I don't think there's really that much of a "housing shortage" in Toronto.
If you want to legally convert a garage to a living space, you need to do the following.
1. Apply for and be granted a zoning variance with the city of Toronto. The existing garage is not considered living space and will not have been included in the lot coverage calculation, nor will it necessarily conform to the side lot requirements.
To apply for a variance, you will need to first hire a registered Ontario Land Surveyor to shoot your lot and the structures on it and prepare a detailed site plan. Plan must be sealed.
Next you will need to prepare a detailed set of design drawings that show what you are proposing. To do this you need to hire an Architect or Engineer skilled in the design of residential dwellings and they need to be tasked with preparing drawings for the purpose of submitting to the Committee of Adjustment and ultimately the Building Department.
2. Once you have all of the above you or your Architect / Engineer ( working on hour behalf) will need to apply to the Committee of Adjustment for a variance.
3. Now the fun starts.
4. Your application will be reviewed first by the zoning people to determine where it violates the City's current Plan Act.
4a. Pay the fee.
5. They will prepare a report and based on that you will submit with your application to the Committee of Adjustment.
6. Pay the fee.
7. The committee will notify all your neighbours of your intentions and a date for your hearing with the Committee of Adjustment will be set.
8. Show up at the hearing as scheduled and on time with your Architect or Engineer. You will be given your opportunity to make your pitch to the committee (there are 3 "judges"). They will ask the gallery if there is anyone present who is opposed to the application. (Read you.). Pray no one stands up because if they do, in your case, you will lose.
9. The committee then votes on your application based on what they feel the rest of the neighbourhood is like. It's a crap shoot how it could go.
I strongly urge you to have signed letters of support from your neighbours on all sides to help your case. Can't emphasize this enough. Also, if there is anyone else in the vicinity that has done the same thing.
10. If you get your variance, there is a mandatory wait period of 2 or 3 weeks in case anyone wants to appeal.
11. Expect the whole variance process to take 6 to 8 months.
12. Once you get your variance, and only once you get the variance, you can apply for a Building Permit. You will need to submit full detailed drawings (site plan, drainage plan, architectural designs, structural designs, HVAC designs and calculations, etc.)
13. Pay the fee.
This will take another 6 months minimum and expect at least one round of required revisions based on requests from the building department.
Once you have your building permit, you are free to start the work.
FYI if you should fail to receive approval at any stage, For any reason, you don't get your money back. It's a one way street.