November 2024 - Money Machine - Accessory Dwelling Units and Available Grants

There is a housing crisis in Canada and it is impacting both prospective home buyers and prospective tenants. Simply put, there are more aspiring occupants than there are dwellings to put them in. Of course, the problem isn’t consistent in all locations across the country. Remote areas and areas with limited growth and slim employment opportunities aren’t impacted. But high-density urban areas, areas where populations are consistently growing and areas within reasonable community distance of large centres are definitely feeling the pinch. And that pretty much encompasses all of Southern Ontario.
 
Without getting sidetracked into a political discussion, I can say here in Ontario two forces are at work to fuel this crisis: Immigration and rent controls. People are arriving in this land, but because of the artificial restraints on rental dwellings, a lot of developers and investors are shying away from developing or investing in residential rental buildings.
 
The provincial government is certainly aware of this problem. And while they are reluctant to take the necessary steps to resolve the residential landlord/tenant crisis, they are taking bold steps to encourage residential development. Specifically, with the ‘More Homes Built Faster Act of 2022’ and the modifications to the Planning Act, regulation 299/19.
 
Regarding new construction, the province has set a goal of adding 1,500,000 new dwelling units over the next 10 years. That average of 150,000 per year puts growth at a higher pace than the best year in any of the past 20 years. Ambitious. Let’s review quickly some of the incentives that have been rolled out.

1. Granny Flats
   This was an attempt to tackle two problems at once. First to deal with the fact that a lot of people, especially seniors and single parents are house rich and cash poor. And secondly, to provide reasonably priced rental options for the growing demand. Municipalities were told to relax their zoning restrictions and permit assessory units in existing single-family dwellings even in R1 zoning. People could rent out a portion of their homes by making in some cases minor modifications. Tandem parking was allowed. Entrances didn’t have to be private and unique. Access could be gained through the owner’s occupied space. It was important to understand however that this initiative did not create legal duplexes. The property owner was required to reside in the property.
    
    
2. Up to 2 Accessory Dwellings
   The program has now been expanded across the province to allow up to two additional dwellings added to existing homes even in single family residential zoning. These additional units can be either in the interior of the home or in the exterior such as a converted garage or free-standing ‘tiny house’, or a combination thereof. Each municipality was allowed to create specific by-laws within the zoning map but any restriction such as side yard, set back, parking, square footage was not to interfere with or defeat the spirit of the legislation. And unlike the granny flats, these modified units became legal duplexes and triplexes. The owner was not required to be one of the occupants. The door was open to investors. And a lot of people jumped on the bandwagon. In fact, companies were formed with the objective of scouting out suitable properties, ones that could be easily converted. These properties were purchased, renovated and subsequently sold to investors. And because the rentable units were new, they did not come under the restrictions of rent controls.
    
    
3. Accessory Dwelling Unit Grants
   Now it gets even better. Not only are two additional accessory dwelling units allowable, but there is even grant money available to help property owners create them. Yes, that’s right. Grants, not loans. The program is administered by the local municipality and will cover up to 70% of the eligible cost of creation. I say eligible because while costs like material, labour, HVAC and plumbing are covered, items such as appliances, decorating accessories financing and preparation of building permit plans are not. There is a ceiling of $40,000 for interior units and $80,000 for exterior units. The program can be combined with other incentives but grants cannot exceed actual costs. You can’t cover all costs and walk away with cash in your pocket. The ceiling of $40,000 or $80,000 applies per building. You can undertake more than one conversion and be eligible for grants on each.
    
   If you plan on capitalizing on this program do your homework first. Start with an informal discussion with the planning department of your local municipality. There is a good chance that some properties may not fall within the Community Improvement Project Area. Buildings, to be approved, cannot be newer than 5 years old. Plans must comply with the applicable zoning by-laws. Applications must be made after building permit is issued but before costs are incurred. Costs you rack up before you get approval will not be eligible.
     
   Will it solve all the housing shortage issues? No, it will not. But it will help. And for existing property owners, renovators and investors, it’s an excellent program that makes a lot of financial sense. You’ll want to take the time to consider it.