As we continue to face a housing affordability struggle in the GTA and beyond, it’s important to look at alternative models of ownership that can help people find a home of their own.

One model that is pretty misunderstood are land lease properties.  As the name indicates, it is where you own a home but you’re just leasing (renting) the land that it sits upon.  It’s a misunderstood option and we thought we’d clear up some of the confusion and talk about how it works.

We have helped a number of clients buy and sell such properties and while it is a bit different from the “traditional” model of home ownership, it is definitely a great option to consider if current home prices are out of your reach.

Without further ado, let’s get into it!

So, it’s a trailer park?

While the earliest examples of land lease developments were manufactured mobile homes (RVs, trailers, etc.), that has changed over time.  Many new leased land communities are being built using modular, manufactured, and traditional built homes.  Whether built on slab or with a limited foundation (think crawl space rather than basement), they are not homes on wheels you can move easily.

A fuller description of land lease properties would be something like “house purchase but leasing of land” as we’re definitely talking about a physical house you buy and own.

The key difference is that land lease home ownership allows someone to own a home without owning the land that it sits upon.  This makes it more affordable to purchase than traditional freehold homes and it is growing in popularity as it lets you build equity while freeing up money for other priorities.

It’s not too dissimilar from owning a condo townhouse in terms of how it works, with the important caveat that in a condo townhouse you own the land, or at least the rights associated with the land.  Despite that distinction, anyone who has lived in a condo townhouse is familiar with the idea of having their own home but having a communal responsibility (and shared costs) for other parts of the complex.

Land lease properties have long been popular for those seeking an affordable retirement but in recent years, it’s also become popular with young families looking to buy their first home.  While not particularly popular in Canada, it is well established in the US and Europe.

If I don’t own the land, who does?

In Canada, there are three main types of land lease properties: commercial developers, First Nations, and institutional owners.  Let’s review each type.

Commercial Developments

There are developers who build planned communities on land parcels and operate them on an ongoing basis. It’s often the model for retirement communities, but it can also be the model for a condominium-type setup in urban areas.  Within Canada, Parkbridge is considered the leading operator, developer, and owner of land lease communities.  At last count, they had more than 55 residential communities and 35 RV resort communities across the country.

First Nations

Another common source of leased land property are First Nation bands that are leasing land located on reserves set aside under the Indian Act of Canada.  You may have encountered friends who have bought leased land cottages where the land is owned by a First Nation band.  Just like with the retirement communities that are the common commercial development model, it’s not much different than owning any other cottage, except for the price.

Institutions

Finally, there are some institutional owners who sell land lease properties, though it is more uncommon.  There are some municipalities, universities, and other public institutions who have designated some of their property for a long-term land lease either because it’s endowed or has some long-term value.  If you’re a Toronto resident, you’re likely familiar with the Toronto Islands, which are an example of institutional owned land leases.  There are 262 residential properties on Ward’s Island and Algonquin Island, overseen by the Toronto Islands Residential Community Trust.

What’s it cost to rent this land?

It’s impossible to give a specific average cost for a monthly land lease fee, as the actual monthly cost to lease land depends on a number of factors.

First and foremost, the local real estate market dictates the value of the land.  While you may not be buying the land, commercial developers did – and the cost they charge for lease is based on what market rates allow.  In the case of First Nations bands or institutional owners, the land has likely been owned for a long time, but following the principal of “highest, best use”, rent is charged that makes sense given the market conditions.

Using the same logic, the size of the lot you’re renting heavily influences the rent being charged, as if you weren’t renting it, they could be doing something else with that plot.  Other considerations that impact the rental rate are amenities associated with the development, upcoming investments to be made within the development and services provided.

For the most common type of land leases, commercially owned communities, the monthly rent includes lease of the site and use of the property, as well as professional community management. Often this includes such things as community garbage and recycling, tree maintenance, fire hydrant inspections, sewer and pond maintenance, drainage, underground infrastructure repairs, and municipal property tax for the common areas.  While the list of what is covered under a land lease varies from community to community, it often also includes landscaping and maintenance of common greenspaces, parks, roads, walkways, community facilities, hall spaces, and related equipment.

It isn’t too much of a stretch to say that whatever you’d consider the responsibility of the municipality in a typical freehold home where you own the land, is instead the responsibility of the developer.  Whether this costs are bundled into an overall land lease fee, or broken out separately (as is often the case due to variability each year), a monthly fee covers off these costs.

As a homeowner of a land lease property, you’d be responsible for the regular maintenance and upkeep of the home and yard as well as your own utilities, including natural gas/propane, water, electricity, cable, internet and telephone.  The monthly bill that you pay to the operator of the land lease community will likely list a land lease fee as well as taxes, exterior maintenance, water and sewer.

Just like with maintenance fees for a condo unit, well managed developments keep the monthly costs low, while developments facing issues often see increasing costs billed to land lease tenants.  These costs tend to go up over time, which leads us to the next topic.

How long is this lease?

When you don’t own the land that your home is sitting upon, the length of your lease obviously becomes very important.  While the Residential Tenancies Act applies to land lease communities, there are significant differences between the rental of a house or condo unit (where you are always only renting the space, not the land) and a land lease.

The length of the term of a land lease will vary by province, due to provincial legislation and other considerations, so leases are anywhere from 1 to 99 years.  While you could in theory sign a very short-term lease of land (i.e. just a couple of years), this is obviously only practical if the home you put on the land is a mobile home that can be moved easily.

The length of the lease that is able to be signed by a new owner is a very impactful aspect of the value and therefore the sale price of a land lease property.  This is true both from the perspective of being certain how long you can live in the home on that piece of land, as well as in regards to the financing of the property.

Can you still get a mortgage on a house on leased land?

The short answer is yes, you can get a mortgage on leased land properties.

The longer answer is that there are additional considerations that apply, so let’s review.

In areas where they’re common, you’ll likely find local lending institutions have developed packages to address the specific particulars of a land lease.   The CMHC will insure most land lease mortgages, but there are certain caveats.

We mentioned the importance of the lease term for the value of a leased land home, but it also directly impacts getting a mortgage or refinancing such a property.

While underwriting guidelines vary, you should assume that the lender will be checking to make sure that the remaining term of the lease exceeds the amortization period of the Mortgage by a minimum of five years.   For example, if you are considering buying a land lease property where the standard lease term in the community is 21 years, don’t expect to be able to get a mortgage with a 25 year amortization.  Instead, you’ll likely be offered a 15 year amortization to make sure there is a buffer between when your mortgage ends and your lease ends.

From a debt servicing perspective, buying a land lease home may also come with higher monthly costs as described in the earlier review of land lease costs.  While the home itself is cheaper than the freehold equivalent, you’ll have additional costs (land lease, maintenance, etc.) that will factor into the total debt servicing ratio.  This is somewhat mitigated by the lower property taxes as you don’t own the land, but it depends on the lender and how they calculate debt service ratios.

Please note that while a mortgage may be possible most lenders ask for a down payment of between 25% to 30% on the home.  While a lower purchase price makes this easier for a potential home buyer, it is still a far cry away from putting down 10% to 20% on a more typical freehold home purchase.

So, how much cheaper are these type of properties?

While it can be difficult to assign a specific discount to lease hold homes compared to freehold homes where you are buying the land as well, the price for a land lease home can be as much as 25 to 30 per cent lower than freehold.

In addition, the Ontario Land Transfer Tax applies when land, or an interest in it, is purchased, but it does not apply to leases whose total terms do not exceed 50 years.  While Toronto is the only municipality with an additional municipal land transfer tax, the provincial land transfer tax is still pretty hefty.  If you were considering a $500,000 freehold home with land versus a $500,000 land lease property, you’d save $6,475 in land transfer taxes if you bought the land lease option.

It is worth mentioning that a lower purchase price on land lease properties is fundamentally because that while buyers enjoy the equity of owning the house, and benefit from any increase in value of that home, they will not share in increased land values.  In short, you can buy at a discounted price from the freehold market, but you should also expect to sell at an equivalent discount in the market when you sell.

Speaking of selling…how do these homes do in terms of appreciation?

It makes sense to us that in a sharply increasing market, where prices are rising quickly, land lease properties may do better than the market as a whole as they remain a much more affordable option.  Conversely, if the market is dropping and we’re seeing lower average sale prices compared to a few years ago, buyers who previously would have only been able to afford a leased land house may be able to afford a home with land.  In that situation, we’d predict that the lease land market would do worse than the market as a whole.

If you’re considering buying a land lease property, work with agents who can do the research to tell you how homes in that development have done in the past in terms of appreciation (or depreciation).  It isn’t an easy thing to do, but relying on past general market changes and applying it to a land lease property is quite risky.

We hope you found this review of land lease properties useful.  Given the ongoing housing affordability crisis we’re facing, it is a model worth considering.  If you’re thinking about buying (or hoping to do so) and want to discuss your specific situation, we’d love to see if we can help you move forward.  Get in touch with us to book a time to chat!

In December 2021, the Ontario government appointed nine members to a new Housing Affordability Task Force and gave them a mandate to explore measures to address housing affordability.  On February 8, 2022, the task force released their report, with 55 recommendations.

We wrote an article about the implications of the report and the recommendations back then and you can find it here.

With more than ¾ of the recommendations fully or partially implemented, we’ve more or less fixed this housing affordability issue, right?

Judging by the fact that the average price for a home in the GTA is $1.156M as of April 2024, it doesn’t seem like the recommendations have worked that well so far.  In fact, a year ago (April 2023), the average price was $1.152M, so we’ve basically seen prices stay the same recently.  If that continues for say, 20 years, we might see housing become more affordable.  The median household income in Ontario is about $73,000, which is coincidentally about what a $1M mortgage would cost annually at current interest rates.

If you’re keen on seeing what recommendations have been implemented, you can go directly to the source.  The report as well as the progress made is available on the provincial government’s website here.

We wanted to share some thoughts on what is still needed to be done to help making housing affordable in the GTA and beyond.  Let’s get to it!

First, the bad news.

With house prices in Ontario having almost tripled in the past 10 years, growing much faster than incomes, home ownership is beyond the reach of most first-time buyers across the province, even those with well-paying jobs.

It has arguably never been more difficult than it is right now to enter the housing market.  Economic factors such as high interest rates, high construction financing costs and a shortage of skilled labour have all compounded the issue.  Add in the fact that wages have not kept pace with the rising cost of housing and it’s not hyperbole to say we continue to be in a housing crisis in the GTA and many parts of Ontario.

Cheer up, buttercup.

As we mentioned, there is some good news in that the Ontario government has been working away on the recommendations made by the Housing Affordability Task Force.  The focus has very much been on how to increase supply, as the old levers of supply and demand have been the reason we’ve seen such quickly rising home prices in the last decade.

Housing starts (i.e. building homes) in 2021 and 2022 were the highest they had been in almost 40 years, so supply is coming, albeit slower than we’d like to see.  While this is great news, we know that the housing affordability crisis continues to pose a major challenge across Ontario.  The good news is that the province has the right tools to continue tackling the housing affordability crisis and implement the  Task Force’s 13 remaining recommendations.

The Ontario Real Estate Association (OREA) has identified three big focus areas and members of the Refined team are part of the Realtors that are presenting these recommendations to MPPs in Toronto.  Let’s go over what needs to happen next in order to continue to improve housing affordability in Toronto, the GTA and the province as a whole.

Quit being so exclusionary.

The first focus area that should help with housing affordability is the elimination of exclusionary zoning.

Many regions across Ontario are zoned to only allow single-family homes to be built.  This means that a homeowner can tear down a war-time bungalow to build a four-storey mansion, but if that same homeowner wants to convert the bungalow into a duplex or a triplex, they are faced with extensive red tape.

The Ontario Government has the ability to mandate four units as-of-right in municipalities across the province and we’re recommending they do so.  This measure is one of the fastest solutions to get much needed ‘missing-middle’ housing built across the province, including duplexes, triplexes, and fourplexes, without being hampered by red tape and lengthy approvals processes.

Show them the money!

The second focus area is increasing funding for skilled trades.

The province has put forward a goal to build 1.5 million homes over the next decade, but there is a dire lack of skilled labour to meet this demand.  The Canadian Home Builders Association estimates that 22% of the construction workforce is nearing retirement. This will only exacerbate the skilled labour shortage we are already facing.

To mitigate this issue, we recommend that the Ontario government implement incentives for construction workers.  It needs to become more appealing to study trades and this means more money put into interest-free apprentice loans, grants for completing each stage of a designated Red Seal trade as well as completing an apprenticeship and programs designed for women and BIPOC to more easily enter the trades.

Welcome to my store.  I mean, my home.

The final focus area is facilitating commercial to residential conversions.

With the rise in popularity of e-commerce, as well as many organizations working remotely or in a hybrid format post-pandemic, there is a sizeable amount of commercial real estate that is currently underutilized.

Commercial real estate, such as strip malls, plazas, and office buildings are often located close to public amenities, such as public transportation, making them the perfect location for housing development.

The Ontario Government should legislate commercial-to-residential conversions province-wide to allow for more housing options.

While real housing affordability may be difficult to achieve, with a concerted effort from the Ontario Government, we strongly believe that implementing the policy changes listed above will move us closer to tackling this crisis.

If you’re wanting to get into the housing market and don’t know how to make it happen, we often work with first-time home buyers who need knowledgeable advice and the tips and tricks on how to find and buy a home of their own!  If that sounds like you, then don’t hesitate to get in touch.