‘Increasing demand’ for secondary units as homebuyers grapple with rate hikes

As Canadians grapple with interest rate hikes and high mortgage payments, there is a growing demand for houses with secondary units, like basement apartments and laneway homes, real estate experts say.

Recent changes in zoning bylaws in cities across Ontario and Alberta have offered greater flexibility for building new secondary suites that have their own private entrance in pre-existing homes.

This comes at a time when the country is in the midst of a housing crisis with not enough properties being built for a growing population.

Secondary dwellings “are a low-hanging fruit” that can not only help solve the housing supply issue Canadians are facing but can also offer much-needed rental income to homeowners facing high mortgages, says Ken Bekendam, CEO and founder of legalsecondsuites.com.

His company helps homeowners and real estate investors in Ontario create additional units in pre-existing properties.

“We’re seeing an increasing demand for (such services),” Bekendam told Global News.

“A lot of first-time homebuyers are more interested in homes that already have an income-producing suite in it or that can easily be added.”

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The Bank of Canada raised its key interest rate for a second consecutive decision last week, and there are concerns about how possible future hikes could further put a wrench in home-buying plans for many Canadians.

Higher mortgage rates make it harder for a homebuyer to qualify for a loan, says Anthony Passarelli, senior analyst at the Canada Mortgage Housing Corporation (CMHC).

This is why a secondary suite is an attractive option that could make the difference in making your home ownership dream a reality, he said.

“You would think it would become more appealing to be able to have that extra income boost, to be able to qualify to purchase a home, so it may play into the decision of a buyer whether there is that income potential,” Passarelli said in an interview with Global News.

A Royal LePage survey published in May showed that 11 per cent of Canadians – 4.4 million people – currently own an investment property, with single-family detached homes most popular among investors.

However, increased mortgage payments for variable-rate holders have caused one-third of investors to consider selling one or more of their properties, the survey found.

“Certainly, as we see borrowing costs and the cost of homeownership increase, homeownership remains a Canadian dream and many buyers and homeowners will look for ways to achieve that Canadian dream,” said Mike Heddle, broker at Royal LePage State Realty.

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Last year, Calgary, Edmonton and Vancouver saw construction of secondary suites ramp up, according to a Canada-wide CMHC report published in April 2023.

In Toronto, there were approximately 75,000 secondary units across the city in 2019, CMHC data shows. That number has also gone up since, based on the number of building permits issued in the city, Passarelli said.

“There does seem to be an increased demand for that and part of that can be attributed to … the City of Toronto has relaxed some of the guidelines around this, particularly that policy where they allow for laneway homes.”

The CMHC report — published in June 2021 — looking at secondary units in Ontario specifically argued that a lack of options in the province’s primary rental market was driving the demand for other forms of rental housing, like basement apartments, in-law suites or laneway homes.

“They are a practical solution to addressing rental supply gaps, particularly in neighbourhoods with predominantly low-density housing,” the CMHC said.

Besides the monthly rental income, a legal accessory dwelling can increase the value of the property, provide additional living space for family members to live together and make it more attractive to a larger demographic, said Heddle.

Having a tenant stay in a basement apartment is also good from a safety standpoint, argued Bekendam,

“Just having an actual person living in the property also brings an extra level of sense of security,” he said.

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However, as landlords, homeowners could run into some problems, like noise complaints and temperature differences, said Bekendam.

That is why he advised installing sound-proofing products and keeping separate heating and cooling systems so residents have individual control.

“The more separate that you can make the units, the better it is for everybody.”

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The additional living space also comes with added costs.

Bekendam said it is getting pricier to build secondary units because of a shortage in skilled trade and contract labour.

And with every interest rate hike that takes place, there is a slowdown in construction activity and demand dips for these units from a cost of construction perspective, he said.

“It’s a complicated issue, right? We need more of these units … but it’s getting very expensive to build.”

He said the government needs to provide more grants and incentives to encourage homeowners to build secondary units in their homes.