Maximize Real Estate Returns Through Zoning

[00:00:00] Welcome to The Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:12] You may have heard the term red tape before.

[00:00:16] I'm more of a green painter's tape guy myself, or duct tape. Are they similar at all?

[00:00:24] Actually quite the opposite. Green painter's tape and duct tape are extremely helpful kinds

[00:00:30] of tape, whereas red tape on the other hand is extremely unhelpful.

[00:00:35] Here's the Oxford Dictionary definition. That's right, we're straying off of the dictionary definitions

[00:00:41] this morning and going to a bit more of a reputable dictionary source.

[00:00:46] It's defined as excessive bureaucracy or adherence to rules informatically, especially in public business.

[00:00:54] Sounds kind of like the definition of the Canadian real estate market right now.

[00:00:58] Yeah, shots fire, but yeah, not so far off Dan. And a lot of that so-called red tape we found in a very early process of the building stage.

[00:01:09] In fact, projects that don't even have a shovel in the ground yet can get stopped.

[00:01:16] And a lot of that has to do with one particular thing, zoning.

[00:01:20] Zoning is the process of dividing land into various use categories such as residential, commercial and industrial.

[00:01:27] Most countries have zoning laws and Canada is no exception. We like them a lot here.

[00:01:33] Zoning is an important factor that real estate investors should always consider to maximize their returns,

[00:01:39] but also just understand what they're buying.

[00:01:41] Zoning laws dictate what type of buildings can be built, used and how they're used on particular property.

[00:01:47] It also determines what kind of business activities, public services, roadways, utilities and other elements are allowed in a specific area.

[00:01:56] It is a crucial component of urban planning and it helps guide the development of land to ensure the appropriate use of land for various purposes.

[00:02:04] If you're interested in investing in real estate, understanding zoning laws is essential.

[00:02:09] And in today's episode, that is what we are going to cover and we're going to answer the following questions.

[00:02:15] What exactly is zoning?

[00:02:18] How are the types and categories of zoning historically formed?

[00:02:22] What is the process of zoning?

[00:02:24] Like how are the decisions made and what are the financial benefits of some of those decisions?

[00:02:30] And more importantly, what recent changes in legislation support new types of zoning?

[00:02:38] Welcome back to the Canadian Real Estate Investor Podcast.

[00:02:40] My name is Daniel Foch.

[00:02:41] I am a real estate broker and investor.

[00:02:43] And my name is Nick Hill.

[00:02:44] I am a mortgage broker and investor.

[00:02:46] And today we are going to explore the world of zoning and try to shed some light on some often overlooked and forgotten wisdom.

[00:02:56] So let's start this story in the most sensible place.

[00:03:00] The beginning.

[00:03:02] We'll go back as far as we can to look at a brief history of zonings because the origins of zoning districts can be traced all the way back to antiquity.

[00:03:12] The ancient walled city was a precursor of modern land classification and regulation.

[00:03:17] Outside the city walls lay undesirable functions, typically those producing noise and odors.

[00:03:24] The space between the walls housed unsanitary and dangerous activities like butchering, waste disposal and brick firing.

[00:03:33] Within the walls stood civic and religious buildings as well as the residences of most citizens.

[00:03:39] Now, many ancient cities further started to classify these land types and uses within those said walls.

[00:03:47] This practice was widespread across various regions of the world.

[00:03:52] And some examples include China during the Zhao Dynasty back in 1046 all the way to 256 BC.

[00:04:00] In India during the Vedic area from 1500 to 500 BC.

[00:04:06] And the military camps that proliferated through the Roman Empire all the way back 31 BC to 476 AD.

[00:04:14] So, a couple of years ago, I guess you could say.

[00:04:18] During the age of enlightenment and the industrial revolution, cultural and socioeconomic shifts triggered a surge in urban regulations.

[00:04:26] These changes stemmed from new scientific thinking, the advent of mass production and complex manufacturing and rapid urbanization.

[00:04:36] And as industry relocated from homes, it transformed modern cities.

[00:04:42] The evolving relationship between home and work resulted in a more diverse mix of uses within residential areas.

[00:04:50] Now, let's fast forward to America in the early 1900s where the first modern zoning systems were implemented.

[00:04:59] The United States saw pioneering examples with Los Angeles during ordinances of 1904 and New York City with zoning resolutions in about 1916.

[00:05:12] So, now that we took a trip through time, let's provide some modern context now on what is zoning and how it works.

[00:05:20] So, Dan, as you had mentioned, zoning is the process of dividing land into various categories based on specific uses.

[00:05:30] Now, these categories usually include residential, commercial, industrial, as well as agricultural zones.

[00:05:37] Zoning laws dictate what activities are allowed in each zone and prescribe what type of buildings and structures are permitted there as well.

[00:05:46] Zoning also outlines the allowable density, building height and setbacks in the zones.

[00:05:52] So, essentially how big your structure can be and how many units you can put within it or how much square footage of the use it can include for industrial and commercial applications.

[00:06:03] Different levels of government regulate zoning in Canada, including municipal, provincial and federal.

[00:06:09] Each level of government has different responsibilities and roles in the zoning process.

[00:06:14] Now, here in Canada, zoning is governed on both local and federal levels with provinces having jurisdiction over most of the regulations.

[00:06:25] Provincial governments often issue permits for different land uses based on the purpose of each region.

[00:06:33] For example, certain areas may be designated as residential or commercial zones, while others may be reserved for industry or recreation.

[00:06:44] Now, I want you to think of kind of the outskirts of a city that you live in where there are, let's say, a bunch of more industrial type of sites.

[00:06:55] Well, that area would obviously be zoned for industrial or if you see a whole bunch of car dealerships in an area.

[00:07:03] You notice how they're always kind of clumped together or farms that are beside each other, right?

[00:07:08] We don't have a farm, a skyscraper, a house, a farm, a skyscraper house.

[00:07:11] Those are all kind of placed together.

[00:07:14] Exactly.

[00:07:15] Yeah. And one of the notable ones that's done outside of the outside of the municipal level is designation of employment lands, which municipalities often have to work within.

[00:07:26] The benefits of zoning can be that they create a bit more of an organized and cohesive community by establishing clear guidelines for land use and development.

[00:07:36] They enhance quality of life by separating incompatible activities.

[00:07:40] So, you know, you don't want, like you said, you know, maybe an aluminum smelting plant right next to your high rise building because that would cause complication.

[00:07:49] For instance, zoning can set distances between industrial plants and residential areas, promoting public health and safety.

[00:07:57] It also protects the environment by managing development density, encouraging green spaces and safeguarding important habitats for our fellow earth inhabitants of animals.

[00:08:11] Anyone else on the earth that we need to look out for?

[00:08:15] So I guess the question then is, can zoning be changed, right?

[00:08:20] What if I really want that smelting plant right beside my residential high rise?

[00:08:24] Well, yes, zoning can be changed is the short answer, but it can go through a rigorous process that in some cases requires public feedback and government approval.

[00:08:36] So the zoning change process has historically and often involved a series of public meetings, consultations with neighborhood groups and stakeholders, and then resulting in a public hearing.

[00:08:50] It sounds like the NIMBYs have entered the chat.

[00:08:53] Yes, they have.

[00:08:54] And remind me what a NIMBY is.

[00:08:56] NIMBY stands for not in my backyard.

[00:08:59] Okay.

[00:09:00] People who encourage development anywhere but nearby their house.

[00:09:04] Right.

[00:09:05] Well, they actually, they say that it's not in my backyard, but I think it's, it's, it's not in my general area or.

[00:09:12] I think there's another one.

[00:09:13] There's another one that we learned about, which is a banana.

[00:09:15] It's like build absolutely nothing anywhere near anything.

[00:09:20] Okay.

[00:09:21] So we've got NIMBYs and bananas in the chat, but maybe, you know, the days of NIMBYs and bananas stopping development across Canada has come to a close.

[00:09:30] So if the proposed development is not permitted under the existing zoning, the property owner or whatever agent is representing that property owner can go and apply for what's called a zoning amendment.

[00:09:44] And then the zoning amendment.

[00:09:45] Now, zoning amendment can legally change either the zoning designation of a property or the zoning regulations within whatever bylaw that property is regulated under.

[00:09:56] Now, zoning regulations.

[00:09:58] Now, zoning regulations.

[00:09:58] Let's talk about applying them to residential property, something that we're all quite familiar with on this show.

[00:10:04] So residential zoning laws control things like the use, the height and the density of buildings within residential areas.

[00:10:14] The zoning regulations stipulate that the district's minimum and maximum lot sizes, setbacks, its building height limits and other important details.

[00:10:23] So for example, zoning regulations also dictate the maximum number of units that can be constructed on a property and homeowners and investors should be and need to be aware of zoning regulations because they will definitely have an influence on the value of that property when it's either up for lease or up for sale or even a possible refinance depending on what you're trying to accomplish.

[00:10:48] For sure.

[00:11:17] Lot size, lot size, building coverage and design standards for commercial buildings.

[00:11:20] Parking spots is an interesting one because like there are minimum and maximum or sorry, minimum required parking spots for certain things like a high turnover or high weight use like a doctor's office as an example would be a good one where a lot of people waiting around and all of their cars are just sitting in the parking lot during that period of time.

[00:11:38] Commercial zoning intelligently intelligently.

[00:12:08] All of the stakeholders on staff and all of the stakeholders on staff and who basically would be impacted by the change that you're making.

[00:12:14] So the people who will be considered kind of in this zoning process would be your fire department because they need to know, okay, do we have adequate resources to fix this building if it catches on fire?

[00:12:27] Do we want to change the materials that are built or do we need more place to turn around to park the big fire truck or whatever?

[00:12:35] Traffic is another one.

[00:12:37] Do we need lights?

[00:12:37] Do we need to widen the road?

[00:12:38] Is it going to be, is it going to have significant impact on the surrounding, on the road that this building is located on?

[00:12:46] Right.

[00:12:46] Things like that start to get to consider water and sewers is another one.

[00:12:49] Is there enough water and sewers for us like allocation and services available for this property based on what the person wants to do with it?

[00:13:00] Yeah, it's a great point.

[00:13:01] I think it kind of becomes a combination of something we talk about a lot in real estate, especially real estate investing, which is the highest and best use.

[00:13:10] Right.

[00:13:10] Zoning really should be a marriage between what that area needs and what that area can support.

[00:13:18] So just as you said, Dan, right, it's just as important to make sure that there is enough, you know, that safety like such things like fire can can get there in service a lot like that.

[00:13:27] But at the same time, you know, is that lot best used as a public library or as a restaurant or as a gas station or as a doctor's office?

[00:13:38] You know, it makes me brings back some fond memories, Dan, because I like to think of one of the first projects that we ever worked on together and tried to kind of bring from, you know, an investment property to potential redevelopment.

[00:13:53] And you and I had a lot of fun when we initially looked through that that Uxbridge project.

[00:13:57] And because the zoning essentially was wide open.

[00:14:01] Right.

[00:14:01] I mean, we when we were initially engaging with that project, I believe it was correct me if I'm wrong, either operating as like a five or a six plex kind of thing.

[00:14:10] It was like a legacy century home on a larger lot in in the downtown of a downtown area of a small town.

[00:14:19] But, you know, when we started looking up what we could potentially put on there, it was a massive list.

[00:14:25] Right.

[00:14:25] Like literally you could put almost anything on there.

[00:14:27] And then at that point, it was for us to figure out, OK, well, what does this area of this little town need the most and what's going to have the best reception from people and what's going to be the highest and best use from that investor standpoint?

[00:14:40] And you and I went through a whole laundry list of everything that could be on there.

[00:14:45] And unfortunately, that project didn't get to where we wanted it to.

[00:14:49] But that's something that I encourage every investor to go look at is what can your property be zoned for if you were to go and, you know, tear it down or do some kind of larger infill development?

[00:15:02] Anything any any thoughts on that, Dan?

[00:15:04] Yeah.

[00:15:04] I mean, it doesn't even have to be large.

[00:15:05] Right.

[00:15:06] Like one of the things that because I typically wouldn't encourage beginner investors and honestly, even most like most investors who aren't relatively large entities, like with their own team, let's call it like, you know, an in-house staff of professionals to to take on a large scale development.

[00:15:24] I mean, we're seeing a ton of people get smoked by the market right now for people who did that, did just that.

[00:15:31] Right.

[00:15:31] They they had raw land or they bought raw land and they they took it through the entitlement process and they spent so much money.

[00:15:37] And now the the value on a buildable square foot basis is declined significantly.

[00:15:45] But there's these incremental changes that we're seeing almost like on an as of right basis.

[00:15:50] So as of right, you're able to fourplex pretty much any lot.

[00:15:55] And we just did our event about this, the unpacking multiplexes event, which was awesome.

[00:16:00] By the way, we had 300 people out sold like was 350 tickets or something like that.

[00:16:05] Yeah.

[00:16:05] Everyone's really happy.

[00:16:06] The panels were amazing.

[00:16:07] I learned a lot.

[00:16:08] I got to meet a lot of people.

[00:16:10] Yeah, it was really exciting.

[00:16:11] So stay tuned for the next big in-person event we're going to do.

[00:16:14] Yeah.

[00:16:14] And we'll have a we have a we'll have a quick kind of debrief discussion about about multiplexing and the event at the end of this episode, because essentially that is exactly what this episode is about is is being able to take a single family home or a lot or a single family home existed and being able to drastically change the use case of that property.

[00:16:34] Yeah, I guess like you're using the word drastic.

[00:16:37] And I don't know if I would like I'm just thinking like, you know, an increase of four units is not that significant.

[00:16:42] And and I think I would encourage people to look at like in their acquisition process.

[00:16:47] And this was a big topic of conversation during the event was, you know, what what what lots can we look at that have that make it really like a slam dunk deal for me to put a fourplex on this?

[00:16:58] And maybe you're not going to put a fourplex on it today because you don't have the cash to build that or zone that or whatever.

[00:17:03] I guess you don't need zoning because it's as of right.

[00:17:05] So but, you know, go through the building permit process and tear it down and, you know, manage the construction of a four unit building or adding all of the units.

[00:17:14] But you could in the meantime cash flow it.

[00:17:16] Maybe it's a duplex today and you could add two units with a large addition.

[00:17:21] You know, you cash flow it today and as you build up some revenue, you add those two units in a phased approach or later down the line, maybe on a after your first mortgage term on a refinance.

[00:17:33] You know, you'll often hear me say on this, you want to buy a deal that makes money today and makes money tomorrow.

[00:17:39] I think that if we can find those those deals using again, using an understanding of zoning, I would totally encourage investors listening to the show to do that.

[00:17:50] One of the big piece of it, too, is like these are all such new things.

[00:17:55] So we're by by the people who are participating in this.

[00:17:58] We're like trailblazers in the process of these incremental zoning changes.

[00:18:05] And if, you know, if you create a specialized knowledge and cultivate like a competitive advantage against other investors and you know all of the lots better, you know, all of the the minor variances better.

[00:18:19] You know that that that zoning element better than anybody else because there's new ones coming out every day in Toronto.

[00:18:24] There's major streets.

[00:18:25] Now they're going up to like, you know, a certain amount of units on major streets.

[00:18:28] It's cultivate as an investor, create this is an opportunity for you to create a competitive advantage against investors who have been doing this for 20, 30 years because everybody starts on the exact same page because all of the information is brand new.

[00:18:41] So that would be one like my biggest recommendation is for small investors, especially is understanding this stuff and understanding how to maximize it in the in the new ways that have just come out is going to be paramount for you to outperform everyone else in the market in the next several decades.

[00:18:56] Yeah, I love that.

[00:19:27] What they look for right multiple different people.

[00:19:30] We've had we had architects and planners financiers contractors that were all up there.

[00:19:35] They're doing these projects live and their takeaways are all different, right?

[00:19:39] They're doing stuff in different parts of the city.

[00:19:41] Some of them were saying, hey, corner lots are something that you want to look out for.

[00:19:45] Otherwise, they're saying, OK, yeah, corner lot plus, you know, close to a bus stop or a major road or a major transit hub.

[00:19:53] Plus, you know, you've got to have a certain amount of setback.

[00:19:55] Plus, you've got to, you know, watch out for what other houses are happening in the neighborhoods kind of thing.

[00:20:00] So it's not as complicated as just, oh, I think, you know, this has got a bigger backyard.

[00:20:04] I must be able to do something with it.

[00:20:06] No, you've got to have a deeper understanding of your local market.

[00:20:09] But also, you want to have an understanding of what you plan on doing with that thing over the lifetime, right?

[00:20:16] As Dan said, reanalyze it after the first mortgage term and, you know, you might be able to increase the density, increase the use case and increase the potential returns of that.

[00:20:27] And that brings me to my next piece here, which is why zoning matters so much for real estate investors.

[00:20:32] Because understanding zoning regulations is absolutely essential.

[00:20:37] It's going to dictate likely what types of properties you buy.

[00:20:42] Hopefully now that dictates what types of properties you buy on the way in, not just what types of properties you have and what you're trying to do with them.

[00:20:49] Right. Once purchased, for example, if an investor purchases property zone for commercial use, you've kind of got to use it for that purpose or risk even being fined by local government authorities.

[00:21:02] On the flip side, if you can buy something and, you know, it's it's zoned for multiple uses and you can figure out what the highest and best use is there, you're just likely to be much more profitable.

[00:21:14] You're likely to have it kind of fit in better with that neighborhood.

[00:21:18] Right. You don't want to put a gas station where a doctor's office should be or vice versa.

[00:21:23] Yeah. Now there are scenarios, obviously, like legal nonconforming stuff and like a couple of the multiplexes that I own would be legal nonconforming because they were multiplexed prior to the new building codes.

[00:21:35] I think like in Ontario would be I think it was like 1974 for more than two units in 1994 for two units.

[00:21:43] So you'll see a lot of stuff that ends up being legal nonconforming and you can see legal nonconforming commercial and residential zones and stuff like that as well.

[00:21:50] But typically, again, if you're using something that's always been its zone, like if you go try and live in a plaza as an example or convert a plaza to an apartment building,

[00:22:00] you'll probably be in violation of a bylaw and get in trouble for that, which is I think what you're.

[00:22:05] Yeah. Yeah. No, we have seen some cool stuff. Right. I mean, you see zoning changes and good examples of that are like if you look at some of the old church conversions or some of the old like factory loft conversions and that kind of stuff. Right.

[00:22:19] Those were obviously zoned for something else, but now people are living that now.

[00:22:23] I don't know if we'll get to the point where people are living in in in strip mall plazas.

[00:22:27] We, you know, we might get there. I hope not. But yeah, no, it's interesting to see.

[00:22:32] Yeah. Zoning laws are a critical tool in planning and land use decisions that help regulate land uses, densities and the design of buildings.

[00:22:41] So hopefully, you know, this episode has provided a clear understanding of the processes in Canada and really want to help you.

[00:22:50] And we're going to kind of go through some examples and some other things we talked about at the event, but just want to give you like an understanding of the nuances that would help you not just not get in trouble,

[00:23:00] but also really create a bit of a competitive advantage as an investor in the real estate market.

[00:23:05] Because I think that there is a lot of potential for outsized returns for people who understand this stuff well and are willing to forge new paths in the real estate space.

[00:23:19] Like I think the multiplex space is obviously the very glaringly obvious one, but, you know, I think we're seeing a lot of investors actually Darryl from the Canadian, I don't even remember what their things, the Canadian real estate show on YouTube.

[00:23:36] He's been doing a lot of the major, major street stuff that he talks about.

[00:23:40] And I think that the major streets is a, is a fascinating one because it's a little bit of a higher density.

[00:23:46] Like it would be bigger, bigger than this multiplex stuff.

[00:23:49] But I think, I think the multiplex stuff really unlocks a whole new world for beginner investors.

[00:23:53] And then I think the major street stuff really unlocks a whole new world for more experienced investors who have always been looking for that way to get outsized returns and to, to build equity in to, to like really scale a portfolio.

[00:24:07] Yeah. Anytime I hear outsized returns, I, I listen a little, a little more intently.

[00:24:14] So, okay, that's, that's great.

[00:24:15] Now that we've kind of got a, you know, an understanding of why zoning exists, you know, the different types of zonings, the changes that can be made.

[00:24:25] Let's look at some examples of some major Canadian cities here, Dan.

[00:24:30] We'll look at kind of what they used to be zoned for.

[00:24:34] And then of course you were well aware that there have been rollouts of, of fairly drastic changes or, and, you know, proposed and drastic changes across.

[00:24:44] And I would, you know, again, using the word drastic here, I do think that going from, you know, very restrictive zoning to being like, okay, you know, go ahead, put three, four plus units on something.

[00:24:53] And I do think that could have a drastic effect.

[00:24:56] So why don't you start telling me about, you know, the center of the universe here?

[00:25:01] Yeah.

[00:25:01] And you know what I like, I do, I would agree that a four X increase in density is across the city is pretty drastic.

[00:25:08] So you're, you're right on that one.

[00:25:10] Wow.

[00:25:10] Can we get that on record?

[00:25:11] I guess it is on record if it's being recorded here.

[00:25:13] In Toronto, over 62% of residential land is, or was exclusively zoned for detached housing.

[00:25:21] This is called the yellow belt and it refers to areas that only allow detached or semi-detached houses.

[00:25:27] And again, the reason that we often reference the center of the universe is because they seem to be a little bit ahead on policy stuff because they have the biggest problem to solve when it comes to the housing crisis.

[00:25:35] But also if Toronto's, trust me, if, if, you know, we started the episode talking about red tape, if, if it can get through Toronto's red tape, I honestly feel it can get through the red tape of any place in the country.

[00:25:47] So.

[00:25:47] Yeah.

[00:25:47] Good point.

[00:25:48] Yeah.

[00:25:48] Except for a few lots, most of the yellow belt had only permitted single family houses that functionally banned any moderately higher density development, which was like a duplex.

[00:25:57] You could get like a basement apartment, like an ADU typically, but this effectively closed the door to people and families who couldn't afford multimillion dollar homes in these areas.

[00:26:06] Public opinion on detached housing zoning was divided.

[00:26:10] Opinions, sorry, opponents claim that the major factor in Toronto skyrocketing real estate prices and add, and they would advocate for allowing diverse housing types in these areas.

[00:26:20] I mean, it is kind of a catch 22 because now that you've increased the output of all of these properties, their immediate land value kind of goes up like, Oh, I could buy this to build one house before.

[00:26:31] And now I can buy it to build four houses, but single family homeowners worry that densification would alter the character of their neighborhood.

[00:26:37] These are the banana people I was talking about, um, which, and potentially devalue their properties, which is actually just really not how urban economic work, urban economics works.

[00:26:47] Typically if your neighborhood's developing, then your value of your property is going to go up.

[00:26:53] Yeah.

[00:26:53] Yeah, exactly.

[00:26:54] And, and, uh, you know, we're seeing policy as you said, Dan, right.

[00:26:58] This, this either, uh, a lot of this stuff was, um, the case and we're seeing it change.

[00:27:03] Now from our multiplexing event last week, which obviously we're both still riding a little bit of a high from amazing event.

[00:27:10] As you said, Dan, I was on a panel with Greg Ewins of Batori planning.

[00:27:16] Greg is an expert has worked both public and private sector.

[00:27:19] And, uh, correct me if I'm wrong here, Dan, but he said, I believe there is over 450,000 lots in, uh, Toronto that are good for multiplexing a property.

[00:27:33] And Toronto is now changing, even though there is still red tape, Toronto is now changing its ultra restrictive rules around a lot of that single family zoning.

[00:27:44] So again, you know, if you look at a map of here of Toronto, you, you'd assume, especially if you're comparing it to, you know, major cities in, let's say Europe that, you know, not, not, there's not going to be a lot of single family homes, you know, within a stone's throw from like the CN tower for instance, or something like that.

[00:28:04] But, but there is, um, so we know Toronto is bad.

[00:28:07] We already knew that, but let's look at some of the other usual suspects here in Canadian real estate.

[00:28:12] Dan, let's fly all the way over to the West coast and look at Vancouver where 80% of residential land is zoned for detached single family.

[00:28:22] Yeah.

[00:28:23] That's so wild to me.

[00:28:24] Like whenever you see the Vancouver example, cause you never think about it.

[00:28:28] Like, I feel like they just kind of snuck by on the criticisms here, you know?

[00:28:32] Yeah.

[00:28:33] Yeah.

[00:28:33] I mean, the chill, chill West coast, best coast, but, uh, I guess West coast, best coast, if you're a single family zoned lot.

[00:28:41] Um, you know, the city in Vancouver, you know, we've may have talked about Vancouver being unaffordable, I think probably once or twice on the show before.

[00:28:49] Right.

[00:28:50] I mean that the housing crisis and the, the affordability crisis is, it's probably more serious there than anywhere else.

[00:28:56] And although one family dwelling zones take up 80% of residential land in Vancouver, the city does not exclude secondary suites on single family houses.

[00:29:06] So it's very common to see multiple households cohabitate inside a single family home when that's essentially all you're able to do.

[00:29:16] Yeah.

[00:29:17] I think, um, you know, it's, it's interesting to see in that lower man mainland area.

[00:29:22] Like I think Surrey is expected to, um, surpass Vancouver by 2030, like simply because they're able to manage their population growth better.

[00:29:33] So that's kind of fascinated me nearly a decade ago.

[00:29:36] The price of a detached house in Vancouver had already hit at least a million dollars.

[00:29:40] Now a single family house in Vancouver is twice the price of the median house price in Canada.

[00:29:44] So obviously something is not working there.

[00:29:48] According to 2018 data of a Vancouver buyer needs a household income of 238,000 to qualify for a conventional mortgage on a detached home.

[00:29:57] I feel like it's like over 300 grand now on that national bank study.

[00:30:01] Only 1% of the families in Vancouver can meet that.

[00:30:05] And although I don't know how, how much of that is true.

[00:30:07] Cause there's like that whole thing of the unexplained wealth ordinances now where a lot of people are like fake or they're,

[00:30:14] I guess they can, can claim like some sort of discount.

[00:30:17] So they're all fake.

[00:30:18] They fake their income to be very low, but they're all like living in, you know, 10 or $20 million houses.

[00:30:23] Right.

[00:30:24] So I don't know how much that income.

[00:30:25] You make $30,000 a year, but live in this $30 million home.

[00:30:28] Okay.

[00:30:29] Yeah.

[00:30:29] Now the good thing is Dan, cause this sounds pretty bleak, right?

[00:30:33] Toronto, Vancouver, super restrictive zoning, very unaffordable, but there are historic zoning changes that are posed to take effect.

[00:30:42] Uh, this summer across BC, which are going to usher in what a lot of locals over there are saying a new era of housing opportunities.

[00:30:52] And I think that's what you and I believe that's going to happen across the country as well.

[00:30:56] As we kind of go through this Renaissance period of building here in Canada,

[00:31:01] as we're essentially forced to build our way out.

[00:31:04] Right.

[00:31:04] I mean, CMHC says we need somewhere between 3.5 and 4 million homes in the next, you know, 10 years or less.

[00:31:12] How are we going to do that?

[00:31:13] Right.

[00:31:13] The big developers aren't going to do that.

[00:31:15] But if we look to thousands and thousands of small cap developers that can go from one to four units on properties, maybe that could help.

[00:31:23] So the looming changes mandate that every municipality in the lower mainland and most areas within municipalities of over 5,000 people throughout BC to allow at a minimum four plexes up to three stories tall on lots that are currently zoned for single family or duplexes,

[00:31:42] which is a lot that is larger than 3,014 square feet.

[00:31:47] So for larger lots or those within 400 meters of frequent transit, six units can be built.

[00:31:54] Providence estimate that these changes could result in over 130,000 new small scale multi-unit homes over the next decade.

[00:32:01] So that looks like some pretty positive change to me.

[00:32:06] Now, before you jump in there, Dan, I also want to just point out that with these three plexes, four plexes, you know, we are seeing a different type of housing stock being created as well.

[00:32:16] You and I kind of complain a lot that, you know, obviously Toronto condos and condos in general are not something that you and I are overly bullish on.

[00:32:25] And, you know, we have our reasons.

[00:32:27] One of them, although, is that condos kind of restrict human life in a way, right?

[00:32:35] You know, all we do is build one bedroom.

[00:32:37] So if all we're doing is building one bedrooms, but we're also supposed to be having more kids, we're supposed to put those kids in those one bedrooms.

[00:32:43] Now, what we're seeing with a lot of these smaller scale developments, and this came up with when Vince Gaetano, our friend and partner, when he was talking, he makes sure to put minimum some two and even three bedroom units in his multifamily properties and multiplex properties.

[00:33:02] Because he's like, I don't want just, you know, why would I put a bunch of, you know, one units in there when I can have a family move in there and stay in there for years?

[00:33:12] Yeah, I think it's an excellent point.

[00:33:15] And I think the municipalities are definitely giving more concessions for units that have, that are family friendly because we're having a shortage of family friendly living.

[00:33:24] And, you know, the birth rates in Canada are getting brutal because, or they're falling significantly because people can't afford to have kids.

[00:33:35] And there aren't a lot of, and I think housing is kind of really at the core of that.

[00:33:39] The one other thing I would mention that I think is important stood out to me in what you read there was these larger lots within 400 meters of a frequent transit network.

[00:33:48] One thing I would encourage people to do, because this is sort of a new layer that's being added on top of the zoning is Google major transit station areas for your municipality.

[00:33:56] And in those areas, you're going to end up getting a greater degree of density than you would have in, you know, comparably if you're within a, again, within walking distance of a major transit station area.

[00:34:09] I know we had a multiplex for sale in just off the Danforth in Toronto that was within an MTSA.

[00:34:17] And there was a lot more interest in that than comparatively a, you know, I had another multiplex for sale in Etobicoke and their price very similar.

[00:34:25] Income was very similarly and the interest was in the one within the MTSA.

[00:34:30] So look at that because that's a new evolving thing.

[00:34:33] Again, talking about creating this competitive advantage, knowing more about your market than anybody else, knowing what those little circles are around.

[00:34:41] And if you can know that before the sellers of these properties know it, you know what I mean?

[00:34:45] And they think, oh, I'm just selling a random house that's, you know, the same as every other house in this market.

[00:34:53] And, you know, it's within 400 meters of a major transit station.

[00:34:59] Then now all of a sudden you've got a competitive advantage and a way to create more value from the deal than other purchasers, but also than the sellers.

[00:35:07] Yeah. Great points.

[00:35:09] I want to, I guess we'll jump over to one of the oldest cities in the country, full of history, charm and multifamily properties and a lot of vintage urban planning.

[00:35:17] I would say a good investment market that doesn't usually suffer from the affordability issue that other major Canadian cities do.

[00:35:24] This is Montreal where 45% of land was once used for detached residential construction.

[00:35:30] Yeah. So the city has focused on building more low and mid-rise apartments instead of the tall skyscrapers or single detached homes.

[00:35:39] So really, you know, living up to that kind of European flavor that Quebec and Montreal bring to Canada.

[00:35:48] More than three quarters of the city's residents are apartments in duplexes, row homes, semi-detached homes, or buildings with fewer than five stories.

[00:35:57] So just a drastically different landscape, urban landscape than you would see in the likes of Toronto or Vancouver that we just spoke about.

[00:36:05] More than double 35% of Canada as a whole.

[00:36:09] So just a real outlier when it comes to Canadian cities here is Montreal.

[00:36:15] So therefore, Montreal has the least amount of land covered by single family homes among major cities here in Canada.

[00:36:23] Yeah. Yeah. And I think you see a lot of this in a lot of like, well, in your Quebec markets, especially where they are older and they were built sort of in that, you know, the French Canada or, or like biggest colonial area where you're building with this more European housing style, right?

[00:36:38] Where you have the ground floor retail sometimes, and then two, maybe two units above or three units above and a lot of street front, you know, very walkable, but not, not, not tall.

[00:36:51] Cause they didn't have the, the, the building methods back then.

[00:36:54] But so, you know, maybe three, four stories max.

[00:36:56] Now, maybe let's, let's take it another jump back West to one of Canada's most booming markets right now.

[00:37:02] Probably the place we get the past about the most on this show where at one point over 67% of Calgary land was zoned for single detached housing.

[00:37:11] And in, in Calgary, they actually are, they just went to up zoning to four plexes as well.

[00:37:17] So that's obviously due for some change.

[00:37:19] And in another major city in Alberta, Edmonton, where homes are affordable and investors and end users are flocking there because of this affordability of real estate, almost 70% of the land there was zoned specifically for detached homes.

[00:37:34] But these markets are both changing as well.

[00:37:37] Since the federal government's 4 billion, sorry, you want to jump in there?

[00:37:40] Nope. Nope. Yeah. I was just gonna, just gonna say that, you know, it, it is funny that, that now we're seeing the biggest changes in, in, in the market that is attracting probably the most Canadians and international attention alike.

[00:37:55] So yeah.

[00:37:56] I wonder if that's correlated.

[00:37:58] Yeah. I think affordability will always be in style, right?

[00:38:00] Yeah. That's what I was hoping you would say.

[00:38:03] Since the federal government's $4 billion housing accelerator fund was launched in May of this year,

[00:38:08] cities have been rushing to claim the incentives that are tied to zoning changes.

[00:38:12] In the last few months, Ontario cities of Brampton, London, Vaughan and Hamilton, as well as Halifax and Kelowna have all signed agreements with the federal government.

[00:38:20] Others like the Ontario cities of Mississauga, Kitchener and Burlington, as well as Calgary are making significant gains in their zoning changes.

[00:38:28] So, you know, and this is something that it just not to toot our own horn, but just to get you to keep listening.

[00:38:33] Cause we, we said this like the first couple of months into the show, you know, we're like, and I'm, I'm actually very surprised how quickly it's been ruled out.

[00:38:42] Like we were saying, oh, you know, within 10 years, the majority, I think the majority of, of, um, residential land in, you know, in, in the country will be upzoned to multiplexes.

[00:38:52] And now it's like, you know, it's probably, I mean, given that four and 50,000 houses in the city of Toronto were upzoned.

[00:38:58] I think if you think on a per lot basis, we're probably almost there where the majority of lots in Canada, single family lots in Canada are getting upzoned to four units.

[00:39:07] Well, there we go.

[00:39:07] Consider our horns tooted.

[00:39:09] I, uh, I love it.

[00:39:10] This, all of this has led some extra experts to argue that Canada is witnessing nothing short of a zoning revolution.

[00:39:19] Much of the country zoning restrictions mean that developers were only allowed to build against single family homes or condo towers in these residential areas.

[00:39:29] Now there's a huge chunk of housing options that are missing.

[00:39:33] Again, you've heard us bring this up.

[00:39:35] This is called the missing middle, but we're not just talking about the missing middle.

[00:39:38] We're talking about even the smaller stuff.

[00:39:40] So it's been really fascinating to watch how quickly that's happened after almost 50 years of that single family zoning being locked in place, said Carolyn Witzman, which is a housing policy expert and expert advisor on the housing assessment resource tools project.

[00:39:57] Part of the reason many cities are accelerating the pace of change is the federal government's housing accelerator fund.

[00:40:02] So the federal government has been pushing municipalities to make these rapid zoning changes.

[00:40:06] This includes especially pushing them to build more fourplex and mixed housing units.

[00:40:12] Yeah.

[00:40:12] I mean, people maybe didn't realize, I think they are coming to that realization now, especially if you've been listening to the show, that one of the reasons that certain communities in the country don't have enough homes is because it was literally illegal to build the kind of homes.

[00:40:29] Homes that people needed and could afford to live in.

[00:40:34] Yeah.

[00:40:34] And I think Edmonton City Council just passed a new sweeping bylaw that would allow density in the city to boom.

[00:40:40] The changes will now allow residents to build up to three stories in residential buildings in all neighborhoods across the city.

[00:40:46] So they're not just stopping at fourplexes.

[00:40:49] They are going all the way to three story buildings in neighborhoods.

[00:40:53] Yeah.

[00:40:53] Yeah.

[00:40:54] Super exciting.

[00:40:54] So I did want to just close out today's episode because it was, I wanted this one to come out after we had done our multiplexing event, Dan, which happened last week, which was really, really awesome.

[00:41:07] Really great feedback from everybody there.

[00:41:10] And I wrote a little kind of, you had a really great opening remarks, Dan, and I went up and had the privilege of kind of closing it out.

[00:41:19] And I just wrote this couple brief little paragraphs here that I thought really stringed what we were trying to do with that event together.

[00:41:28] So if you're okay, I'd like to close out this episode by reading those closing remarks.

[00:41:32] So the first thing that I want to discuss is early adopters.

[00:41:36] Those who embrace new technology, products, or ways of doing things.

[00:41:41] Now being an early adopter comes with challenges.

[00:41:43] We've got to forge the way for the majority to eventually follow.

[00:41:49] However, early adopters also present major opportunities to become key players in this space.

[00:41:54] But what early adopters need most is one another, which leads me to my next point.

[00:42:00] Who, not how.

[00:42:02] Now, again, if you listen to the podcast, you've heard us talk about this concept a lot.

[00:42:07] And we also like to talk and teach it in our realist community.

[00:42:11] But have you ever had an idea or a goal but lacked the time or the expertise to execute it?

[00:42:18] Well, a simple yet powerful mindset shift to change from thinking, how do I do this to who can help me do this?

[00:42:28] Building the who around you can help you achieve your goals.

[00:42:31] I can confidently say that I would definitely not be here without the much more smarter and more capable people on my team who've helped me overcome challenges.

[00:42:40] And it's clear from the panel discussions that we saw today and, Dan, from this episode that we've gone through that you need multiple people on your team to help overcome your challenges.

[00:42:52] Right?

[00:42:52] This is a new world that we're entering into.

[00:42:55] So the real question is, where do you find the who's in your life?

[00:43:02] And obviously, this is a podcast.

[00:43:03] And this sounded a lot better when I was like, okay, everyone go do this right afterwards.

[00:43:07] You can't do this.

[00:43:08] But I really want to drive this point home because it's the same thing for all of you listening.

[00:43:12] And that is, you find those who's in your life by networking.

[00:43:17] Now, networking is the best way to find those people.

[00:43:20] It's about sharing, not just taking.

[00:43:22] It's about forming trust and helping one another towards goals.

[00:43:26] The next partner or power team member that you're looking for could very well be at the next networking event that you are at.

[00:43:33] So remember to add value, ask questions, and that'll allow us to all work together towards our goals of this and take advantage of this zoning revolution that we're seeing here in Canada.

[00:43:45] If only there was a monthly networking series where people could go meet fellow real estate investors across the country.

[00:43:53] On that note, go to one of our networking events the second Tuesday of every month.

[00:44:00] Dan, wow, time is flying.

[00:44:02] You and I are actually flying out to the Paris of the Prairies.

[00:44:06] We're flying to beautiful Saskatoon, Saskatchewan.

[00:44:09] We'll be there September 10th for our next networking event.

[00:44:12] If you wanted any more information about the event that we just had on unpacking multiplexes, reach out to the show and hope you got a ton of value out of this episode.

[00:44:23] Thanks so much for listening.

[00:44:24] We'll talk to you soon.

[00:44:26] The Canadian Real Estate Investor Podcast is for entertainment purposes only and it is not financial advice.

[00:44:33] Nick Hill is a mortgage agent with Premier Mortgage Centre and a partner in the G&H Mortgage Group.

[00:44:40] License number 10317.

[00:44:43] Agent license M21004037.

[00:44:48] Daniel Foch is a real estate broker licensed with Rare Real Estate, a member of the Canadian Real Estate Association,

[00:44:56] the Toronto Real Estate Board, and the Ontario Real Estate Association.