More Homes, More Choices: Understanding Additional Dwelling Units
How Ontario's housing policies have evolved - and what municipalities can do to encourage more housing options in our communities.
Why are additional dwelling units part of the housing conversation?
Housing affordability is a challenge that communities across Ontario are facing. For many people, finding a home they can afford has become increasingly difficult.
One of the ways Ontario has responded is by making it easier to create additional dwelling units within existing or new residential properties.
But why did the province move in this direction? And what does it actually mean for homeowners, tenants and municipalities?
To understand where we are today, it helps to look at how we got here.
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The origins of the issue
In the mid-1980s, Ontario saw a significant increase in illegal housing, including basement apartments. This happened at a time when the province was facing a serious housing shortage and rising rents.
A lack of affordable housing in major urban centres, rising interest rates and a slowdown in residential construction contributed to more single-family homes being converted into unauthorized duplexes and triplexes. Municipalities responded by putting strict rules in place through their zoning bylaws.
There were good reasons for many of these restrictions. Municipalities had legitimate concerns about the health and safety of occupants, fire safety, ventilation and emergency exits. There were also concerns about property taxation and whether everyone was paying their fair share for municipal services.
An illegal dwelling can create an unfair situation for the broader community. For example, a property owner may not declare rental income, the property may not be assessed accordingly, and the owner may not pay their fair share of municipal, regional and school taxes.
There can also be questions about whether the appropriate user fees are being paid for services such as water, sanitary sewer and garbage collection.
At the same time, people living in illegal or inadequate housing may be reluctant to report problems because they are afraid of losing their dwelling unit.
This created a difficult situation: there was a need for more housing, but simply allowing additional units without appropriate rules could create legitimate health, safety and fairness concerns.
How Ontario's approach has changed
1994–1995
In 1994, the provincial government took an initial step toward addressing illegal housing by adopting Bill 120, the Residents' Rights Act.
Bill 120 amended several laws, including the Planning Act, to allow zoning regulations to permit the creation of accessory dwelling units, such as basement apartments, in certain homes.
Following the election of the subsequent government in 1995, this measure was repealed. However, accessory dwelling units that had been created or occupied before November 1995 retained legal non-conforming status.
Between 1995 and 2012, anyone who wanted to create a new housing unit within their home generally had to apply for a zoning bylaw amendment and obtain approval. In some cases, an application could also end up before the Ontario Municipal Board if someone appealed the decision.
January 1, 2012
Bill 140, which promoted strong communities through affordable housing, came into force on January 1, 2012.
The legislation required municipalities to permit the creation of a “second dwelling unit” within residential zones in detached, semi-detached and row houses.
This represented a significant change in how municipalities approached additional housing.
Although homeowners no longer needed a zoning amendment to create a second dwelling unit, municipalities introduced various requirements that could make the process more difficult or restrictive.
One concern was what would happen to established neighbourhoods if a detached home occupied by an owner-occupied family were sold and converted into a property containing two rental units.
June 6, 2019
On June 6, 2019, the provincial government adopted Bill 108, the More Homes, More Choice Act.
The legislation required municipalities to allow second dwelling units as-of-right in order to help accelerate housing construction. It also exempted these units from development charges.
April and November 2022
On April 14, 2022, the legislature adopted Bill 109, the More Homes for Everyone Act, with the goal of simplifying the approval process for new housing.
Later that year, on November 22, the government adopted Bill 23, the More Homes Built Faster Act, which came into effect on January 1, 2023.
Bill 23 made further changes intended to accelerate residential construction and expand permissions for additional dwelling units.
Under the framework described in this article, certain detached, semi-detached and row-house properties can have up to three dwelling units without requiring a zoning amendment.
The additional units can be located within the main dwelling, including in the basement or on an upper floor. One additional unit can also be located in an accessory structure, such as above a detached garage.
The legislation also introduced the concept of an “urban residential land parcel.” Generally, this refers to a property within a settlement area where residential use is permitted and that is serviced by municipal sanitary sewer and drinking water systems.
What does this mean for homeowners?
This is where things can get confusing, so I think it is important to explain it in simple terms.
Under the framework described above, a property or existing building located on an urban residential land parcel can have a total of three dwelling units without requiring a zoning bylaw amendment, subject to the applicable legislation and requirements.
The two additional units are exempt from the development charges and the cash-in-lieu of parkland normally imposed by the municipality.
But exempt from development charges and the cash-in-lieu of parkland does not mean free.
The property owner is still responsible for other applicable costs associated with municipal services and the creation of the additional units.
These can include costs related to drinking water and wastewater services, water consumption, building permits, water meters and other applicable fees.
Properties that do not meet the definition of an urban residential land parcel may also be able to create additional dwelling units, different requirements such as a hydrogeological study or a minimum-distance-separation report.
There is also a potential benefit to the municipality. Creating additional dwelling units can increase the assessed value of a property.
And, of course, the people living in those units will pay their share of applicable user fees for services such as water and sanitary sewer.
How can additional dwelling units help with affordability?
This is an important part of the conversation.
When we talk about housing affordability, we often focus on the purchase price or monthly rent. But there are many other costs involved in building housing.
Provincial and federal taxes, municipal fees and development charges all contribute to the cost of constructing a home. Those costs ultimately affect the price that buyers and tenants pay.
According to the information presented in this article, these costs represent an average of 34% to 36% of the total purchase cost of a new detached home. For smaller or more affordable homes, that proportion can approach 45%. One reason is that many fees and charges are fixed amounts based on the type of building rather than its size or market value. That means a fixed charge can represent a much larger percentage of the overall cost of a smaller, more affordable home. If our goal is to make housing more affordable, we need to look at all of these costs - not just the price of the house itself.
What are governments doing?
The provincial and federal governments are investing $8.8 billion over 10 years in infrastructure to support housing. Municipalities can also join programs that provide financial compensation for reducing development charges. Additionally, new rental construction now benefits from the removal of the provincial and federal portions of the HST, totaling a potential 13% reduction in tax costs.
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What can municipalities do?
I believe municipalities need to look closely at what we can do within our own jurisdiction.
First, the approval process for additional dwelling units should be as straightforward, reasonable and efficient as possible.
That doesn't mean eliminating appropriate health, safety or building standards. It means making sure we're not creating unnecessary administrative barriers for people who want to create legal housing.
Second, municipalities need to follow through on the policies we establish in our Official Plans.
If we say that we want more housing choices, our planning policies and municipal processes should actually support that goal.
And finally, we should be open to innovative housing solutions.
Not every housing solution needs to involve a large new subdivision or a new high-rise building. Sometimes, making better use of the homes and properties we already have can be part of the answer.
Final Thoughts - Marc's perspective
Housing affordability is a complicated issue. There isn't one solution that will fix it.
But I believe we need to look at every reasonable opportunity to create more housing and more housing choices in our communities.
Additional dwelling units are one of those opportunities. They can allow homeowners to make better use of existing properties while creating additional rental housing. They can also provide options for families, seniors, young people and others who may not need, or be able to afford, a traditional single-family home.
At the municipal level, I want us to focus on practical solutions.
We need to reduce unnecessary barriers, encourage responsible housing development and make better use of the infrastructure we already have.
At the same time, we need to make sure that growth is properly planned and that health, safety and the quality of our neighbourhoods remain priorities.
We won't solve the housing affordability problem with one policy or one level of government. But if we want more people to be able to live in our communities, we need to create more choices.
That's the conversation I believe we need to have.