It's been covered a few times in the comments, but Sheetrock is acceptable fire block where I live in Ontario and I'll be adding it later. Drywall is at least a few weeks away.

The drywall can be affixed to the existing studs, but you'll end up with a step or ledge somewhere part way down the wall where you have to frame around the foundation. I wanted to avoid that, so I framed new walls in front of the existing walls. The downsides are the loss of about 9–10" of space on every exterior wall and r/AbsoluteUnits window jambs.

I didn't build the exterior wall. It kind of came with the house. I think it was 1-inch foam. It's pretty standard here. Every house in the subdivision was built the same way.

Yeah. The floor joists sit on top of the exterior wall. I didn't build any of that. Load-bearing walls are not something I play with.

It's not a load-bearing wall. It's just to hold drywall. The outer wall (the one with insulation between the studs) is load bearing.

I was describing the existing exterior wall insulation and vapour barrier, installed by the original builder, and inspected by the town. I know that part is built correctly.

I think the general consensus in the comments is that I'd see minimal gains while complicating compliance with the Ontario building code, so I'm just going to leave it as is.

Yeah. I understand what they were saying now. In my jurisdiction Sheetrock is an acceptable fire block, so there’s nothing wrong with my “framing”. I haven’t even ordered any drywall yet, so that’s why that space is open right now.

I thought about the shelf/ledge approach, but then I thought about all of the extra drywall work, and having to dust my walls until the end of time. Dusty baseboards are bad enough.

That’s the answer I was hoping for. I thought the money is likely better spent elsewhere, but maybe some Redditor who insulates homes for a living knows better.

The only way to finish the walls and not lose the space would involve having a weird ledge on all of the walls. I’d rather sacrifice the space and have straight walls. My motivation for finishing the basement isn’t more space and I’m only finishing about half of the available space. If the basement wasn’t a walkout, I’d probably never finish it.

Canadian Shield yes. Manitoba no. Muskoka, ON.

I’ve been looking into it. I keep hoping the AirThings Wave Plus will go on sale, but no luck yet.

Good to know. I was concerned about it being on the wrong side of the vapour barrier.

I think I misunderstood u/r7-arr’s comment. Yes I’m planning to put fire blocking between the interior wall and exterior wall at the top plate. I don’t think any other fire blocks are necessary in Ontario for interior walls.

Edit: My understanding is that fire code Sheetrock is acceptable, so the comment about my framing being incorrect didn’t make sense.

Edit #2: 1/2” Sheetrock is apparently acceptable according to 9.10.16.3. I don’t even have to buy the fire code stuff.

There are no such rules for interior walls where I live. They’re just there to hold drywall.

Termites are only a problem in a few areas in Ontario (Canada) and, thankfully, I don't live in one of those areas.

My house is basically sitting on granite. The builder had to blast to dig the foundation. The foundation walls are waterproofed, and the floor is required by building code to be damp-proofed at minimum, so the basement should be pretty dry.