‘There are several ways to look at the financial case for building a laneway house and they are all positive.’
Many municipalities are now actively encouraging the construction of laneway houses – sometimes also known as coach houses – so there’s added incentive for homeowners to build what could become an extra income-generator and increase the value of their property beyond the initial cost of the laneway home, says Rory O’Flynn, owner of Vancouver-based TSL Laneway Homes, which builds mainly on Vancouver’s west side.
A laneway house typically ranges in size from 600 to 900 square feet, costs from $350,000 to $400,000 to build, and could be rented out for around $3,000 a month, he says.
“Laneway houses are becoming very mainstream mainly because of the price of real estate. Some new homes are even being built with laneway houses at the outset because of the growing demand for this type of accommodation,” says O’Flynn. “They are one of the ways young families can live in the city of Vancouver, or an extended family can stay together on the same property. It costs less to build a laneway house than to buy a one-bedroom apartment in the city, and with a laneway you’re getting a detached house with all the facilities and parking.”
He also points out that the resale value of a property with a laneway house is generally higher than the cost of building the laneway house, and the rental income from a laneway house is often more than enough to cover any mortgage needed to pay for construction, so it’s a good investment all round.
“There are several ways to look at the financial case for building a laneway house and they are all positive,” says O’Flynn. “First, of all, you get a better cap rate than you get on any other investment. So, for example, if your mortgage payment on the laneway house is $1,500 a month and you are getting $3,000 in rent, that’s a 100-per-cent return on your investment and it’s not even your capital, it’s the bank’s.”
While there are conditions that need to be met before an application to build a laneway house will be considered – such as the size of the land available for the new structure – the approval process is straightforward, he adds.
The City of Vancouver for example has a step-by-step online guide to help homeowners understand the laneway house application and construction process, including how to determine the costs and requirements for sewer and water connections, electrical service, and gas installation, how to submit a site survey and other plans for engineering, design, and landscaping pre-application reviews, and how to submit a permit application and meet related requirements, such as Homeowner Protection Office approval.
Other municipalities are also encouraging the construction of laneway houses. The City of North Vancouver, for example, amended its zoning bylaws in 2017 to allow for secondary suites and coach houses on lots zoned for single-family development on the rationale that they provide much-needed ground-oriented rental housing in the city, often in neighbourhoods that are close to schools, parks and other community amenities. The District of North Vancouver is in the process of simplifying rules for coach houses.
Some financial institutions have recognized the upward trend in laneway housing and offer special mortgages packages to finance construction. For example, Vancity has a Laneway Homebuyers’ Bundle that includes $750 in closing costs and appraisal services.
So, if the prospect of another summer spent cutting the grass in your sprawling backyard every Saturday has lost its appeal, or if want to tear down that dilapidated wooden garden shed and replace it with an income generator, perhaps it’s time to consider a laneway house.