How Do We Fix the Business Model for Missing Middle Housing?
- Rosaline J. Hill and Alison Drainie
- Oct 9
- 6 min read
Updated: Oct 15
Home building is a business like any other: projects won’t get built if costs are too high or returns too low. Mark Carney’s 2025 federal housing strategy brings promising support—tax incentives, mortgage programs, and plans to build on public land—but it needs a critical piece: ensuring a successful business model for low-rise, multi-unit infill.
Why Low-Rise Multi-Unit Infill?
Think about the people you know. How many truly want to live in mid- or high-rise buildings? Most—around 85% of Canadians—prefer low-rise, treelined neighbourhoods with porches and familiar streets. This isn’t just a statistic; it reflects what many of us treasure about community and home. It’s the comfort of a porch swing, the sound of children playing next door, the feeling of rooted belonging. So, when plans focus mostly on mid or high-rises on public land, it leaves a huge part of Canadians’ hopes unmet.
Low-rise multi-unit infill housing offers a diverse mix of unit sizes, types, and tenures—in small buildings, right in the neighbourhoods where Canadians want to live. To succeed, these buildings must fit seamlessly into their surroundings. A well-designed infill building can surprisingly deliver up to 10 homes within the same footprint that often includes only one or two homes.
Developers are the ones who buy infill properties and build new housing, guided by their pro formas—the financial models that inform what is viable. While the government can’t build all homes, it can shape the business context so that these missing middle buildings get the financing green light. Every level of government must act to unlock projects, attract private capital, and light a fire to spark the housing supply Canadians have been waiting for.
The Math Behind Missing Middle Financing
Inside the developer’s pro forma, three numbers rule everything. The first is the capitalization rate. This is the minimum return investors demand, usually around 4.5% for regular rental buildings, sometimes as low as 3.5% with CMHC’s MLI Select program or downtown projects. Next is the debt coverage ratio (DCR) required by banks for construction financing. Affordable housing projects must have a DCR of 1.0, while market-rate projects with MLI Select are allowed a DCR of 1.1. Finally, there’s annual operating income. This is the day-to-day test of whether revenues can actually cover expenses once people move in.
These three figures lie at the heart of today’s housing crisis. When they don’t align, projects stall. When they do, housing can finally move forward—until the next constraint, our labour shortage, takes centre stage. But that’s a discussion for another day. For now, let’s examine what it would take for small, low-rise multi-unit homes to pass this critical pro forma test.
Pro Forma Example: Breaking Down the Numbers
Picture a developer with a fairly standard lot in an older neighbourhood, about 50 by 100 feet. While this is a hypothetical example, it mirrors the realities faced by builders across Canada. Housing demand, land values, and construction costs all vary by region, and while some projects manage to make the numbers work, most don’t under current regulations and financing frameworks. If they did, we wouldn’t be in a housing crisis! Meaningful progress depends on strategic regulatory reform informed by housing-market forecasting.
In the table below, we see how a developer might map out five possible build options and run the pro forma numbers. Some get the green light. Others don’t pass the financing test, marked in red. If even one number is in red, the whole project fails.
Current Regulatory Environment: Build Options 1 to 3
Let’s take a closer look at these five build options and how development costs and regulations shape their financial outcomes.
Option 1: Semi-Detached Homes (4 units)
This project includes two large homes (200 sq.ft.) with attached garages plus two basement suites (small 1 bedrooms). Although permitted widely and once common, the bespoke designs, site constraints, and fees/taxes/charges cause high construction costs. Professional fees for design and permits are elevated by custom work and lengthy municipal processes. Stormwater management and fire flow requirements add more expenses. These units rent or sell at very high rates, and sometimes sit on the market for a while before anyone moves in. It’s tough to generate the minimum capitalization rate and debt coverage ratios lenders require.
This pro forma often FAILS the financing test.
Options 2 to 5: 8-Unit Homes Under Different Conditions
Next, we’ll look at build options 2-5, which are all for the same 8-unit design, but under different regulations, funding and financing scenarios. These projects do not include on-site parking. Build options 2 to 5 could be built in municipalities that have implemented multi-unit permissions, but options 4 and 5 are in municipalities where BuildingIN regulations and financing structures have been strategically designed, so this business model is a scalable and repeatable success.
Options 2 to 5: 8-Unit Homes Under Different Conditions
Next, we’ll look at build options 2-5, which are all for the same 8-unit design, but under different regulations, funding and financing scenarios. These projects do not include on-site parking. Build options 2 to 5 could be built in municipalities that have implemented multi-unit permissions, but options 4 and 5 are in municipalities where BuildingIN regulations and financing structures have been strategically designed, so this business model is a scalable and repeatable success.
Option 2: 8-Plex, Existing Regulations
An 8-unit building financed with conventional loans and CMHC MLI Select mortgages requires expensive custom design and prolonged municipal approvals, inflating professional fees and pushing out the timeline. High planning fees, taxes and charges, and costly site servicing for stormwater and fire infrastructure add to development costs. Furthermore, the lack of parking reduces tenant demand, leading to insufficient rental income to cover debt and operating costs. These pressures cause the financial model to collapse, making lenders unwilling to finance such projects, even though zoning may permit a multi-unit building under current rules.
This pro forma often FAILS the financing test.
Option 3: Affordable 8-Plex, Existing Regulations
Non-profits building an affordable version of the same 8-plex on gifted land face the same costs: custom design, slow approvals, costly site services, planning fees, taxes and charges. In this example, though rents are capped at 70% of market rates with government funding, the reduced income and ongoing operating expenses don’t allow the project to break even. Despite subsidies, the financing math remains unfavourable, blocking project viability.
This pro forma often FAILS the financing test.
A New Vision for Canada: Build Options 4 and 5
While Build Options 1–3 operated under the same outdated regulations that helped create today’s housing crisis, the final two options tell a different story. They model the same 8‑unit building, but under BuildingIN’s transformed regulatory framework. One that enables modular design and repetition. One backed by a financing system that makes low-rise multi-unit infill housing simpler, faster, and far more attainable to construct.
Option 4: 8-Plex with BuildingIN Pillars
This approach enables builders to reap the benefits of modular construction by replicating a proven design. This results in minimal design costs. Furthermore, this regulatory environment allows them to proceed directly to permitting without spending extra time or money on approvals. Faster delivery times further enhance savings by shortening the overall financing period. Even infrastructure requirements—such as stormwater management and fire flow—are addressed differently under this updated framework, lowering barriers and streamlining the entire process. Together, these cost savings and accelerated timelines improve capitalization rates and debt coverage ratios, making this multi-unit building an attractive business model.
This pro forma often PASSES the financing test.
Option 5: Affordable 8-Plex with BuildingIN Pillars
For any housing model to succeed at affordable levels, it first has to work at market. That principle holds true here. The same advantages that make the 8-plex viable in Option 4—streamlined approvals, modular construction, and lower professional fees—are what set the foundation for affordability. These efficiencies cut costs, shorten financing periods, and strengthen overall project performance. Once the model proves financially sound under market conditions, non-profits can layer in gifted land and mission-driven financing to deliver projects that remain stable even at 70% of market rents—often breaking even or better without depending on heavy subsidies.
This pro forma often PASSES the financing test.
A Federal Window of Opportunity
Policymakers today stand at a pivotal crossroads with a unique chance to transform the housing landscape. By adopting a forward-thinking regulatory approach combined with streamlined approvals and financing solutions designed specifically for small multi-unit projects, a new development niche for standardized modular designs can be unlocked—dramatically reducing costs and timelines. Under this kind of framework, the same eight-unit building that fails today becomes a textbook example of a strong, repeatable business model, buildable privately or by non-profits.
It’s time to stop treating housing policy like a patchwork quilt and start acting like one country. Canada needs a unified housing market for this important housing niche—and that means decisive collaboration at every level of government. Federal, provincial, and municipal leaders must work from the same playbook, with standardized rules, predictable approvals, and financing systems that unlock small-scale multi‑unit projects in every community.
The alternative is to keep slogging through a fractured system that chokes projects and inflates costs—or we can choose to work together and clear the runway for a surge of homes that Canada needs.
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