The laneway home in Jeremy Wilson’s east-end Danforth backyard didn’t have the allure he hoped it would.
Wilson says he spent nearly $450,000 on the two-bedroom suite, expecting to rent it out. But after five years building it — he did much of the work himself — he and his now-wife decided to each sell their homes and build a bigger house for their family.
While she sold her home within days, Wilson struggled to sell his.
The listing sat for more than five months and he now says the laneway suite was actually a deterrent for prospective buyers who said they didn’t need it.
“It made it much more difficult to sell because now there’s this extra thing, and I have to recoup costs, whereas, for example, my wife sold her house in three days because it was a totally standard Toronto three-bedroom semi,” he said.
Building a laneway suite without special permission has been legal in Toronto since 2018 as city council aimed to add more density and rental options to lowrise neighbourhoods. For homeowners, it presented the opportunity to make rental income or have multi-generational living — with a separate place for older parents, adult children or other family to move in.
But seven years later, those trying to sell their properties are finding the laneway home doesn’t always add the value they expected. Real estate listing website HouseSigma shows properties with laneway suites often take several months to sell (as opposed to just over 20 days for detached and semi-detached homes, according to February’s Toronto Regional Real Estate Board data), with many seeing price drops of hundreds of thousands of dollars.
Of three Toronto properties with laneway homes on the market in March, for example, the listing price for one has already dropped about $240,000 over three weeks; another dropped $240,000 over two months, and the third dropped $350,000 over three months.
A property in Humewood-Cedarvale sold in January after nine months on the market, the price dropping from $3.55 million to $3.102 million.
There are exceptions, however. One Annex property sold slightly above its asking price in February for $1.825 million after only six days on the market.
Wilson, who purchased his home 12 years ago, used equity in the house to build the laneway suite. Because of this, his mortgage has ballooned, he said.
He listed the property — which includes an updated three-bedroom detached house and a laneway home over a two-car garage — for $1.85 million in October. He dropped the price to $1.695 million in January. As of February, detached homes in the area averaged $1.395 million, TRREB data shows.
Wilson received two offers: one for $1.7 million in November with conditions that left him uneasy about the sale, and another for $1.6 million in February with different, costly conditions.
All in all, he realized he’d have to sell for much less than he had imagined.
“I had hoped being able to buy two houses would be an appealing option for people, or maybe other people felt like I did, that the rental income would be worth it,” he said. “But it proved not really the case.”
How do laneway homes affect the resale value of a property?
Romey Halabi, a broker at Toronto Realty Boutique, said people who build laneway homes on their property tend to do so in order to stay put longer — whether it’s to downsize, rent it out or move in their older adult parents or university-aged children.
He “very rarely” has clients looking to sell or buy properties that already have laneway homes.
Halabi said a laneway home can boost a property’s value, but finding the right buyer takes patience and requires marketing to the right demographic.
“If you’re looking to market to the general public, you’re going to be disappointed. The majority of them don’t want it or don’t understand it,” he said, adding buyers don’t usually want to be landlords and may not want another home so close to their own.
Paul Johnston, a realtor with Right At Home Realty, said there’s no guarantee a homeowner will recoup all the building expenses when it comes time to sell.
It’s like a home renovation, newly finished basement, or swimming pool, he said. “Different buyers will ascribe different value to those improvements.”
Additionally, while Wilson’s laneway suite is on top of a garage, other laneway homes might be built in a way that replaces parking, which Johnston believes is a deal-breaker for most buyers.
Daniel Freeman, a realtor at Freeman Realty, meanwhile said laneway suites have “inherent value.”
The company has rented out clients’ laneway homes for between $2,500 and $5,300, he said, and a unit that rents for somewhere in the middle could earn a property owner upwards of $40,000 per year.
When it comes to selling, he said it’s ideal if the laneway suite is vacant so the buyer doesn’t inherit a tenant they don’t know and so they can easily move in a family member or use the space as an office or studio space.
Many buyers are interested in a home where a laneway is feasible, Freeman said, noting his company keeps a long list of them.
Having that pool of people considering a certain property “increases the upside potential for the seller,” he said.
At the same time, the global and national market is experiencing serious volatility as homebuyers take pause, he said, due to uncertainty over tariffs, for instance, and waiting to see if interest rates continue to decrease.
Can you sell off a laneway suite separately?
Wilson said the $1.6-million deal nearly fell apart when the buyer realized there was a restriction on the title of the property.
Wilson signed an agreement in 2019 with the City of Toronto not to sever the laneway suite from the property for 20 years in exchange for the city deferring development charges. He says the buyer could have simply signed the same agreement to continue avoiding the fees, but the buyer was worried the restriction would affect the property’s future salability.
As a result, they asked Wilson to pay the development fees, which are about $90,000.
Wilson said it’s not feasible to sever the property, anyways.
“Part of the laneway suite bylaws is that all of the services come off the main house,” he explained. “Electrical, plumbing, drainage, all feed through the main house. So in order to sever the property, you’d have to redo all those connections and that would probably cost $100,000 or more.”
While Wilson was ready to walk away from the deal, he eventually agreed to pay the fees in order to close the sale rather than wait for another buyer while continuing to pay the mortgage.
“Plus, I would still need to pay off the city because no one wants to buy a house with a title restriction, even one that’s not a real issue,” he said.
He added that Ontario’s Bill 23, the More Homes Built Faster Act, in 2022 eliminated development fees on laneway rentals, so people building newer units wouldn’t have to pay development charges at all.
“It’s difficult to lose that chunk of money because of bureaucracy,” he said.
In a email, a City of Toronto spokesperson confirmed the development charges would have been forgiven at the 20th year as long as the lot wasn’t separated, since the province’s newer rules eliminated development charges.
The city went on to explain laneway rules do not permit a lot to be divided in such a way that the main home and a laneway suite would be on separate lots.
“By remaining ancillary to the main dwelling, and not severed, they are intended to increase the city’s rental housing stock in neighbourhoods,” a spokesperson said in a statement. “In addition, severances for laneway suites can also create issues related to waste collection and servicing based on location, with services accessed via the main street.”
To sever the land, the city requires an application under the Planning Act and a zoning bylaw amendment application. The application has to prove all servicing can be well accommodated at no cost to the city, that the laneway suite meets all the requirements for a principle dwelling, and more.
Evan Saskin, the president of infill developer Blue Lion Building, found another way to separate a laneway suite from the main dwelling: converting the property into a condominium, where each residence can be sold separately but is overseen by a small condo corporation.
That way, even though the laneway is serviced through the main house, the “unit” can be sold separately from the others.
“I think that the condominiumization is a great solution to this problem because the piece of land remains undivided,” Saskin said.
That being said, the process of registering a property as a “condo” with the city usually takes about a year, Saskin said. It can be pricey, since it requires hiring a lawyer, a surveyor, an architect and a planner.
Saskin said there are only a few “freehold” laneway homes in the city, which are not part of a condo corporation and are on their own property, receiving municipal services individually.
Johnston, the realtor, said those rare homes were severed decades before the laneway bylaws, and have sold for as high as $1 million to $5 million.
As for Wilson, he and his wife are renting out a house for the time being.
“We had grand plans of building new and being mortgage free, but that won’t happen now,” he said.
The couple planned to tear down a house in the same neighbourhood and build new, with room for a workshop where Wilson could collect pinball machines and restore old cars. But with a smaller budget, the workshop may not come into fruition, and they’ll likely renovate a house instead.
“At $1.8 million, we had options. But now at basically $1.5 million, after the development fee payment, we will have to take on a larger mortgage.”
