Secondary income

Rental crunch, rising housing costs highlight value of secondary suites for first-time homebuyers

Like many buyers, Karen Coyle had a checklist when shopping for her first home.

Near the top of that list was the option to add a secondary suite.

"I wanted to make sure I bought a house I would be able to afford without the help of the income from the suite," said Coyle. "But I also wanted to buy a house that could easily be suited, so that I would have a buffer in case mortgage prices rose." She eventually settled on a home in Bridgeland in 2012, adding a secondary suite less than a year later. Looking
back, Coyle admits her first foray into Calgary's hot housing market has been successful thanks in part to the income
generated from her basement suite.

With finances providing the main obstacle for most buyers, adding income via a secondary suite is becoming an attractive option for many Calgarians said Laura Parsons, mortgage expert for BMO Bank of Montreal.

According to CREB® statistics the benchmark price of an average Calgary home increased by 9.5 per cent to $446,300 in April 2014 from one year prior. That would mean a typical homebuyer, with a 20 per cent down payment on a 25-year amortization, would have a monthly mortgage payment of $1,878 based on a five-year residential rate average of four per cent.

"If it's a legal suite... for sure it does help," said Parsons. "Having a renter downstairs that pays you $1,100 of an $1,800 mortgage payment will allow you to make improvements to the property – will allow you to have a nest
egg and an emergency fund."

Calgary's current rental crunch is further supporting the potential value of secondary suites to homebuyers.
The city vacancy rate sits at one per cent – the lowest rate of any major urban centre in Canada, according to Canada Mortgage and Housing Corporation's (CMHC) Fall 2013 report on the city's rental market.

While vacancy rates have decreased, the average rent for an apartment in the city has increased, rising by 7.9 per cent from October 2012 to October 2013.

Even Calgary Mayor Naheed Nenshi, who has been a big supporter of secondary suites, describes the current rental situation in the city as a crisis.

"You all know that we've seen phenomenal growth in Calgary over the recent years, but our vacancy rates are
too low, and prices are taking housing out of reach for too many Calgarians," he said at the launch of an affordable
housing complex earlier this month. "So we have a vicious cycle. When people who are working cannot afford to get into their own homes, then they are renting at market rents. The market rents go up, and that keeps people who are working but not making as much money from being able to afford those market rents..."

Having rented out her suite for two years now, Coyle has witnessed the local demand for rental housing first hand.

"After my first renter left – who had already agreed to rent the suite before it was complete – I had such a huge response to my ad that I decided to have an open house so I could meet as many potential renters as possible," said Coyle, who saw more than 60 applicants during the two-hour open house.

Coyle's renovation was aided by the City of Calgary's secondary suites grant program. Under the program, which ended in 2012, homeowners could receive as much as $25,000 to help offset the cost of adding a secondary
suite to their home.

Having purchased a home in an area already zoned to allow the suites, Coyle estimates her renovation – which was
done from the ground up – cost about $35,000. Since she had applied for the city's grant program before it expired, and built a legal suite, she received $25,000 of that back in grants. The city does not have any current plans to renew the program.

Discussions surrounding secondary suites dates have been a hot topic in recent years. In June 2010, the City of Calgary held a series of consultation workshops, including consultations with builders, REALTORS® and homeowners. One of the key messages from the workshops was how secondary suites could help seniors and low-income individuals remain in their homes.

A motion to legalize secondary suites across the city was defeated by a 9-6 vote last July following the floods that struck the city.

* Part one of three in a series on secondary suites in Calgary and area