New Federal Program Allows Homeowners to Tap Up to 90% of Equity to Create Apartments in Single-Family Homes 

The federal government has recently announced plans to launch various measures to address the issue of housing supply. These include the Canada Secondary Suite Loan Program and levying additional taxes on vacant lands. 

Both measures are meant to incentivize the creation of more housing units, but the one which should immediately pique the interest of landlords – or people who want to be landlords – is the Canada Secondary Suite Loan Program. This program allows for a whopping 90% of a home’s equity to be tapped to participate in the Program. 

Two types of units incentivized under Program

The two types of units permitted by the program are secondary living quarters in a single-family home, such as an unused basement being converted into an apartment, and an allowance for a structure such as a garage being turned into a laneway home.

The program would allow homeowners to borrow up to 90% of the equity in their home and raise the mortgage insurance home price limit to $2 million to make low-cost loans more accessible. While the program doesn’t have a clear pathway to implementation with private lenders, more details will be forthcoming by January 15, 2025, when the program is set to go live. Lenders have been offered technical documentation which will allow them to design loans that meet the requirements of the Program. 

Regardless of how it may hypothetically be used, this is good news for people who want to become landlords, and for landlords who are currently renting out detached single-family homes with the potential for another suite. 

How the Program is likely to be used

While the program may create a large number of new units, it is very likely that these units will be used by family members of the homeowner in the short term rather than becoming a new source of housing supply. Late Gen X and Baby Boomers may opt to install an in-law suite in their home to use in retirement, allowing family to move into either the new apartment or main house to take care of them in their old age. 

The knock-on effects for housing supply the federal government is looking for will likely only happen once the older family members have moved on and the younger family members then choose to rent out that apartment. 

It will also be likely used by families who have adult children living at home, who may be charged minimal rent to help pay for the conversion loan in order to have their own self-contained apartment rather than living in the main home. 

Can the Program be used to create short-term rentals?

The federal government has put in several measures to crack down on short-term rentals in high-density areas, including peeling back income tax deductions for short-term rentals where they are illegal under municipal bylaws. However, the Government has also not announced that units created under the Program cannot be turned into short-term rentals – yet. It may be best not to plan on using the Program to create a short-term rental unit until more details around the Program are announced. 

If January 2025 comes and there are no specifications in loan agreements around short-term rentals, it can be safely assumed that a unit can be created for this purpose under the Program. 

What are the potential downsides? 

Critics of the program are sounding the alarm that 90% of home equity may be too much to tap into. Mortgage professionals are predictably onside, but want more details about the program than the Government has offered so far. There will also need to be a significant amount of oversight and proof that the funds are being used for their intended purpose. 

Additionally, those who aren’t used to being landlords will need to educate themselves on running this new side business. There are numerous municipal and provincial regulations they have to strictly follow, and the unit must meet these regulations as well as building codes. For example, a basement apartment in Ontario must have adequate ventilation, be well-lit, and ceilings must be a certain height. 

From our perspective, we can see a lot of new property management clients coming our way over the next few years if the Program is implemented as it is currently laid out. If you want to talk to us about becoming a landlord before you take the plunge of participating in the Program, feel free to contact us.