JLL Canada is calling for governments at all levels to band together and make it more feasible for investors and developers to boost housing supply.

The best way to do that is to focus on providing incentives and other benefits for demolitions and redevelopments, rather than fund office-conversion projects, said Scott Figler, the company’s head of Canadian research in an interview with Connect.

“It’s easier for owners to just demo and start from scratch than it is to convert,” said Figler. “If cities made zoning more flexible, then demolition and redevelopment would be a much more scalable, easier solution than conversions.”

More flexible zoning rules are among recommendations that Figler made in a recent paper that he authored and was published on the company’s website. The paper stemmed from a conference involving JLL and public-sector real estate managers.

In the paper, JLL asserts that Canada has reached an inflection point as the country’s housing crisis, namely a dire shortage of new supply, is in jeopardy of deepening further.

Rent declines in recent years and most recent supply increases in recent years seem “counterintuitive,” overshadowing strong ongoing demand.

“The reason why rents have been falling is because there was a lot of construction that started around 2020 and 2021 when interest rates were really low, and those buildings are being completed now,” said Figler. “But because housing starts started the fall, maybe two, three years ago, we’re going to be in a situation by 2027 where we’re going to be right back into a housing-supply.

“I would say, for certain segments of the market, we’re very much in a crisis right now. So, we just wanted to put this out to focus on solutions and draw attention to some potential ideas that we find very compelling.”

Figler said more development through demolition will enable developers to make feasible because larger projects with more housing units can be built whereas conversions are often limited by the existing buildings’ smaller heights.

“If you’re converting an eight-storey building, it’s a pretty high cost, but you’re limited to eight storey,” he said. “If you’re allowed to demolish and turn it into 20-25, storeys of apartments, then that’s a lot more cash flow. That’s a lot more revenue for the project. And there’s a better pot, there’s a better chance that it will justify the cost of do it.”

Environmentally, conversions are always “100%” the better option, he said. But the reduced waste also reduces potential housing-supply increases.

“I’m not advocating for no more conversions,” said Figler. “I think conversions are great if and when they happen. I don’t think [conversions] should be taxpayer-subsidized. I’ll come back to that word: Scalable. Conversions are not scalable.”

Conversions have worked well in Calgary, where the city’s widely praised Downtown Development Incentive Program (DIP) provides $75 per square foot for approved projects, he noted. But, Figler added, such developments and programs do not work in other major cities like Toronto, Montreal and Vancouver.

Ottawa developers have completed many conversions even though the city does not have an incentive program, he noted.

“It’s just been developers doing it on their own accord, and I think that’s the way it should be,” said Figler. “I think that if, if the numbers work and developers want to do it, that’s great, but I don’t think it should be a taxpayer-subsidized program.”

He said reduced municipal development charges would get “a lot more traction” when it comes to boosting housing supply.

In addition, JLL recommends that Ottawa speed up the federal Public Land Bank program by making more its lands available for housing under long-term leases. In such situations, investors and developers place projects on sites leased for as long as 99 years.

JLL is also calling for the federal government to reserve 30% to 50% of public lands for non-profit, co-op and Indigenous uses and prioritize adaptive reuse of underutilized institutional purposes for residential purposes.

“I think more could be done to fast-track that,” said Figler. “And, I would say it’s going in the opposite direction, where the different branches of government have actually been some of the more aggressive buyers of office buildings over the last two years, and not for residential purpose, not for the purpose of converting a building into residential.

“It’s for their own agencies. And, it’s not a criticism, because I think in some cases, it’s very savvy, because they see prices falling, and it’s an opportunity for them to, maybe, do a consolidation of workers into a building, and it might work out cheaper than renting.”

In many cases, Figler contended, the federal government has tried to unload properties do not suit its purposes or those of prospective users.

The JLL report recommends several policy options for Prime Minister Mark Carney’s government to explore:

• Reduce development charges, especially for first-time homebuyers, and ensure such charges are used locally and meaningfully;
• Introduce tax credits similar to the U.S. Low-Income Housing Tax Credit (LIHTC) to encourage private investment in affordable housing; and,
• Reassess capital gains taxation to promote reinvestment in housing development, modelled after the U.S. 1031 exchange program.

Figler and JLL’s other recommendations include modernized regulations and processes through such measures as harmonized building codes across provinces and municipalities to enable faster, scalable development. Housing supply could also grow via the removal of “costly and unnecessary requirements,” such as mandatory basements.

Although Figler favours demolitions and redevelopments, his paper also calls for zoning changes that enable the adaptive reuse of commercial properties, “particularly vacant offices.”

And, Ottawa needs to drive innovation in construction and permitting; encourage province-led and municipal programs like BC Builds and CreateTO that streamline development of affordable housing, he asserts

JLL also recommends that local governments implement AI and digital-permitting platforms, such as Singapore’s CORENET X system, to speed up and automate the approval process.

Canada, Figler added, also needs to enable more modular housing to be built. He called for more standardized building codes across municipalities to help grow the emerging Canadian modular-housing sector.

Different building codes have created different size requirements for such components as doorways, wall studs and plumbing, among others, in various jurisdictions. As a result, said Figler, modular-housing manufacturers are having a hard time obtaining financing and scaling up because they cannot calibrate their machinery to every municipality.

Governments could be big drivers of demand and help the sector grow by making large modular-housing purchase orders because they would require, and enable, manufacturers to scale up, he argued.

“You go back to the railroad and highways and this is how a lot of infrastructure grew, through a big government subsidy or a big government purchase order,” said Figler.

“Something similar could work here.”