Soaring real estate costs are pushing some Canadian cities
to embrace laneway housing, touted as the future of affordable living in urban
centres.
But as the properties become more popular and balloon in
value, questions are beginning to arise about whether current insurance
practices are sufficient.
Home insurer Square One Insurance says it has been fielding
so many recent calls about laneway homes - most of them in Vancouver - that
it's started offering a separate product created specifically for the
structures.
Daniel Mirkovic, the company's president and chief
executive, says in the past, laneway homes or coach houses were often $50,000
conversions of detached parking garages created by homeowners to house their
adult children.
"Now, because of the high price of real estate, the
whole concept of laneway housing has changed," Mirkovic said. "When
you're looking at a laneway home that the owners have invested $200,000 or
$300,000 dollars to build, that's a very significant investment."
Converting a back alley parking garage into a residential
structure is one way for homeowners to offset the cost of pricey real estate by
generating rental income. However, not all Canadian cities allow for laneway
homes to be built.
Vancouver is a notable exception. The city has issued over
1,000 permits for laneway homes since 2009. In Calgary, city officials are
launching a pilot project that will allow laneway homes to be developed along
one of the city's streets.
As square footage in Canada's hottest real estate markets
becomes pricier and developers look for new ways to squeeze housing into tight
spaces, laneway homes are likely to grow in popularity. That could force
insurers to rethink their policies.
Currently, most insurance companies - including Aviva
Canada, Intact Financial and TD Insurance - cover laneway homes under the same
policy as the main property and don't offer a separate insurance policy for the
structures.
Mirkovic says that could be problematic in certain
circumstances - for example, if a natural disaster occurs that affects both the
main structure and the laneway home. In the aftermath of such incidents,
building replacement costs may soar due to a phenomenon referred to as
"post-event inflation."
In that situation, Mirkovic says, "the demand to build
new homes or rebuild homes has gone up dramatically because there are thousands
of people who need to rebuild their homes, and the supply is low. There's only
a certain amount of building supplies readily available; only a certain amount
of contractors who can build homes."
A home that cost $300,000 to build could cost $500,000 to
rebuild. Typically, the insurance policy would cover the difference - but in
the case of a laneway home, it might not, Mirkovic says.
"If you're insuring something as a detached structure
you only get coverage up to the limit specified, which might be up to $300,000,
but if it actually costs $400,000, you're out of pocket for the extra,"
Mirkovic said.
There could be drawbacks, however, such as two deductibles
instead of one. In some instances, premiums may be higher as well, Mirkovic
said.
Mike Shepel recently opted for Square One's laneway housing
package to insure a rental property he purchased in Vancouver. Knowing that
replacement costs are guaranteed to be covered in the event of a disaster such
as an earthquake provides him with security, Shepel said.
The physician said he plans to use the same product to
insure his second rental property - another laneway home - as well.
"They're really cute little places," Shepel said.
"It's a unique way to get more homes into the community … It really does
feel like a small, little comfy cottage, where you feel more independent."
