Should You Build a Laneway House?

A laneway house, also known as a coach house or laneway suite, is a small secondary dwelling located on a residential property, typically in the backyard or on the laneway. These small homes are becoming increasingly popular in cities across Canada, including Toronto, for their versatility, income-generating potential, and added value to the property. Some estimate that 48,000+ Toronto homes qualify to build a laneway house. 

Below, we explore the topic in detail to help homeowners decide if they should add one or not.

What is a Laneway House?

A laneway house is a small residential dwelling built in the backyard of an existing property – it can be a detached, semi-detached or freehold townhouse. They have their own entrance, kitchen, bathroom, and living area, making them fully self-contained living spaces. They can be used as a rental property, a home for a family member, a guest house, or a workspace. 

Benefits of Laneway Houses

There are so many reasons to add a laneway suite:

1. Extra Income A laneway house can provide an additional source of income if you choose to rent it out. We regularly have tenants approach us who are looking specifically for a laneway house. 
2. Accommodate Family Members It’s a great option if you need to accommodate adult kids or aging parents – they’re close by, but still maintain their independence. 
3. Add Value to Your Property Laneway suites are one of the best ROI renovation opportunities, and you’ll reap the rewards when it’s time to sell. 
4. Affordable Housing Shortage It’s no secret that Toronto has a housing shortage, and this a great way to add housing in a dense urban area. 

Things to Consider Before Adding a Laneway House

Zoning and Bylaws

Before adding a laneway suite to your property, you need to check the zoning and bylaws in your area. The City of Toronto has embraced laneway housing, subject to rules and requirements that need to be followed. You can find the latest City of Toronto Laneway bylaws here. 

Design and Size

Laneway houses come in different shapes and sizes, and it’s important to consider the design that will work best for your property. You’ll also need to ensure that it meets the maximum allowable square footage in your area.

Costs and Income Potential

Building a laneway house is expensive, but the rental income and long-term value it adds to your home may very well make it worthwhile.

• How much does it cost to build one in Toronto? The cost of a laneway house depends on the size, design and finishings; typical costs start at around $300,000 in Toronto.
• How much income can I expect from a laneway house in Toronto? Depending on the size, style and location, you can expect to rent it for $2,000-$4,000 or more. Rents for laneway houses are comparable to rents for similar apartments or houses. 
• How much value does it add to my house? Laneway houses are very much in demand in Toronto and, when listed for sale, attract a lot of attention. How much value it can add to your home depends on the size, finishes and income potential. 
• How can I finance the construction? There are several financing options available for homeowners who want to build a laneway house, including a second mortgage, a home equity line of credit, or a personal loan. Talk to your banker and accountant to see which option makes the most sense for you. 
• Are there any tax implications? Building a laneway suite can have tax implications for homeowners. If you rent it out, you’ll be able to write off any interest you pay to build it, though the rent you receive will be taxable income. When it comes time to sell your home, you’ll likely be paying capital gains tax on the portion of your home that’s an income-generating laneway house. Talk to your accountant. 
• What are the insurance requirements? Just like your primary home, you’ll need to get insurance on a laneway house, including liability insurance. 

Access to the laneway house can be a challenge, particularly if you’re using it as a rental property. It’s important to consider parking options for tenants and guests.

Services

Laneway houses require services such as water, sewer, and electricity. You’ll need to ensure that your property has the capacity to support the additional dwelling.

Privacy

Adding a laneway house can impact the privacy of your backyard and your neighbours. You’ll need to consider how it will be situated on your property to minimize the impact on privacy.

Finding a reliable contractor is essential when building a laneway suite. It’s important to do your research, read online reviews, get references, and ensure that the contractor has experience. You don’t want your contractor learning the ins and outs of laneway houses while building yours. Make sure that your contractor is working with licensed electricians and plumbers. 

Permits

In Toronto, you’ll need to get a building permit before you can build a laneway house, and there’ll be a whole lot of inspections, including electrical and plumbing. Building a laneway house without a permit isn’t just dangerous – you may be forced to tear it down. You can read more about permits here.

Steps to Adding a Laneway Suite in Toronto

If you’ve decided to move forward with adding a laneway suite to your property, the process can be broken down into several steps:

1. Determine if Your Lot Qualifies For a Laneway House: Consult with a laneway house advisor or builder to determine if a laneway house is a feasible option for your property. Here’s a list of addresses that have already been pre-qualified and verified. 
2. Check Zoning and Bylaws: The City of Toronto permits laneway houses on residential properties that share a property line with a public lane, subject to criteria. There are rules around setbacks, landscaping, parking, emergency vehicle access and more.
3. Design the Laneway House: Work with a professional architect or designer to create a design that meets your needs and adheres to the zoning and bylaws in your area.
4. Obtain Permits: Obtain the necessary permits from the City of Toronto. You can access permit information here. 
5. Build the Laneway House: Work with a reliable contractor to build the laneway house, ensuring that it adheres to the design and meets all safety requirements.
6. Connect Utilities: Connect the laneway house to the necessary services, including water, sewer, and electricity.
7. Landscaping and Finishing: Complete the landscaping and finishing touches, ensuring that it is safe and habitable.

Incentive Programs to Encourage Laneway Houses

There are two important incentives that Toronto residents may qualify for: 

1. Development Charges Deferral Program for Ancillary Secondary Dwelling Units – This program allows an eligible property to defer the typical development charges for a  secondary dwelling unit at the rear yard of a property. Program details here. 
2. Affordable Laneway Suites Program – The Affordable Laneway Suites Pilot Program provides funding in form of a forgivable loan of up to $50,000 for eligible property owners developing a laneway suite. The loan will be forgiven in 15 years from the date when the first tenant occupies the laneway suite. Read the program eligibility requirements and exclusions here. 

Other Resources 

Below, some useful links and resources: 

• Lanescape: A Toronto-based laneway house design and build company that provides consultation, design, and construction services.
• Laneway Housing Advisors: Based in Toronto, they provide free online site analysis of your lot and can recommend designers and builders.
• City of Toronto: Here, you’ll find the bylaws, requirements, process and forms. 

Building a laneway house in Toronto can be a great way to add additional living space or generate rental income. Just make sure to weigh the pros and cons, budget carefully, follow the zoning and bylaw requirements and work with a professional builder.