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Inclusionary Zoning Policy in Toronto Will Cost New Homeowners $65K More Per Unit

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In a city that lacks housing supply and faces an affordability crisis, finding a viable solution to remedy the growing problem is critical for Toronto’s success and future growth. The City of Toronto has proposed to tackle this problem, which primarily impacts low and moderate-income households, by introducing an Inclusionary Zoning (IZ) policy.

Under the policy, the City would require that a certain percentage of affordable housing units be built in new residential developments, creating mixed-income housing. 

While, in theory, this might sound like a decent policy solution to help address the housing needs of Toronto residents, a new report from the Building Industry and Land Development Association (BILD) revealed there are “deep flaws” in the City’s proposed approach to building affordable housing units.

The report summarizes three separate and independent studies examining existing inclusionary zoning programs across North America and the impacts of the City of Toronto’s current proposal.

READ: Inclusionary Zoning May Not Be As Inclusive As You Think

The report found that the City’s approach (as it’s currently being proposed) will only “achieve affordable units at the expense of the costs of market units.” Based on economic modelling, the cost added to a market unit to subsidize an affordable unit will be an additional $65,000 per unit and $116,000 per rental unit (lifetime).

In Toronto, developers have been given notice that, beginning in 2022, projects will be subject to mandatory inclusionary zoning. In “strong market areas,” a minimum of 10% of new condominium residential Gross Floor Area (GFA) must be set aside for affordable ownership or rental housing, and as much as 30% GFA as amended by the Planning and Housing Committee; in “moderate market areas,” a minimum of 5% GFA must be earmarked for affordable ownership/rental housing and as much as 20% as amended.

This comes after the City released policy proposals in September 2020 that provide its framework to guide the construction of affordable housing units by private developers, as part of their planned developments, in and around provincial major transit station areas (PMTSAs). The City is calling these policies “inclusionary zoning.”

However, BILD says because the City’s proposals lack the fundamental components of an IZ policy where offsets and incentives are included to counter potential market distortions, the City’s proposed policies are inclusionary zoning in name only, not in function.

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“Using this approach, the City of Toronto is essentially requiring purchasers of market rate housing units to subsidize affordable units at the rate of $65,000 and $116,000 per rental unit over the lifetime of the unit,” said Dave Wilkes, President & CEO, BILD.

“Helping to provide affordable housing is everyone’s responsibility and under this proposal the City is placing the burden solely on the back of purchasers of new homes. This, at a time when housing supply is already under great pressure and affordability is more elusive than ever.”  

To summarize the four studies, BILD has broken them down into three key findings:

  • While inclusionary zoning policies are in place in a number of cities in North America, the City of Toronto is taking an unprecedented approach that does not provide offsets or density bonuses to compensate for the cost of building the affordable units. It rushes to mandatory implementation and does not provide a cash-in-lieu option.
  • The City already collects money for affordable housing from a new development through Development Charges and soon under the new Community Benefit Charge. The current proposal does not compensate $6,000 (combined) per unit and adds an incremental $65,000 in capital cost per new purchase unit and $116,000 per rental unit over its lifetime.
  • Because of market distortions introduced by the City’s proposal, many projects will become financially non-viable. This will limit the supply and choice of homes available for new homebuyers, again impacting availability and affordability.

READ: Hamilton Now Third Worst City for Housing Affordability in All of North America

Wilkes says given that government fees, taxes, and charges already account for almost a quarter of owning a new home in the Greater Toronto Area (GTA). Because of this, he says it’s time that municipalities realize that adding more costs into building housing is one of the root causes of the region’s current housing crisis.

“Like any other industry, adding government taxes and fees into the cost of manufacturing a product, in this case, housing, drives up the cost of the finished product. It is the responsibility of the industry to build complete communities, it is the responsibility of municipal government to provide the conditions and the policies to enable this to happen,” said Wilkes.

Wilkes explained that while BILD supports Inclusionary Zoning, the company backs it when it’s done in a manner that’s not reflected in the City of Toronto’s approach but rather in a partnership model with municipalities that shares the risks and costs of building the below-market units.

“This is in keeping with the basic premise of IZ, namely that it is a partnership between developers, builders, and municipalities to encourage the building of affordable housing units that would not otherwise be built,” reads the report.

When done right, as evidence by examples from municipalities in Canada and the US that are highlighted in the report — including Montreal, Vancouver, New York City, Portland, Boston, San Francisco, Chicago, Seattle, Los Angeles, and Washington — Inclusionary Zoning policies are an effective tool to facilitate the building of affordable units.

“Toronto’s proposed approach is in some ways consistent with the best practices found in these other jurisdictions and in other ways it falls short, or it simply leaves too many unanswered questions to understand the implications of the design of the policy. It is clear that the proposal is still very much a work in progress,” reads the report.

While the City’s plan is a step in the right direction to tackling Toronto’s housing affordability crisis, it is clear that BILD believes there is much more work to be done for Toronto’s proposal to be successful for everyone involved.

“But with the right parameters in place, we can collectively deliver more affordable housing for the City of Toronto,” said BILD.

With files from Riz Dhanji.

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