A Guide to Renting Laneway Homes in Ontario
By David Pipe, Wealthtrack
Laneway homes—also called laneway suites—are emerging as a creative solution to Ontario’s housing shortage, especially in dense urban areas like Toronto.
These compact dwellings are built on residential lots, usually facing a back laneway rather than the street, and function as secondary units. As Ontario continues exploring gentle density and affordable housing strategies, laneway homes are gaining traction.
In fact, government initiatives such as the Canada Secondary Suite Loan Program have sprung up lately to incentivize the building of such structures, to combat the housing problems Canadians are currently facing.
But whether you're a homeowner interested in renting one out, or a tenant considering living in one, the legal landscape can be tricky to navigate.
Here’s what Ontario renters—and thoughtful investors—need to know.
What Is a Laneway Home?
A laneway home is a smaller, detached residential unit located on the same lot as a primary home, usually accessed via a laneway. These units are fully self-contained with kitchens, bathrooms, bedrooms, and separate entrances.
Originally promoted as a way to increase urban density without disrupting neighbourhood character, laneway homes have also been hailed as an opportunity to generate passive income or accommodate multigenerational living.
But while the City of Toronto and other Ontario municipalities have moved to allow laneway homes more broadly, many limitations and practical hurdles remain.
The Legal Landscape in Ontario
Where They’re Permitted
As of 2018, Toronto City Council adopted bylaw amendments allowing laneway suites citywide in residential zones, provided the property meets specific criteria. Ottawa and other municipalities have since followed with similar zoning changes.
To legally construct and rent out a laneway home in Ontario, the following must be true:
The property must abut a public laneway that is at least 3.5 meters wide.
The lot must have adequate space to accommodate setbacks and building code requirements.
Emergency services access must be possible either through the laneway or a side-yard path.
The laneway suite must remain on the same lot as the principal residence—it cannot be severed and sold as its own property.
These stipulations can limit who can build—and who ultimately benefits.
Thinking about adding a laneway suite, basement apartment, or rental unit to your home—but unsure how to afford it?
A new Canadian refinance program lets eligible homeowners borrow up to 90% of their home’s future value to fund secondary suites. In this video, mortgage broker David Pipe explains:
✅ Who qualifies
✅ How much you can borrow
✅ Real-world examples
✅ What to expect during the approval process
✅ How to take the next step
The Severance Debate
One of the most contentious issues surrounding laneway homes in Ontario is that they cannot be severed from the primary dwelling. This means that even though a laneway home is fully independent, it legally remains part of the same property.
This rule was designed with good intentions: to preserve neighbourhood character and ensure safe utility connections. However, it also creates barriers to homeownership. While wealthy property owners can afford to build and rent out a laneway suite for upwards of $3,500 to $5,000/month, many struggling homeowners or hopeful first-time buyers are locked out of participating in this urban evolution.
Imagine if a homeowner could sever their backyard and sell it to someone else—someone who could then afford to build their own small home. This would not only help the homeowner financially (especially during periods of high interest rates), but it would also create a new opportunity for a buyer who would otherwise never afford a property in the area. Everyone wins—but under current law, that scenario is off the table.
Instead, critics argue that the current structure benefits only the already wealthy, who are able to finance construction and capitalize on rising rents, reinforcing inequality rather than solving it.
Renting a Laneway Home: What Tenants Should Know
For renters, laneway homes offer an appealing mix of privacy, independence, and modern living—often at a premium. But there are a few key considerations before signing a lease:
1. Rent Prices Are High
Most laneway homes are newly built, feature high-end finishes, and are located in sought-after neighbourhoods like Roncesvalles, Leslieville, and The Annex. Rent for a one-bedroom laneway suite can range from $2,800 to over $5,000/month depending on location and size—putting them out of reach for many Ontarians seeking affordable housing.
2. You Are Still Protected Under Ontario’s Residential Tenancies Act
Laneway suites fall under the same landlord-tenant rules as any other rental in Ontario. This means:
Your landlord must provide 24 hours’ notice before entering.
You have rights around evictions, repairs, and rent increases.
You are entitled to quiet enjoyment of the unit.
That said, relationships can be more complex when you're sharing a property with your landlord next door—especially with shared access paths, utility systems, and sometimes even garbage bins.
3. Utilities May Be Shared
In many laneway setups, utilities like water, sewer, and sometimes hydro are routed from the main house. This can create awkward billing situations unless the landlord installs sub-metering (which is not mandatory). Make sure your lease clearly outlines who pays what.
For Homeowners: Should You Build One?
For property owners wondering if building a laneway suite makes sense, here are the pros and cons:
Pros:
Rental income potential: Monthly rent can significantly offset mortgage costs or supplement retirement income.
Family accommodation: Ideal for housing adult children, aging parents, or caregivers while maintaining privacy.
Property value boost: Laneway homes can enhance overall property value—especially in housing-starved urban zones.
Cons:
High upfront costs: Building a laneway home can cost between $300,000 and $500,000 or more, depending on design and complexity.
No resale option: You cannot sell the laneway home separately.
Financing complexity: Many lenders are cautious about funding laneway builds, and CMHC mortgage rules add further layers of red tape.
Logistical hurdles: Running utilities, adhering to fire code access rules, and navigating the permitting process can be time-consuming and expensive.
The Bigger Picture
While laneway homes won't solve Ontario's housing crisis on their own, they are a step toward more flexible housing options. They also reflect a shift in how we think about land use: embracing “gentle density” over suburban sprawl.
Yes, they currently favour wealthier homeowners. Yes, the inability to sever and sell limits their long-term impact. And yes, more could be done to democratize this form of housing.
But we also believe in opportunity.
If you’re a homeowner interested in unlocking the potential of your property—or a renter seeking a quiet, modern space tucked away from the chaos of city life—laneway homes are worth exploring.
Talk to Us
At Wealthtrack, we specialize in helping Ontario homeowners make strategic decisions about their real estate assets. Whether you’re considering building a laneway home, renting one out, or just exploring how to make your property work smarter for you, let’s talk.
We're here to guide you through the legal landscape, financial implications, and rental market realities.
Contact David Pipe today for a free consultation—and discover if laneway living fits your vision for the future.
