As people who have followed my career will already know, I like real estate projects that not only create private value but pay public dividends as well.
Developers realize that municipalities and community groups are going to demand additions to the public room and public benefits before approving real estate projects these days.
It’s not unique to real estate though—nations have been known to leverage public property like radio spectrum in return for, say, greater Canadian content—but it’s more regularized, in fact, built-in to the process of real estate approvals.
But what if providing public benefits could also boost private returns. That would be useful, right?
Influenced by California Design
Let me tell you a story.
When I was a young person, I lived with my girlfriend in a 1-bedroom “garden suite” or “granny flat” at 1011 and ½ Seabright avenue in Santa Cruz, California. My girlfriend was attending UCSC and I was visiting her. The tiny home impressed me.
It was located in the backyard of 1011 Seabright avenue, in behind the big house where a lovely lady, an elder, lived by herself.
Our flat had its own laneway where we could park our Beetle and a wonderful flower garden. You entered into a front room, which served as living room and study.
At the far end was a dining area with a galley kitchen off to the side where a 2nd door led to a herb and vegetable garden, shared by big and little houses.
There was a single bedroom accessed off the living room plus a bathroom with pocket door. It was slab on grade construction.
It looked like this—
I asked our landlady why she built the granny flat in her backyard.
This is what she said,
“Well, I like students. It can be a bit lonely you know at my age and they keep me company like you are doing now. Plus I feel a lot safer having people around.”
Later, as I got to know her better, she told me she also needed the rent money and her own kids and grandchildren had basically forgotten about her.
Bringing California to Ontario
When I was in a position later in my career to do something about it, I created a subdivision called Briarbrook in Kanata (a western suburb of Ottawa).
Every pie-shaped lot in Briarbook (ie, the biggest lots in the subdivision) allowed construction of these additional tiny homes.
Social Return On Investment
So if a homeowner spent $60,000 building a granny flat in their backyard and rented it for, say, $500 per month (plus some sort of contribution for utilities and property taxes) to students…
Or for that matter, adult children returning home to live with mom and dad (currently 2 of my 5 adult kids have returned to the nest and are living with my wife and I)…
Or grandmother or grandfather needing a place to live, then the homeowner is looking at a cap rate of around $6,000/$60,000 or 10% pa.
Not the worst result, wouldn’t you agree, especially when compared to .7% on your bank savings account or 1.2% on your GICs?
But it also serves a social purpose—it provides quasi-independent affordable housing for young people and elders alike and keeps elders out of those vertical warehouses for the nearly-dead called retirement residences.
From a family’s point of view, the cap rate might in fact be much higher.
If it costs say $2,500 per month to put your mother-in-law into a retirement residence versus $500 a month in her own granny flat, you could argue that the simple ROI on a $60k investment like this is actually a ridiculous ($2,500 – $500)x12/$60,000 or 40% pa.
Adding granny flats also makes better use of existing public infrastructure like water and sewer mains, stormwater works, communications, roadways, schools, libraries and parks. All good so far.
Regulated Out Of Existence
Returning years later to Briarbrook for a Sunday afternoon stroll, I peeked in the backyard of a number of those pie-shaped lots. Nowhere did I see granny flats sprouting. How come?
One suspicious man, perhaps thinking I was casing his place, stopped me and asked what I was up to. Telling him I was the developer of Briarbrook (and Ottawa Senators founder) calmed him down and he became loquacious.
Why were there no granny flats?
Did he know that these were allowed (I built permission for them right into zoning bylaws for the neighborhood, which, defacto, we wrote for the city)?
“Yeah, I’m aware we can build a granny flat in our backyard, but nobody in their right mind would do that,” he answered.
“Well, the city said it’s ok to build ‘em but you can only get a temporary building permit—you’ve gotta tear them down after 5 years.”
“No way,” I said.
“Way,” he replied. “Yeah, and I forgot to mention they also wanted to lever another development charge outta us to pay for additional infrastructure.”
“What additional infrastructure? There is none.”
“Exactly, it’s just another tax,” he answered.
“How much they asking for?”
“$15,000 a door.”
So no wonder no granny flats were ever built there. The city regulated them out of existence.
No one in their right mind would spend $60k for a cute little home plus pay a needless charge of $15,000 to the city only to have to tear it down 5 years later.
California Style… Redesigned
I was frustrated so I decided to build some myself with plans based on my California experience. Because this is Ontario, we added a full basement, which we turned into its own 2-bedroom flat.
So our granny flats were high ranch bungalows with one 2-bed, 1-bath apartment on the main level (a ½ level up from street grade) plus a 2nd one at the lower level.
The latter had its own private door on the side of the building so the basement apartment could be accessed that way plus it was then only ½ level down, feeling less like a basement. We built 6 of them.
What was cool about our updated design was that with the removal of a single door separating the upper and lower levels, you could turn the place into a 4-bed, 2-bath single family home.
Put the door back in (a 3-minute job) and, presto, you were back to two apartments.
The flexibility of the design also allowed people to, say, use the lower level for their business with its own entry and address…
Not In My Back Yard
Back to Briarbook. Now why would the city do such a thing, effectively regulating granny flats out of existence?
Well, if you know anything about municipal politics, the NIMBY movement and community associations, most of them are motivated by two things—fear and greed.
They are fearful that adding granny flats opens them up to low rent housing and undesirable elements inhabiting their suburbs.
Greed enters the fray because they worry that such a trend would lower property values. No amount of rational argument will ever sway a mob of NIMBY’ites.
I can speak from experience—I’ve been in public meetings in front of 400 angry homeowners yelling things at me like, “I know where you live!” and “I know what kind of car you drive!”
But there is a great deal of evidence that adding granny flats, in-home apartments, frontyard/sideyard parking, work-from-home businesses, small neighborhood shops, learning and entertainment options, community gardens to suburbia drives property values up not down, and makes them easier and quicker to sell, provided, of course, that public order is maintained.
People are right about that—you can’t create any value in a lawless society (just ask Detroit’s mayor about this) so Canada’s value system and priorities—peace/order/good government—are spot on.