This week, the Minister of Finance announced a series of impactful measures to address Canada’s ongoing housing crisis. The announcement, made alongside key government figures, emphasized unlocking underused properties and supporting homeowners in building secondary suites to increase the supply of affordable homes nationwide. For many long-term homeowners, this is the trip back before the mortgage stress test, when default-insured refinances were a prominent home financing option for Canadians.

The demand for housing, particularly detached homes and single-family homes has reached unprecedented levels, pushing the issue of housing affordability to new heights. Over the past few years, inflationary pressures have caused mortgage rates and property taxes to rise, leading to a nationwide slowdown in housing and mortgage activities. As homeownership becomes increasingly challenging, many Canadians opt to rent instead, often resigning themselves to this choice rather than pursuing homeownership. This shift reflects a broader trend in the real estate market, where the dream of owning a home is becoming less attainable for a significant portion of the population, especially young Canadians.

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Key Takeaways

• Secondary suite reforms will allow homeowners to refinance up to 90% of their home’s value to build secondary suites.
• The vacant land tax consultation will provide the federal government with feedback on the effectiveness of residentially zoned vacant land taxes in encouraging land development.
• Unlocking 70 underused federal government-owned properties for housing development will contribute to the goal of building 4 million homes by 2031.

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Increasing Housing Supply with Secondary Suite Financing

The recent federal housing program seeks to simplify the process for property owners to create additional living spaces, such as basement units or backyard suites. Starting January 15, 2025, NHA-approved lenders and default insurers will offer mortgage refinancing for homeowners looking to create these additional living spaces. This measure aims to increase community housing density and provide more rental options, helping ease the pressure on Canada’s housing market.

To obtain approval for refinancing, homeowners must increase the number of residential units on their property. The refinancing funds can be used to build additional housing units. The goal is to create more living spaces that can accommodate the growing population and address the rising demand for housing.

Refinancing funds are explicitly designated for the construction of secondary suites. These suites can be laneway houses, basement apartments, or units built above garages. Unique structures such as pool houses may also be considered secondary suites. This initiative is designed to diversify housing options and offer more choices to residents.

The program permits a loan-to-value (LTV) ratio limit of up to 90%, a notable figure given that Canada has not seen LTV refinances at this level since 2010. The property value used to calculate the LTV will be assessed after the improvements, including the addition of secondary suites, are completed. It is important to note that the program caps eligible property values at $2 million.

It may exclude high-value neighbourhoods but includes most average-priced homes, even in Toronto and Vancouver. Borrowers can also access loans with a maximum amortization period of 30 years. Additionally, properties can accommodate up to 4 units to meet federally regulated lender’s residential insured mortgage guidelines as long as they comply with local zoning regulations and the units are fully self-contained, reflecting the government’s strong commitment to addressing housing challenges.

Mortgage Insurance Reforms:

• Homeowners can refinance their insured mortgages for secondary suites, accessing up to 90% of their home’s value (including the added value from the secondary suite).
• The home price limit for refinancing will be increased to $2 million, allowing homeowners in all housing markets to benefit from these reforms.
• Homeowners can amortize their refinanced mortgage over 30 years, making payments more manageable.

These reforms are part of a broader effort to maximize the use of existing properties, helping homeowners generate additional income and build affordable rental units. Secondary suites provide an opportunity for multi-generational living, such as a retired couple moving into a laneway home while their children occupy the main house.

Taxing Vacant Land as a Strategy to Encourage Development

To address the housing shortage further, the federal government has launched consultations on the taxation of residentially zoned vacant lands. This initiative encourages provinces, territories, and municipalities to design vacant land tax policies and motivate landowners to develop unused properties into housing.

Taxing vacant residentially zoned lands could:

• Encourage development to incentivize landowners of residentially zoned to build homes instead of leaving their properties unused.
• Discourage landowners from speculative land holdings by making them costlier and pushing owners to utilize the land.
• Generate more revenue by collecting taxes that could fund further housing initiatives.

Unlocking Federal Properties for Housing

An additional 14 underused federal properties have been added to the Canada Public Land Bank, bringing the total number of unlocked sites to 70. These properties, ranging from vacant lots to underutilized federal buildings, are now available for housing developments. The government’s ambitious housing strategy is repurposing these properties into 250,000 new homes.

The Canada Public Land Bank is vital to the government’s plan to tackle the housing crisis by unlocking publicly owned lands for residential development. These efforts are part of a larger goal to build 4 million homes by 2031.

Frequently Asked Questions (FAQs) on Secondary Suites Financing

Final Thoughts

The federal government’s new housing initiatives, including reforms for building secondary suites and unlocking residentially zoned vacant land, are significant steps toward addressing Canada’s housing crisis. By encouraging homeowners to build additional rental units and turning idle federal properties into housing developments, the government is working toward its goal of building 4 million homes by 2031.

If you’re a homeowner looking to explore how these changes can benefit you, or if you’re interested in adding a secondary suite to your home, contact nesto mortgage experts today to learn more about your refinancing options and how you can take advantage of our best mortgage rates and contribute to solving Canada’s housing shortage.

Are you still deciding whether to go fixed or variable or waiting for rates to drop? Nesto’s Prime Time can help you save with a discounted mortgage payment now while waiting to lock in later. Contact nesto’s mortgage experts to help you choose the best mortgage for your unique needs.

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