Suite shift

CMHC change will allow buyers to use more rental revenue as qualifying income

A rule change from Canada's Crown housing corporation may provide more fuel for Calgary's long-running debate on secondary suites.

Set to take effect Sept. 28, the change will allow homeowners to count 100 per cent of rental income from legal secondary suites as qualifying income applying for a mortgage.

Up from the current level of 50 per cent, Canada Mortgage and Housing Corp. said the changes were made after a review of the corporation's policy for treatment of rental income.

"It appears as though CMHC is making these changes to assist with affordable housing," said Nolan Matthias, broker at Calgary's Mortgage360.

"In the past it could be argued that changes to the rules surrounding investment properties were typically motivated by the housing market in general, these changes appear to be more about encouraging legal secondary suites which, thanks to their low cost in comparison to apartments, are a very effective means of providing affordable housing.

While the changes are expected to have a significant impact in markets such as Vancouver, where the 26,600 legal suites make up nearly 60 per cent of the city's rental stock, the effect in the Calgary market is less certain.

While the number of legal suites in Calgary numbers around just 500, the number of suites deemed illegal – either due to building codes or zoning restrictions – has been estimated as low as 16,000 and as high as 100,000.

As a result, CMHC's changes are likely to have less of an immediate impact, said Matthias.

"In Calgary, unfortunately, these changes will have very little effect thanks to the lack of legal basement suites. The new rules only apply to those suites that comply with local by-laws and zoning. What it may do however is encourage the city to take yet another look at the legalization of suites. If CMHC is encouraging their use you have to think the conversation just got more relevant."

Despite a push from Mayor Naheed Nenshi and some members of council to ease zoning restrictions for the suites, which are currently prohibited in the 53 per cent of Calgary homes zoned RC1 or R1, concerns surrounding safety, parking and land-use changes have kept the debate at a standstill.

Under the CMHC rules, borrowers must live in the property and the property must be "self-contained" with its own separate entrance to apply 100 per cent of the rental income towards a mortgage – rules that also apply for those seeking to build a legal suite in Calgary.

For existing units, there must be a two-year income history for the property, with the amount applied to the qualifying income coming from the two-year average.

The new rule also only applies for those where prospective borrowers can demonstrate a strong history of managing credit, generally considered to be a minimum credit score
of 680.

Despite a recent poll which showed 76 per cent of Calgarians supported "greater development" of suites in the city, a June vote to legalize the suites in inner city Wards 7,8,9 and 11 was defeated by a 9-6 vote.

Despite the defeat, Ward 7 Ald. Druh Farrell – who has been a supporter of wider acceptance of the suites – said the move by CMHC should still be seen as a positive by those looking for a way to make homeownership more affordable.

"CMHC has done a lot of work on the issue of suites, and they're promoting them as one option for affordable housing. So this is just the next step in making them easier to obtain," said Farrell, who added the groundswell of public opinion has begun to show up in the number of Calgarians constructing secondary suites.

"This is good news. A few years ago it was rare that we saw a land use application for a suite. And now we're seeing several per month," said Farrell. "We're seeing increased pressure from Calgarians who are exploring suites as an option. That pressure will continue to increase and [the CMHC rule change] will make it even more viable. So I anticipate the [secondary suite] applications will continue to go up."