Financial Feasibility Information

Financial Feasibility Information

Unlike other types of housing development, the construction of additional dwelling units (ADUs) in Canada generally needs to be financed by the homeowner of the existing main dwelling. This means that there are unique financial requirements and implications to build this type of housing. To provide insight into the financial aspect of detached ADU development, we explore these requirements for each municipality in the mapping tool in terms of three questions:

  1. Are ADUs affordable for the average homeowner to build?
  2. Are ADUs affordable to rent for the average single person household?
  3. What are the impacts for municipalities of additional ADUs in their communities?


For homeowners, we explore if the average homeowner could afford to build a detached ADU on their property and at what rent level they need to charge in order to cover their costs. To do this, we work with financial institutions to understand the process for a homeowner to get financed. This provides information for two stress tests that an average homeowner would likely need to pass in order for their financial institution to finance ADU construction:

  1. Does the homeowner have sufficient equity in their property to allow for refinancing of their existing mortgage to cover the ADU construction costs?
  2. With this new mortgage, would a homeowner be under the 42% income to debt ratio that is used to determine?

In order to determine these outcomes, we come up with estimates of dwelling value both at time of purchase and at our modeling date and determine the cost of construction of an ADU in a particular community. We also determine the various carrying costs that the homeowner faces – monthly mortgage payments, property taxes, utilities, and non-mortgage debt repayments. Based on these data points, we are able to stress test the average homeowner (based on two-person median after-tax household income), leveraging average dwelling values to see if, on average in a particular Census Dissemination area, the construction of an ADU is affordable.


One of the outputs of our homeowner calculation is a carrying cost for the portion of the mortgage and other costs the homeowner bears specifically for the ADU. This is the cost recovery point for a homeowner where they break-even on the ADU. This would likely be the lowest rent a person would charge, so the question becomes – is that rent affordable?

We assume that a single-person household would be the most likely type of household to live in an ADU. Using the median one-person after-tax household income and a 30% of income threshold, we compare the cost recovery rental rate vs the affordable income level. We map this affordability at a Dissemination Area level to see which areas of a city, if ADUs were built and rented at a cost recovery level, a person making the median after-tax income in a particular area could afford to live in without being housing insecure.


Municipalities benefit from ADU construction. As part of the homeowner modeling, we determine an estimation of additional property tax revenue generated by the ADU on a given property. This is new revenue to municipalities that can then be used to provide additional services. As ADUs bring gentle density to existing neighbourhoods, there are very limited additional service costs for this type of development.

As individual homeowners bear the cost to construct ADUs, incentive programs to support this form of development can be impactful as they can support the income-to-debt ratios and carrying costs that homeowners must overcome to receive financing. Understanding the perpetual tax benefit of ADUs on a municipality both at a census dissemination area level and at an aggregate level can help shape incentive policies in communities.You can find the full methodological breakdowns as well as a portion of this data for download on our Data Exports page. Should you wish to discuss specific or custom data elements of our modeling, please reach out to