider great hair, I can confirm that his hair is great. And Dan, you were, I think, a little jealous because him and I had a little moment.

[00:12:52] You did. And I had just buzzed my hair for like the first time. I'm very happy with my decision to buzz my head. But yeah, you guys had a yeah. Yeah. So, yes, these recordings all come from it was cool.

[00:13:07] We the OHPA was kind enough to put us up and they gave us a really cool conference room and we set up our podcast studio in this conference room. And we were just like pulling speakers from the event all day. We did eight interviews there.

[00:13:19] And so this was Eastern Ontario Housing Summit presented by Enbridge Gas. If you like this content, let us know and let them know, too, because we'd love to do another one of these where I think they're doing one in northern Ontario.

[00:13:30] So like Blue and Sudbury, which I think, you know, there might be a greater degree of applicability to some of the lessons there when compared to your, you know, your other smaller cities and more rural cities,

[00:13:42] more resource based economies around Canada, because we want to make we know we represent a national audience. We want to be able to help with that. One of the big pieces and we didn't get into this much with with Mike,

[00:13:53] because we I've just been wanting to pick his brain on kind of like what's going to happen with boomers in there. And when that demographic shift happens, when they all start emptying out their houses and we talked about fourplexes and stuff like that,

[00:14:06] and we'll dive into a little bit more detail what we're going to talk about and give you kind of a refresher on a lot of these topics. But the big theme and we're going to do a full mother episode on this

[00:14:14] from with including all of the other guests is that urban and rural divide, which is a huge theme happening in Canada right now. So what do we talk about here? Yeah, I mean, so, Dan, you had the pleasure of interviewing Mike

[00:14:26] and I was kind of monitoring the tech at that point. We went back and forth. And honestly, I sat there and it was really fascinating to listen to you two guys chat back and forth. You talked about the missing middle. You talked about development policy, changing development policy,

[00:14:42] development charges. You also both talked about some some Twitter drama, which is hilarious. I think, yeah, we got a little bit. I mean, just you brushed on it. And again, I'm not a big Twitter guy, not nearly as much as you and Mike.

[00:14:54] So it was great to hear some of the the Twitter powerhouse has shed some light on it. And then, of course, you know, Mike mentioned stuff like four plexing, the CMHC housing catalog and a whole bunch of other really interesting. Yeah. So maybe before we dive in,

[00:15:07] we should do a bit of a refresher on the missing middle and some of these other topics. So I mean, yeah. So missing middle is really like and Mike is very qualified to talk about this. Like they have a podcast called The Missing Middle Podcast,

[00:15:18] where they really just talk a lot about this. It's a range of house scale buildings with multiple units compatible and scale and form with detached single family homes. So like when you hear about NIMBY saying, oh, this is going to interrupt that character of the neighborhood.

[00:15:31] You can easily say, wow, a nice NIMBY voice. You can say no, no, it's not. And so this would be like your duplexes side by side or stack duplexes, four plexes, courtyard buildings, cottage courts, townhouses, multiplexes, triplexes, live work arrangements.

[00:15:50] So like anything that's not a mid-rise building and not a detached house. Yeah, kind of everything in between that single family standard that we all see and some of us grew up in and we're all familiar with driving through the suburbs.

[00:16:05] Picture anything between that and then the big, you know, six to 10, 15 story building kind of thing, which is that mid-rise anything in between that. That is the missing middle. And similar to the actual housing aspect of it, there is also that missing middle in the capital markets

[00:16:23] where large institutional investors and small real estate investors are prevalent, but mid-size projects struggle to find that investment, creating that gap so that missing middle isn't just, you know, unfortunately alive and well in housing. But we have that same gap in the capital markets

[00:16:43] and the capital stack in order to fund that kind of stuff. That is all changing. We are on the forefront of a lot of those changes with fourplexing, fiveplexing and new kind of financing structures and products for a lot of these.

[00:16:54] So if you have any questions about financing a small build that you are looking to do in the missing middle, reach out to us and we'll help you with that. The other thing I want to get in before we jump into the episode here,

[00:17:05] Dan, is the development charges, the DCs that you guys referenced a few times. I poked a bear on that one. You definitely did. You had a post go viral a couple of days ago. I literally was going through Instagram and like every single story,

[00:17:18] I mean, obviously I live in a bit of a real estate echo chamber, but every single story was one of those two posts about the government DCs. So right before we get into the interview here, Dan,

[00:17:28] why don't you remind everyone what DCs are and why that post was so popular? Yeah. So I mean, I was happy because I finally, John Love actually shared my post about DCs on LinkedIn, which, well, he actually shared Jeff Thompson, who's a friend of the show.

[00:17:46] He was probably listening to this. Shout out to Jeff. He's an asset manager for a big Canadian based company that owns a bunch of industrial in the US, but our industrial office, commercial assets in the US. And he posted a screenshot of this,

[00:18:01] which was like me posting a response to Matt Young from Republic Developments post. It was like literally like, That was so funny. You said every that. I was like, look at this chain of Canadian.

[00:18:11] But anyway, John Love shared it, which is like a personal goal of mine in life. So I'm actually going to, I'm going to plaque that post. But basically, I'm naming names, just name dropping so many people. But so Marlon Bray actually, who's a cost consultant at Altus,

[00:18:28] he brought this to my attention because I interact with him a lot on LinkedIn and we were talking about development charges with the president of Rezcon, Richard Lyle. And he was like, development charges are I'm name dropping all of these people

[00:18:45] in hopes that they come back and listen to the show or that if you're listening to the show and you know them, you share it with them, by the way. But he was like, yeah, development. When I bought my house brand new in 2000, I think he said 2000

[00:18:57] development charges were seventeen hundred dollars. OK. And like, I understand inflation took place during this period of time. Development charges today on the same single family detached house. If you were going to build it today, one hundred and seventeen thousand dollars.

[00:19:09] So seven from seventeen hundred to one hundred and seventeen thousand, like sixteen hundred to one hundred seventeen thousand. It's like a nine thousand percent increase. OK, so obviously, you know, look, I get that policy makers want to say that they're making an effort to.

[00:19:24] There's a very quantifiable way to illustrate how how you are making an effort. And that's by making it actually less expensive to make housing. And the whole thing came up because Matt Young was talking about how the municipal government in Toronto just increased development charges by 42 percent

[00:19:44] from so there's like there's they increase them in May and then they increase them again. So compared to last year, development charges are at 42 percent. So by and large now, the most the person who makes the most money

[00:19:55] or the entity that makes the most money when you buy a brand new house off of a developer is not the greedy developer. It is. And I'm not calling developers greedy. That's what everybody calls them. I think developers actually are huge contributors to the economy

[00:20:08] and doing a great service because they make very little money comparatively and take a ton of risk, like an insane amount of risk that you're about to see happen because a lot of developers are having a really hard time right now.

[00:20:18] Municipal governments make the most money on the sale of a new house. And that would track almost coast to coast. I imagine I can't I think it would be pretty much coast to coast where that stat would be correct.

[00:20:31] So 9000 percent increase in the past 25 years, 42 percent increase in a year over year basis. It's pretty it's just and it's interesting because I put this on TikTok and Instagram and a lot of people just didn't even know this existed.

[00:20:45] And so finally, I think people are out there sharpening the pitchfork saying, oh, we actually there is somebody we can blame about this. If you're a municipal government politician or an aspiring one, please help us do something about this, because this is like the most

[00:20:58] easily quantifiable obstruction to this going on anyway. This is this is quite literally our cry for help here. If you're listening, we'll we'll take any action. And as we've said, as we've covered a lot of crazy statistics, whether it's house prices or inflation or interest rates

[00:21:13] or the number of students that have come over here, anything that swings 9000 percent, you know, outside of, you know, some crypto or Nvidia or something like that, you know, that there's a cause for concern there. And, you know, thank you for being out here,

[00:21:30] sharing these these shocking and alarming stats. So with all that being said, let's dive into the interview with Dr. Mike Moffitt. So one of the things we do at the Smart Prosperity Institute is we have a podcast called The Missing Middle.

[00:21:46] It's myself, Kara Stern and produced by Meredith Martin. Kara and Meredith both had long careers at TVO, covering a number of issues, including housing issues. So they've come aboard with me and we look at, you know, all issues affecting young urban middle class.

[00:22:05] So the name Missing Middle is, you know, obviously a housing form. But it's more than that. With that, we we feel that there is a real hollowing out of the middle class, young middle class in our cities. So we look at the problem.

[00:22:17] We also discuss solutions about what to do about it. It's fascinating because we've actually observed something similar in capital markets where there's a missing middle in the capital markets as well. You have like large institutional players who buy large institutional

[00:22:29] grade assets and then you have small, you know, real estate investors who buy like a duplex, a triplex. And so it's hard to find investors to invest in or fund those projects in the middle of those two scales of capital markets.

[00:22:44] Yeah. And it's interesting you bring that up, because I do think we are going to have some of those issues when it comes to the plans that the government's making. You know, there's a big emphasis on fourplexes right now and building small apartment buildings in those missing middles.

[00:23:00] And we often have discussions about, OK, where are we going to find the tradespeople to do these things? How are we going to change the zoning? And all of those are important. But, you know, I do think that the access to finance may be,

[00:23:12] you know, one of the biggest barriers to that, right? Because the big the big guys aren't going to touch those things. But those sort of mom and pop investors might not, you know, be able to get like 10 million dollars or whatever it takes to build a sort

[00:23:27] of small, you know, six unit, three story, you know, building. So, yeah, I see that being a problem. And I think that's across our economy that there is, you know, Canada, for instance, has fewer middle sized firms than most of the OECD countries.

[00:23:47] So, yeah, it's funny how in these sort of public policy areas, you know, the same things come up again and again and again. And I really do think in Canada, we do have a missing middle in so many areas.

[00:23:58] Yeah, I guess we're now we naturally seem to gravitate towards a more oligopolistic structure. And I think you're seeing it almost this like this hollowing out happening in the development space now where a lot of them, a lot of the guys who were trying

[00:24:12] to play in the middle space were getting blown up by what happened in the housing market over the last couple of years. And hopefully that doesn't leave too big of a hole and creates opportunity. As somebody who advises on the policy side, like you were mentioning

[00:24:27] financing becoming a key piece and we actually read and reviewed the plan that you presented with the group of other academics sort of with the objective. Many of those things ended up in the housing plan and beyond, but with the objective of sort of guiding policy.

[00:24:43] What are the things that that what is the work that still needs to be done to to support the adoption of small multifamily like a four plack or to make it accessible for a mom and pop investor to kind of scale into that space?

[00:24:56] Like, what are the key things from your perspective? Well, I think there's a couple. The first just making the economics work that we've seen a number of policy changes more designed to get, you know, bigger apartment buildings built. So that's, you know, the accelerated capital cost allowance,

[00:25:15] which certainly could help smaller as well. But it's more, you know, for the bigger players, GST removal, that kind of thing on the smaller side. You know, I do I do think we need to look at things like development charge reform. I mean, that's such a big area.

[00:25:33] You know, I think we should at least consider bringing back the the old MIRB program from the 1970s, which was one that allowed smaller scale investors to to pool their money and allow them to basically take those accelerated capital

[00:25:48] cost write offs and apply that against other forms of income. You know, why we got rid of it back in in 82 is that there was worried that, you know, rich people were using it as a tax shelter, which they were.

[00:26:00] But it also got a lot of apartment buildings built. So I think looking looking on that. And then finally, that that access to capital pieces is huge. You know, I do think we need to be looking at things that we could do

[00:26:13] to reform the CMHC in order to help, you know, smaller scale type developments. So the CMHC, a lot of CMHC programs are targeted either to nonprofits or to, you know, the big reads, the big developers who want to put a 30 story or 50 story tower someplace.

[00:26:33] That if you're again wanting to build, let's say you want to build a fourplex and you want to rent out three of the units, there's really not we don't have the programs right now from the CMHC and others to to help finance that.

[00:26:46] Yeah, I think like what we're observing in the market, because Nick and I both work at a company that does work sort of in touch with that financing world with the MLA select CMHC financing. And it seems like it is becoming like

[00:27:00] the underwriting is becoming more strict for the smaller cap investors. Like they're really only and I can understand the logic behind it. Like they're really only want to take on people who have already built this type of project, already managed, already owned this type of project.

[00:27:13] But the challenge is, you know, if you think about the universe of apartments that could be potentially more agile, like it's much quicker to build a fourplex than it is to build a four story building and a fourplex isn't that much

[00:27:27] materially different than a single family house from a, you know, components perspective. Can you see them like approaching that kind of lower scale of housing? They kind of alluded to it in the housing plan with increasing the insurance premium if somebody is like buying a multiplex.

[00:27:41] So not the premium, the insurable amount for CMHC. But like, is there is there any talk of of that lending environment improving for? I haven't heard by and I think part of that, you know,

[00:27:54] why why there's a bit of a policy vacuum there is we don't have a new head of the CMHC yet. We don't we don't even have a there's have they tapped on you for that? I will not be that I can I can tell you right now.

[00:28:06] I will not be the next head of the CMHC. I will not be the next chair of the board of the CMHC. I'm told one of those is coming. It sounds like a thankless work anyway, that job. I mean, yeah, no, absolutely.

[00:28:17] Evan Siddall had a really rough time with that. I remember those Twitter days. Yeah, absolutely. It is a thankless job. You know, one that comes with, I think, a four hundred fifty thousand dollar paycheck. Yeah. But you know, so there are some thanks there.

[00:28:30] But no, you know, in all seriousness, that would be an absolutely challenging job. But I think there needs to be and I think there needs to be some direction from the federal government because they are at least politically relying so heavily on on fourplexes, right?

[00:28:46] To the point in which they're kind of picking a fight. Well, in their view, they wouldn't call it picking a fight. But there's a dispute between them and the four government here in Ontario because the federal government wants to make fourplexes

[00:28:59] as of right part of the new infrastructure fund. So if they're going to double down on fourplexes as a building farm, I think they need to have all of the other pieces. And that can include things like having fourplex designs

[00:29:15] in the new CMHC housing catalog, which is supposed to be out sometime later this year. And there are ways that they could tie that to something like MLI Select for smaller developers, because I do understand there's a risk.

[00:29:29] But one of the things they could do is say, OK, you know what? If you're a few built a few, you know, a handful of single family homes before and you want to try building fourplexes and, you know, building one from the CMHC catalog, we will

[00:29:43] fast track you for MLI Select or we will, you know, give you some kind of preferential rate. I think they need to do that simply, you know, not just for housing reasons, but but politically, like if you're going to place a big bet on fourplexes,

[00:29:57] you got to make sure they're going to get built. And right now, I just don't I don't see all the policy pieces in place to get there. Yeah, I think there's a few like if we were to, you know,

[00:30:07] you kind of list them out, it's like, OK, you have in most areas where fourplexes are becoming as of right, DC's are there. There are DC advantage in some ways, right? Like in the city of Toronto, you have if you're adding the three units

[00:30:18] in a residential neighborhood, there's no DC's on that. Then you've got the accelerated capital cost allowance, which starts at four units. But then the MLI Select starts at five units. So it's like I guess they would have to pull that lower bound of that down.

[00:30:31] Yeah. And again, this kind of goes back to these kind of meta problems where you have these policies, but they don't all interact with each other well, where it's like, OK, some, you know, it's like, OK, up to four units.

[00:30:43] And then MLI Select, you know, you're looking at sort of five units. You know, my classic example of this comes from Carolyn Weitzman. But the CMHC, depending on the program, has seven different definitions of affordability. There's just kind of no no alignment there whatsoever.

[00:30:59] So, you know, I do hope, you know, both at the ministerial level, but also when we get a new head of the CMHC can say, OK, how can we get these programs working better together? Right. So they're all they're all kind of rowing in the same direction.

[00:31:14] And you can go from from program to program to program. And you don't have a whole bunch of, you know, separate in some cases competing criteria. Right. You're just aligning things, things because there's such a disalignment right now between programs. And that's just one one order of government.

[00:31:31] You know, that's, you know, let alone, you know, the sort of disconnect you can have between federal policy, provincial policy and municipal policies. Mm hmm. Yeah, it's interesting when you mentioned the housing catalog piece, and I'm sorry to stay so siloed in on the fourplexes,

[00:31:45] although I think if people want to explore things more missing that I would encourage them to check out your podcast. But I know our audience loves the idea of fourplexes. Like we probably have the largest audience of people who want to build these things in Canada.

[00:31:56] And yet it's not it's like just proving to be very difficult. You can go to a, you know, conventional lender, you know, at a big six or whatever to try and do it. And some will lend on it as like a residential loan on

[00:32:09] on a long term mortgage. But it's really proven to not be that as efficient as the policy environment would would make it sound. So but the the the catalog, to me, is a cool way for CMHC

[00:32:21] to actually crawl into that space by saying, hey, we can cost control these because if people are building the exact same fourplex across the country, we know what 80 percent of the input costs are basically other than labor. Right. Because all the material costs are only going to vary

[00:32:32] ever so slightly on a regional basis. Well, exactly, because it should be able to streamline a number of processes. But as well, I mean, they can kind of go beyond that, that, you know, in the catalog, if they want to rely more heavily

[00:32:46] on things like penalization and really inform build up innovation, then, you know, you can put that into the catalog and then it makes it particularly easy when you say, OK, you know, if you're going to build a catalog here's thing. But here are the five places

[00:33:02] you can go to to obtain the materials that you need. Like, you can really kind of streamline a process. And the thing is, none of that is novel. I mean, it's what the CMHC used to do back in the 40s and early 50s.

[00:33:14] Now it was, you know, those kind of strawberry box homes. But it was just a way of sort of recognizing, you know, back then that we needed to build a lot of homes and because we needed

[00:33:24] to build so many homes that we're we had to sort of build up that expertise, right? There weren't there weren't that many homebuilder, you know, there weren't that many people had spent the last 15 years building homes. Because we basically went through as a country from,

[00:33:41] you know, about 1930 to about 1946. We hardly built any homes in this country between the depression and the war. So the government recognized that they were going to have to handle it a little bit to to help build up that sector expertise. I think the same thing's happening here.

[00:33:58] Now, none of that prevents the established players from doing, you know, just doing what they want. But if we're going to develop this sector, if we're going to get the smaller scale builder, developer, investors, you know, having the federal government streamline things, I think would be incredibly helpful.

[00:34:16] Yeah, yeah, absolutely. I would also suppose that strawberry box homes are far better than no homes. Well, yeah, no, absolutely. Now they, you know, there are a lot of them. My dad grew up in one. I've been in many of them.

[00:34:30] You know, they were great for the time. You know, the challenge these days are a little bit different. You know, we don't unlike the late 40s. We don't have a ton of vacant land around our cities. Right. So it's not the most

[00:34:43] it's not the most land efficient form of building. But for what they were at the time, they really satisfied a need. For sure. Last question, and then I'll let you get back to the conference.

[00:34:53] I think I would I would be remiss if I didn't pick your brain on the demographics that we're seeing and the big gap between, you know, this. I mean, in the US, you hear a lot about this wealth transfer, generational wealth transfer in Canada.

[00:35:06] I like to refer to it as a generational space transfer that's going to take place from the baby boomers who own excess space, excess square footage by and large, and the millennials who are probably under house for the most part. How do you see this playing out?

[00:35:21] Like, I mean, it looks like to me there's a pipeline of 11 million potential sellers in the next or, you know, whatever it is. Sixty six percent of them. So six million potential sellers of big houses in the next

[00:35:35] 10 years. And I think a lot of those houses are probably good. Duplex, triplex, fourplex candidates. But like, how do you see that whole thing shaking out? Given I think you're probably the one researching the demographics more than anyone else in the country.

[00:35:48] Yeah, I do think we are going to start to see more and more of those come on the market because the first wave of baby boomers are about 77 right now. So, you know, you are going to see that area, that group start to pass away.

[00:36:05] Some of them may go into too long term care. I do think that it's going to be, you know, hard to say. I don't think that group is going to downsize. And I don't think they're going to downsize as much as people think.

[00:36:18] And they don't seem to think so either. They don't seem to think so either. And there's, you know, that my question is always like, OK, well, where are they going to go? You know, that they start to downsize.

[00:36:29] Well, they start to run into the same problems that 27 year olds have. It's like, OK, where do I go at this point? I do think there are concerns of this group. And, you know, so my parents are in that cohort and I talk to them and their friends.

[00:36:43] I think some of the things that happened in long term care homes during the pandemic really scared them. So I think they're they're really going to say, OK, you know, you know, fingernails on, you know, on the wall. I'm not not leaving this place.

[00:36:55] And that's entirely they're right. But yeah, I do think eventually more and more of those homes in the next 20 years is going to come on for sale. And I do think that creates an opportunity if the sort of policy conditions are right to allow people to

[00:37:12] buy them up again, start to divide, you know, build a triplex, build a whatever to two housemars families. My concern is that, you know, that's 10 to 20 years down the line. Right. And we I mean, you guys know this, but the cohort

[00:37:27] my age and older tend to forget about, you know, we we talk about millennials like they just graduated from university. Yeah. You know, they're they're in their early 40s now. Yeah. Right. So, you know, and I don't think we can go to to that cohort

[00:37:41] or even Gen Z and say, well, OK, things will be fine. 15 years from now. It's like, OK, great. There will be 50 at that point. Some of them will be 60. So, yes, I think in the longer run, I think things get better.

[00:37:56] And then obviously, the big challenge or not big challenge, but the big open question is what what happens on the demand side through immigration, international students, that kind of thing. Right. The policy decisions there are going to affect everything

[00:38:10] from from housing to health care to infrastructure as well. So, you know, there's some, you know, called known unknowns or it's like, OK, we know, you know, we we know the population is aging. We don't quite know how long they'll stay at their homes.

[00:38:26] And we know some of those would turn over. I think that's sort of the thing that we don't know is, you know, what what does the population dynamic look like 10 to 15 years from now? I mean, if you told me we were only adding 100000 people a year,

[00:38:39] I'd believe you. You told me we're adding million people a year. I'd believe you. So it's, you know, so it's really hard to do any kind of long term forecasting when when we don't know again, is Canada 15 years from now?

[00:38:53] Are we going to be a country of 50 million people or 60 million people? I can't tell you. But the answer to that question is really going to impact the housing market. Excellent insights. Thank you. I really appreciate your time. Encourage everybody to check out.

[00:39:08] It's The Missing Middle Podcast, The Missing Middle Podcast. And there's a video version as well, so you can go on YouTube or download it on your favorite podcast app. Amazing. Thank you. The Canadian real estate investor podcast is for entertainment purposes only, and it is not financial advice.

[00:39:24] Nick Hill is a mortgage agent with Premier Mortgage Center and a partner in the G&H Mortgage Group. License number 10317 agent license M21004037. Daniel Foch is a real estate broker licensed with Rare Real Estate, a member of the Canadian Real Estate Association,

[00:39:47] the Toronto Real Estate Board and the Ontario Real Estate Association.