5 Things You Need to Know About Laneway Houses
Canadian property owners are attempting to extract as much value as possible from the expensive ground on which their homes are built, as real estate prices are fast rising. Building an extension to a house to increase living space, converting a basement into a separate apartment to generate rental revenue, or providing shelter for an adult child or aging parent are just a few examples.
In a similar vein, thanks to zoning by-law revisions in some Canadian communities, homeowners in an increasing number of places can now build a second house on their land. These secondary dwellings, also known as laneway houses, are cropping up in many cities.
But what exactly are these lane houses, and is it financially feasible to construct one? Here are five things to think about!
- What Is a Laneway House?
Laneway houses, coach houses, and garden suites are all detached structures on the same property as your primary residence. A laneway house is a property close to a public alley and has a secondary dwelling that faces or backs onto the lane. The secondary dwelling is known as a coach house or garden suite if there is no lane.
The utilities and services for the secondary home, such as water, gas, and electricity, are typically connected to the main residence rather than the street in either case.
A laneway house can range in size from modest suites on top of garages to more than 1,000-square-foot two-story dwellings with a basement, depending on the municipality’s zoning ordinances and the size of the property.
- Who Can Build a Laneway House?
Secondary houses are currently not permitted in most cities. And those that do have their own set of criteria for which properties qualify and how to obtain building permits.
In Vancouver, for example, where laneway houses have been permitted for over a decade, residents must submit a case-by-case application to the planning department for permission. However, in Toronto, by-law modifications made in 2018 allow laneway housing to be built “as-of-right.” That means you can build a laneway house without special zoning clearance, provided your lot borders a qualifying alley and meets all of the requirements (including a minimum distance from a fire hydrant).
- What Is the Cost of Building a Laneway House?
The cost of building a laneway house ranges between $350,000 to $500,000 as it varies depending on your location, the size, and the kind of construction.
Architectural designs, permits, construction materials, labor, and site development charges, if needed, are all included in these expenditures. In addition, borrowing costs (such as interest payments on a HELOC or mortgage), as well as higher home insurance premiums, property taxes, and energy bills, should all be considered.
- What Are the Financial Advantages of a Laneway Home?
A laneway home can be profitable in many ways:
- Boost the value of your home
Adding square footage of habitable space to a property, whether through finishing a basement, adding a third-floor addition, or building a laneway home, increases its value. Depending on your local housing market, the gain in property value could be much more than the cost of construction, which will pay off when you decide to sell.
- Rent out your home and increase your revenue
Renting out your main house and moving into your laneway house could provide you a rental income over and above your monthly mortgage payment. In addition, you can deduct rental properties from your taxes. Imagine, you would have paid nearly twice as much for a one-bedroom apartment in Toronto as an income property. The higher mortgage payments, not to mention the monthly condo fees, would be substantially more than the rent you could collect.
- Provide a loved one with a detached dwelling for a fraction of the cost of owning
Even the smallest detached homes in Vancouver now sell for close to $2 million, making it hard for newlywed couples to afford to buy one for themselves. But, as parents, you can step in and build a lovely 1,000-square-foot laneway house for a fourth of the price of a small detached home.
- Are Laneway Houses in High Demand?
As homeowners see secondary houses crop up in their neighborhoods and learn about the benefits, demand for laneway houses could skyrocket in the next year or two.
Laneway houses are an appealing alternative to high-rise and other multi-unit apartment complexes or condos from renters’ perspective. They provide a single-family detached home experience without having to put up with the sounds, scents (and, in COVID times, aerosol emissions) of your neighbors. There’s no one above you or on the other side of the wall, no shared spaces or elevators to deal with—you simply walk out your front door.
Because of these benefits, owners can frequently demand a higher rental rate for a laneway house than for a similar-sized basement apartment or condo.
Building a laneway house can be a terrific investment if you’re willing to take on the role of amateur developer. To begin, you’ll increase the value of your home, which will pay off when it comes time to sell. Then, you can rent out the second home (or move in and rent out your primary residence) to help cover construction costs and, in many cases, pocket any excess rental revenue. Alternatively, you can assist a family member with inexpensive accommodation so that they do not have to relocate to a less expensive suburb or city. Just make sure you follow all local legislation and regulations.
This article was written by Melissa Hansen, a seasoned writer with contributions to niche outlets like Epic Firms, Forever After, and Bridgewell Group. When she is not crafting insightful content, Melissa enjoys her time with a hot cup of coffee in one hand and an inspiring book in the other.