Family compounds could be within the reach of more income brackets through a combination of efforts to encourage accessory dwelling units (ADUs) and more infill housing supply on existing residential properties. That includes a range of financial incentives, new planning and zoning flexibility and innovative construction options to help reduce costs.

The Canadian government recently reiterated a promise to release the details of a new low-cost loan fund — first announced in the 2024 federal budget this spring — before the end of the year. That’s expected to make up to $40,000 available for the creation of secondary suites at residences that borrowers or their close family members occupy. As well, Deputy Prime Minister and Finance Minister Chrystia Freeland sketched out new rules for mortgage insurance that will take effect as of January 15, 2025.

The latter will raise the threshold for mortgage insurance to a maximum of 90 per cent of loan-to-value (LTV), also factoring in the added value that a new secondary unit represents. Borrowers will be eligible for mortgage insurance on up to $2 million of property value, an increase from the previous limit of $1.5 million. The maximum amortization period is set at 30 years.

To qualify, borrowers must already own the existing principal residence, add no more than three additional units and provide assurance that new units will not be offered for short-term rentals. The 90 per cent LTV threshold will be calculated on the total amount of loans secured by the property including other outstanding loans.

The revised mortgage insurance rules and pending loan fund are in keeping with the government’s agenda to promote small-scale residential infill. That’s also seen in the criteria for its Housing Accelerator Fund, which requires participating large urban municipalities to open up zoning to allow four units per residential lot as-of-right in low-density neighbourhoods.

“We think that sort of gentle density is a good way to allow Canadian families to participate in this great national project of increasing housing supply,” Freeland said earlier this month while giving a speech in Toronto. “I talked to a lot of Canadian families who are keen to add that space to their home, have a family member be able to live with them. This is going to allow them to do that and more generally add that gentle density.”

The Ontario government has adopted a similar policy through 2022 amendments to the provincial Planning Act that allow for up to three units per residential lot, including one within a separate structure from the main residence, provided municipal water and sewerage services are in place. As well, it has just wrapped up a public consultation on a proposed regulation that would exempt qualifying homeowners in urban areas from the requirement to obtain local Committee of Adjustment approval for minor variances under municipal zoning bylaws.

Various provincial governments also provide loans or grants to help homeowners cover the costs of adding an accessory apartment. In Ontario, that’s offered through a fund specifically scoped to low- and moderate-income homeowners, who must commit to charging below-market rent (maximum 80 per cent of market rent) for the newly created unit for a 15-year period.

Saskatchewan provides a grant to cover 35 per cent of eligible construction costs to a maximum of $35,000 for the creation of one interior or detached dwelling unit at the recipient’s primary residence. The grants are available to qualifying homeowners who create a new unit before March 31, 2026.

Nova Scotia’s potentially forgivable loan program provides up to $40,000 to cover 50 per cent of eligible costs. The loan will be forgiven if the newly created unit provides housing for a member of the borrower’s family who is at least 65 years old, a tenant with a disability or a low-income tenant who is charged a below-market rent.

Targeting middle class investors

Looking to municipalities, St. Catharines, Ontario, a city of roughly 140,000 in the Niagara Region, now boasts one of Canada’s most lucrative incentive programs, which is partially supported with funding from federal Housing Accelerator Fund. It underwrites additional residential units on properties currently accommodating single-detached, semi-detached or townhouse dwellings that are at least five years old.

Qualifying project proponents can receive rebates for up to 70 per cent of eligible costs to a maximum of $40,000 for new interior apartments or $80,000 for a new detached structure. That could go toward building materials, labour costs or required upgrades to plumbing or HVAC systems, but would not cover consulting fees, permits or appliances and furnishings. Up to two accessory units per property are allowed, subject to compliance with local planning and zoning rules, but with a per-property grant limit of $80,000.

Project proponents are also allowed to combine the municipal incentive with funding from other government programs, provided the money they obtain does not exceed total eligible costs. There is a 12-month timeline from the issuance of the building permit to complete the new units, and grants will be paid out after a final municipal inspection and the building permit is closed.

To help speed that process along, the City of St. Catharines has recently issued a call for proposals for template modular, prefabricated or conventional construction designs that it can pre-approve as an option for prospective proponents. It is seeking up to eight prototypes with small footprints of less than 540 square feet (50 square metres) or somewhat larger in the range of 540 to 860 square feet (80 square metres).

And at least one Niagara-based business is well placed to respond to that call. Xavier Toby, chief executive officer of the modular construction start-up, Axe Buildings, showcased his burgeoning product line earlier this month in conjunction with the release of the 2024 Sustainable PropTech Canada report.

That includes five models of stand-alone dwelling units, ranging from 350 to 1,000 square feet, and a recently completed two-storey, sixplex. The latter advanced from permit to completion in just six months, while simpler backyard structures take about a third of that time.

Installation of smaller units, which are assembled on a pre-dug foundation, can be accomplished in hours, with interiors then finished within a couple of weeks. The company’s basic prices range from $115,000 for the smallest 1-bathroom studio unit to $230,000 for a four-bedroom, 1.5-bathroom unit, but purchasers will also have site-specific costs for permits, surveying, servicing, transportation and foundations which are estimated to add another $25,000 to $40,000 to total project costs.

“We see the accessory dwelling unit as an amazing opportunity to help the middle class realize equity — to take their main asset, which is their home, and add value to it,” Toby submitted. “Once people realize that this is possible and once banks start to lend against the value of the asset, which is starting to happen, we know that this is really going to take off.”