The City of Waterloo has approved a new grant program set to launch in Fall 2025, aimed at increasing the development of Additional Residential Units (ARUs) across the city. The grant, officially endorsed by Council on June 23, 2025, plans to offer financial incentives of up to $30,000 for detached self-contained residential units such as coach houses, and up to $20,000 for interior units, such as basement suites, provided they are rented out at below-market rates for a minimum of five years. The program is designed to help homeowners offset construction costs while adding affordable housing supply to the city’s rental market.
As of June 2025, Waterloo ranks among the most expensive rental markets in Ontario outside the Greater Toronto Area, despite recent slight decreases in rent. According to Rentals.ca data, the average rent for a one-bedroom unit in the city is $2,034, with a 1.4% increase month-over-month but a 0.9% decrease year-over-year. Two-bedroom units average $2,368, reflecting a 2.8% decline month-over-month and a 1.5% decrease compared to the same time last year.
The new incentive will build on Waterloo’s existing ARU framework, which has been developing since late 2023. The city’s approach has emphasized zoning reform, streamlined permitting, and public education tools like the ARU Toolkit.
The new grant is part of the city’s broader Housing Accelerator Fund strategy, supported by federal funding and focused on removing barriers to new housing development. Additional program details and application timelines will be released through the city’s Engage Waterloo platform later in 2025.
The ARU Program
Waterloo’s ARU program began development in December 2023, when the city initiated policy and zoning changes under its Housing Accelerator Fund Action Plan. That plan introduced a series of actions to enable more gentle density, including allowing up to four residential units on low-rise properties and permitting buildings up to four storeys in those areas. These changes exceeded provincial minimums and were intended to make it easier for homeowners to add secondary and tertiary units to their properties.
Permitting Process for New Units
To build an ARU in Waterloo, homeowners must obtain a building permit through the city’s Planning and Building Services department. Permit applications are reviewed to ensure compliance with zoning bylaws, building code requirements, and fire and safety standards. Waterloo’s ARU Toolkit, released in early 2025, provides step-by-step guidance on how to plan a project, assess feasibility, convert or expand existing structures, and budget for development.
Applicants are encouraged to use the toolkit to better understand the permitting process, from submitting architectural plans to completing inspections. This process is mandatory for any structural changes or new detached ARUs and ensures that added units meet design, safety, and legal standards. The upcoming grant program is expected to increase permit applications in late 2025; property owners are advised to begin preparing well in advance.
Licensing Requirements for Rental Use
In addition to a building permit, any ARU intended for rental, whether long- or short-term, must be licensed under the City of Waterloo’s residential rental licensing bylaw. This regulation applies to all rental units in low-rise buildings under three storeys, including single detached homes, duplexes, townhouses, and secondary suites.
Most ARUs used for long-term rental fall under the city’s Class A licence, which applies to typical residential units and limits occupancy to a maximum of four bedrooms per unit. These licences must be renewed annually.
For ARUs being used as short-term rentals, a Class B licence is required. These regulations came into effect in January 2025, and enforcement started in May. Short-term rental operators must reside in the unit and are limited to 275 rental days per year, with a maximum of 30 days per rental period. Property owners who fail to comply face escalating fines and must cease short-term rental operations if they do not meet residency requirements by April 30, 2025.
Applying for any rental licence requires submission of a comprehensive application package, including documentation such as floor and parking plans, inspection reports for electrical and heating systems, insurance declarations, proof of property ownership, and a recent criminal background check.
Property owners interested in pursuing an ARU project are encouraged to review the toolkit, confirm zoning eligibility, and begin preparing permit applications to ensure they are ready to apply for the upcoming grant once details are released.