Vancouver’s new multiplex zoning laws are being promoted as a potential solution to the city’s housing affordability crisis. By allowing multiplex developments on single-family lots, the city aims to diversify housing options without drastically changing neighborhood character. However, the financial feasibility of these projects may be overestimated. While the concept of converting single-family lots into multiplexes seems appealing, the actual costs and complexities reveal a different reality.
What is a Multiplex?
A multiplex is a building with two to eight units, positioned between high-density apartments and single-family homes. Vancouver’s new zoning allows up to six strata units or eight rental units on a single-family lot, ideally creating more affordable housing. Yet, this doesn’t account for the substantial costs, taxes, and risks involved, leaving homeowners and developers questioning whether these projects are financially sensible.
Multiplex Zoning Allowances: Is 1.0 FAR Enough?
The city permits a 1.0 Floor Area Ratio (FAR) for multiplexes, allowing a buildable area equal to the lot size. For a standard lot (33’ x 122’), this provides up to 4,026 square feet of buildable space. However, setbacks, height restrictions, and parking requirements reduce the actual usable area, potentially diminishing returns.
Construction Costs: Multiplex vs. Single-Family Home
Building a multiplex is more expensive than a single-family home. Custom homes in Vancouver cost $350 to $450 per square foot, while a multiplex, with added requirements like enhanced plumbing and fire safety measures, costs $450 to $550 per square foot. Thus, a 4,000-square-foot multiplex would cost between $1.8 million and $2.2 million, excluding financing, legal fees, and taxes.
Financial Realities: Does a Multiplex Make Sense for Homeowners?
Let’s assume you own a $2.8 million property and consider adding a four-unit multiplex, with construction costs between $1.8 million and $2.2 million. Selling four units at $1.15 million each generates $4.6 million. After construction costs, you have $2.4 to $2.8 million left before taxes, but the CRA will tax profits as business income, potentially taking 40%. This leaves around $1.56 million net cash. This is far less than the $2.8 million net cash you’d retain from simply selling the home tax-free under the principal residence exemption.
From A Developer's Perspective
For developers, the outlook is even tougher. If a developer buys a property for $2.8 million and spends $1.8 to $2.2 million on construction, the total investment ranges from $4.6 million to $5.0 million. Selling four units at $1.15 million would yield significant losses. Banks simply do not finance projects with no returns.
Economies of Scale: Building Multiple Multiplexes
To improve financial viability, developers might consider building multiple multiplexes simultaneously, hoping for savings through bulk purchases and shared crews. Yet, managing logistics across multiple sites can negate these savings, with higher costs in permitting, administration, shipping, and labor—which would likely cost 18-23% higher per square foot more than a single-site project.
Streamlined Permits: Will They Reduce Carrying Costs?
Recognizing the high carrying costs developers face during lengthy approval processes, the city aims to streamline permits by 2025. Although this could reduce some interest payments, the anticipated profit margins for multiplexes simply aren't there to attract developer interest.
Alternative for Homeowners: Consider a Secondary Suite
For many homeowners, building or legalizing a secondary suite is a far better alternative. Secondary suites:
A well-planned suite may cost $350 to $450 per square foot to build out. An 800-square-foot two-bedroom suite would cost $280,000 to $360,000, with monthly payments between $1,800 and $2,400, creating a net cash-positive asset.
Conclusion: The Multiplex Plan’s Financial Viability Is Limited
Vancouver’s multiplex zoning plan may have been well-intentioned, but it falls short as a financially viable solution. For homeowners and developers alike, the costs, taxes, and risks outweigh the benefits. A secondary suite offers a more practical and profitable approach, providing additional income while enhancing property value and supporting the city’s housing needs.