Building a laneway house in Toronto isn’t for the faint of heart—or for those on a tight budget. City officials and local residents often defend the status quo with surprising intensity. As a result, much-needed housing projects face layers of reviews, restrictions, and delays. Even straightforward proposals can take months to move forward.

For years, homeowners have struggled to add a small secondary unit at the rear of their property—even when they have the space and proper laneway access.

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Toronto’s Changing Lanes Policy for Laneway Housing

Toronto’s new policy for these so-called ‘laneway houses’ is referred to as Changing Lanes. It has eased the restrictions imposed in the past. The new laneway housing policy was driven by a need for more housing options other than the monolithic high-rise towers few residents ever welcome in their neighbourhoods. An example of what city planners consider ‘gentle density’, laneway houses are built on under-utilized spaces in locations that can fit them. In many cases, replacing an existing garage.

Why Laneway Homes Appeal to Property Investors

Property investors and landlords find laneway houses particularly attractive. These units create strong returns in a market where a one-bedroom downtown apartment of 500 square feet rents for no less than $24,000 annually.

If a laneway house costs around $300,000 to build, the starting return on investment (ROI) is approximately 8% — outperforming many traditional investments. Financing the project could further enhance returns, and the added property value makes it even more appealing.

A Real Example: Laneway House Feasibility Study

We wanted to see if we could find a property in our portfolio that was a good candidate for this program, and settled on a multiplex near Bathurst & St Clair (I happened to represent the clients in its purchase in 2014). At first glance, the property seemed suitable and did our homework to determine the following:

  • Lot Width: 5.4m (minimum requires is 3.5m) at the rear;
  • Lot Depth: 32.7m (minimum is 5m between rear of existing house and start of laneway house);
  • Zoning: R 0.6 (zoning density waived for 250km of laneways, avoids minor variance hearing);
  • Parking: One spot in existing garage (requirement for parking waived, avoids minor variance hearing);
  • Access: 1.2m wide side alley (minimum 1m width required);
  • Timeline: To begin within two months (6+ month wait for minor variances hearing avoided);
  • Costs: Pay in cash for construction & design ($50,000+ city fees waived for all laneway houses);
  • Height: Two storeys proposed (maximum height is 6 meters);
  • Units: Adding one more unit to an existing three-unit house (limitations on additional units waived, avoids minor variance hearing);
  • Trees: No obstructions (removal of trees typically prohibited).

An architect we frequently collaborate with confirmed that a laneway house was viable. However, the owners decided to sell instead of pursuing the build.

Buyer Interest in Laneway House Potential

To capitalize on the opportunity, we listed the property highlighting its laneway house potential. Buyer response was strong—about one-third of inquiries focused on that feature. The reaction showed growing awareness of laneway development among Toronto buyers. Interest in this type of property will only increase as awareness spreads.

The Future of Laneway Houses in Toronto

In a city where housing demand consistently outpaces supply, laneway houses represent an exciting new frontier. They could be one of the most effective ways to add much-needed units to established neighbourhoods without disrupting their character.

If you own a property that might support a laneway suite — or you’re looking to acquire one — our team can help assess your eligibility and navigate the process from start to finish.

Contact us today to discuss your project or schedule a free property assessment.