Rising home prices, Victoria’s low rental vacancy rates and new mortgage regulations have all combined to create a market for homes in which revenue suites either already exist or where their development is a possibility.
The upward pressure on Victoria’s housing prices has pushed the average cost of a new home up by 14.7 per cent in the past year to an average value of $638,700, according to the Victoria Real Estate Board.
When coupled with the new down payment rules that came into effect on Feb. 15, it has become increasingly difficult for first time homebuyers to get into the market. The new rules require a five per cent down payment for the first $500,000 of value on a new home and 10 per cent down on the next $500,000. For a property valued at $750,000, it means that a buyer will have to scrape together an additional $12,500 for the down payment.
Buyers also need to think about closing costs. Legal and transfer fees can amount to another 1.5 per cent to four per cent of homes costs. Those costs include lawyer fees, GST and PST.
“It’s all contributing to having them (first-time buyers) look toward revenue suites as part of their purchase. A portion of that revenue can be applied to their own income to allow them to qualify where they otherwise might not,” said Carolyn Maycock, mortgage broker for Mortgage Alliance.
That qualification is based upon the stipulation that total monthly housing costs should not exceed 32 per cent of gross income.
But even when homebuyers have a sufficient down payment, and can qualify for the necessary mortgage, many are still looking at the rental revenue potential presented within the properties they buy.
Jack Barker, of Jack Barker and Associates Real Estate, has seen this trend in play when presenting listings to new buyers.
“Even for those properties where rental suites don’t exist, we’re seeing buyers come in with an eye to whether the homes might be converted at a future date. They’re looking at ceiling heights in lower levels, the number of bedrooms … all with a view to generating some revenue in the future to help cover costs,” said Barker.
Barker added Victoria’s low vacancy rate has combined with the increasing attractiveness of the city as a place to live and visit to provide an incentive for homeowners to consider the creation of rental units within their home.
“Rents in Victoria are high enough so that it can generate a lot of income for a home owner,” said Barker.
The rise of sharing economy concepts like Airbnb has fanned those flames even further.
“In the right situation, home owners can generate more cash from a six month Airbnb rental than they could renting out a granny suite for a year,” said Barker. “Buyers are now looking at buying homes, not just as an investment and a place to live, but as a potential revenue source to raise their income.”