The province is betting $8M on homeowners becoming landlords. Will it pay off?

It’s been almost two months since Housing Minister John Lohr announced what he called “a significant incentive” to convince homeowners to convert their basements into apartments or turn their backyards into rental properties.

At the time, Lohr said the $8-million investment over three years was “another opportunity to create more housing, quickly.”

The Secondary and Backyard Suite Incentive Program, which offers forgivable loans of up to $25,000, started accepting applications in mid-November. So far, they’ve received 12 applications and over 500 inquiries, according to Vicki Elliott-Lopez, who oversees the program.

“So we’re seeing some good progress,” she said. “Our goal is to just leverage every unit that we can across the province.”

If all the applicants who qualified received the maximum $25,000 loan, 320 new apartments would be created with the funding allocated for the program.

But it remains to be seen how many homeowners are ready to shell out tens of thousands of dollars to convert their basements into apartments, or even more to build living spaces in their backyards. And there are significant restrictions.

Rules on rent, income

Under the program, loan recipients can charge a maximum of 80 per cent of the average market rent for the area. In Halifax, that means from $724 a month for a bachelor apartment to $1,334 for a three-bedroom. Outside the municipality, those maximums range from $458 to $1,356.

There is also a restriction on who can rent the units. In Halifax, eligible tenants must not have a yearly household income of more than $47,000 for one-bedroom accommodations. For a three-bedroom, household income tops out at $67,500.

Outside the capital region, those maximums are higher, ranging from $57,500 a year in household income for a one-bedroom, to $78,000 a year for a three-bedroom.

And homeowners must agree to remain landlords for at least five years. 

Contractors say the $25,000 incentive is a good thing, but homeowners need to take a hard look at the figures to determine whether it makes sense for them.

Halifax contractor Dan Monk isn’t convinced the incentive will create much of a boom.

“It’s difficult to make it work, especially if you’re going to try to make it also affordable housing,” he said.

Adding up the costs

When it comes to converting a basement into an apartment, Monk said the costs add up quickly.

“If you’re starting with a blank slate and you’re trying to put in a kitchen or kitchenette, a bathroom and some living space there, perhaps one bedroom, I’d say you’re between $50,000 and $100,000,” he said.

“I haven’t been able to make the numbers work when I go through it and try to look at developing a suite in a home, unless you can do a lot of the work, perhaps yourself.”

Building a backyard suite is even more expensive. The cost is comparable to a pre-fabricated home, Monk said.

“Today, a mini-home will cost you $250,000 to $350,000,” he said. “That’s quite a common price right now.”

Contractor sees potential

New Glasgow contractor Mark Wartak, who works on homes from Truro to Antigonish, is more upbeat about the program’s potential. He said a $25,000 incentive for basement suites “would be definitely enough.” 

Wartak’s cost estimates are also lower than Monk’s. He said converting a basement could cost roughly $25,000 to $60,000.

But that’s where his enthusiasm for the grant program stops.

“If you do any sort of backyard addition or anything like that, it would not be enough,” he said.

Wartak also doubts the program will lead to a larger stock of affordable housing.

“It will help with the housing crisis,” he said, “but I don’t know about the affordable housing part of it.”

Short-term impact?

Wartak also doubts that rental units created under the program would be around very long.

Adding a rental suite to a house might increase the value of the property from $50,000 to $70,000, he said, creating an incentive to sell after meeting the program’s five-year commitment, or perhaps to convert units to short-term rentals like AirBnBs.

Mike Jones, whose company JonesCo Builders specializes in accessory structures such as garages and backyard suites, called the program “a great initiative.” 

He said he hopes it will convince those already considering an addition to take the leap, although it could take months to see an impact.

“It may help push them over the finish line for sure,” said Jones. “But I don’t think we’re going to know really what the clear benefits are until we get into our new building cycle, in the spring of 2024.”

That’s when people will start putting their “plans into action,” he said.

JoneCo’s backyard suites start at $86,000 for a one-bedroom structure and go up to $280,000 for a two-bedroom home that includes a living room. Site preparation is extra and can run from $15,000 to $40,000, he said.

Jones is also concerned that high interest rates and a worker shortage could temper the program’s success.

“Not only does Nova Scotia lack the people who are skilled and trained in areas, but they also just lack the amount of available labour.”

Previous efforts

The program replaces two others that date back to the 1980s. Neither the Rental Residential Rehabilitation Assistance Program nor the Parent Apartment Program generated much interest.

The Rental Residential Rehabilitation Assistance Program provided forgivable loans of up to $24,000 for families who wanted to look after a senior or someone with a disability. It generated four to six units a year, according to figures provided by the Nova Scotia government.

The Parent Apartment Program offered $25,000 in a repayable loan for families to modify their home to accommodate a senior. The province said no one had applied for it in the last 15 years.