New inclusionary zoning legislation in Ontario could soon give municipalities the power to require that builders include affordable housing units in all new residential developments. If passed, the Promoting Affordable Housing Act, 2016, will be the first of its kind in Canada and could take effect in early 2017, if not sooner.
Though the framework for the new policy is still in development and will be fleshed out by municipalities, developers and other interested parties in the coming weeks, the proposed structure for inclusionary zoning would allow municipalities to mandate that residential developers set aside a certain number of new units for low- to moderate-income households. Municipalities would also have flexibility to specify height and density, and to offer incentives such as reduced parking, waived or reduced fees and faster approval processes in an effort to offset the economic burden for developers.
Still, Joe Hoffer, Cohen Highley LLP, is not convinced this will be helpful, noting the potential for a ripple effect of negative implications. “The new powers will be viewed by municipalities as a mandate to expand municipal departments, create studies, create regulations, and of course, impose fees on landlords and developers to pay for the increased bureaucracy,” he forewarns. “Though it is still too early in the process to know what other direct impact the new municipal powers will have, there may be delays in municipal processing of infilling redevelopment proposals while municipal staff address the planning implications this will cause.”
Inclusionary housing vs. conventional social housing
Inclusionary housing programs are municipal programs that use development regulations to require that private developers provide a percentage of units within all new projects at a ‘below market” rent and price. This approach is not new and widely used in the United States, but fundamentally different to the conventional social housing programs still favoured here in Canada, which rely on financial subsidies from the government.
According to Toronto-based affordable housing consultant Richard Drdla, inclusionary zoning legislation would be a major breakthrough and a critical step forward in addressing the affordable housing crisis in our province.
“Based on the precedents set in cities like New York, Boston, Chicago and San Francisco, I believe our market can support inclusionary zoning,” says Drdla, noting that Toronto is growing and developing steadily. “It’s a straightforward concept but the details and regulations can be daunting.”
The Ontario Minister of Municipal Affairs, Ted McMeekin, has expressed his wish for the legislation to be passed by early June, commenting that granting municipalities the authority to compel private developers to contribute affordable housing will be “transformational” to how affordable housing is provided.
Indeed, it will be—but does it also mean residential developers are left footing the bill?
“No, they won’t be footing the bill,” assures Drdla, “but the requirement for developers to provide housing at less than its full market value creates a cost burden that must be absorbed somehow in the development process. Eventually it will be passed back to the land costs. In time, the whole market will respond to these additional requirements and land owners will carry the burden—not the consumer or the developer.”
That said, Drdla agrees there needs to be ample advice and assistance on the rules and regulations, both to create an effective program and to minimize the adverse impacts inclusionary zoning may have on developers. In some U.S. municipalities, for instance, the affordable units are allowed to be smaller or built with a lower standard of finish and fixtures. While this won’t recoup the entire cost burden, it will serve to soften it somewhat.
Andrew Lowe, Director, Residential Real Estate Management Oxford Properties Group, sees the coming legislation as concerning for the industry because rent on a per square foot basis is generally much higher in the major U.S. centres than it is in Ontario. “Though it’s not our most pressing challenge as an industry,” he says, “the ability to offset any loss in revenue makes the returns far less attractive, creating less incentive to build.”
Meanwhile, Drdla is confident that given the strength of Ontario’s market, developers will be able to accommodate the affordable housing requirements without any significant damage to their bottom lines. “Although inclusionary zoning can mandate the provision of affordable housing as a condition of building, municipalities have no power to compel developers to actually build anything. Developers can and will stop building when suffering an undue financial loss caused by the inclusionary requirements.”
The guiding principles of inclusionary zoning:
• To provide housing that is affordable on a long-term or permanent basis to succeeding owners or renters
• To provide affordable housing within market housing developments and not on separate sites or in different locations
• To rely on concessions available through the regulatory process (like density bonuses, tax waivers and fee rebates) rather than financial subsidies to reduce the cost burden on the developers
• To operate under fixed and non-negotiable rules that treat all developers in a consistent, equitable and transparent way.