In an effort to combat the growing affordable housing crisis, Ontario is empowering its municipalities to set a price cap on a percentage of developers' residential units. Some say it could backfire, with developers offloading the cost to buyers and further driving up purchase costs in the housing market. In this article, experts in municipal law and residential development share their perspectives.
There’s a housing crisis in Canada, or at least in some of Canada’s largest cities, where real estate values have soared to dizzying heights over the past decade or so and rents along with them. The Organization for Economic Cooperation and Development rates Canada as the third most overvalued real estate market in the world, with the second-highest price-to-rent ratio. And Ontario’s capital, Toronto, is the second-most expensive city for real estate, behind Vancouver, with the average cost of a detached house now standing $1.2 million.
Social housing advocates and city councillors have for years been demanding action on affordable housing, and in March Ontario’s then Minister of Municipal Affairs and Housing, Ted McMeekin, announced his government’s long-term affordable housing strategy, which included inclusionary zoning authority for Ontario towns and cities.
Inclusionary zoning is a municipal planning tool that requires developers to include lower-cost housing in its new housing developments; this form of zoning has been used in American cities such as New York, San Francisco, Boston, Chicago and Washington. In all these jurisdictions there are financial and planning incentives to support the developments.
Last spring the Ontario government tabled Bill 204, the Promoting Affordable Housing Act, and on September 14th legislation was reintroduced that will, if passed, require certain municipalities to have inclusionary zoning policies in their official plans.
But while the bill — which updates Ontario’s Long-Term Affordable Housing Strategy — has its supporters (including Toronto City Council), critics are concerned that inclusionary zoning will push up prices of new market-valued homes for sale. They also question its overall effectiveness and administration.
“Housing is Never Free – New Neighbours will Pay the Bill for Inclusionary Zoning,” read the headline of an OHBA news release in March, following the provincial government’s announcement of planned changes to the Long-Term Affordable Housing Strategy.
“The development industry understands the need to address affordability across GTA and Ontario,” says OHBA Director of Policy Michael Collins-Williams. But, “we have a lot of concern with the Bill as written.” Advocates of inclusionary zoning have interpreted it “as affordable housing out of thin air; but there’s a cost to everything,” he adds. “Somebody always pays.”
“I don’t think we can expect any corporation to sell their product for less without making up the difference somewhere.”
Katarzyna Sliwa, a partner at Dentons in Toronto who manages its municipal, land use planning and development law group, concurs. “I think [new housing] will be more expensive for the majority of buyers” if inclusionary zoning is introduced, Sliwa told JUST. “I don’t think we can expect any corporation to sell their product for less without making up the difference somewhere.”
Sliwa refers to a BILD study that attempted to assess the cost of how much of every new unit in the GTA is going toward the government: in development charges, application fees and more. Developers must meet parkland dedication requirements, rising application fees, rising development charges, rising land costs, requirements to provide three-bedroom units, and more.
“Developers haven’t necessarily pushed back against the concept of inclusionary zoning,” she says, but “there should be some benefit to them, for example, on the development charges, or having the application process expedited,” which takes a long time in Ontario, she notes. “They’re saying, ‘don’t make this another tax, or complication on the layers of approvals.’”
Where inclusionary zoning has worked successfully, says Collins-Williams, is where incentives have been provided. “Seven zones in New York City have been rezoned as mandatory inclusionary zoning districts,” he notes, and building density “is being put in as a tradeoff. Our concern is that if government doesn’t come to the table, you end up with a subsidy of low-cost housing by making other [market-value] housing more expensive,” with “millions or tens of millions that have to be made up from the purchase prices of other units.”
Clearly there’s a homeless problem in the City of Toronto. But how do you deal with it, and who should be paying for it?
Another issue is administration of the affordable housing units, and whether responsibility for affordable housing should belong to the private sector.
“How do you control who ends up in the units, or the resale of the units at market value, or what their needs are?” Sliwa asks. “Certainly you need measures in place. Clearly there’s a homeless problem in the City of Toronto. But how do you deal with it, and who should be paying for it? The government needs to take ownership of affordable housing.” As for the logistics, “Now we’re waiting for regulations to tell us how many units must be provided; who will oversee the process of the purchase of affordable housing? Are there restrictions on being able to buy those units, or are they owned by [for example] the City of Toronto?”
Municipalities already require affordable housing via section 37 of the Planning Act, Sliwa says, and non-profit organizations such as Habitat for Humanity have also been involved in providing it, including condos. I've volunteered for a few Habitat for Humanity builds and one of the requirements, for families who qualify for a Habitat home, is that they contribute to the build with that's called 'sweat equity' or a requirement to dedicate a specified amount of time in labour.
Other jurisdictions in Canada, including Vancouver and Montreal, support affordable housing by providing land for social housing and low-end market rental properties without embracing full inclusionary zoning regimes. And following the second reading of Bill 73, the Smart Growth for Our Communities Act, 2015 in autumn 2015, the Association of Municipalities Ontario noted in a statement that “there needs to be some local discretion on how this approach is implemented given servicing conditions. Any intensification has an impact on infrastructure/asset management/financing capital plans as well as health/safety considerations. It should be noted that inclusionary zoning should not be considered a panacea solution for all new affordable housing development.”
Under Ontario’s proposed legislation, the affordable housing units cannot be separate from the market-value units, but must be in the same condominium apartment building or complex of townhouses, for example.
“My understanding is that other jurisdictions [outside Canada] have struggled with implementation, and it’s hard to say there’s been an actual increase in affordable housing,” says Sliwa, noting that the Federation of Rental Housing-providers of Ontario has expressed concern that Bill 204 would result in less rental housing being built, thus undermining the goal of more affordable housing.
“The development industry has been expecting the provincial government to make affordable housing its focus; the struggle is whether inclusionary zoning leads to that.”
The OHBA and the Building Industry and Land Development Association (BILD) are encouraging a partnership framework between the public and private sector as the only way to ensure that inclusionary zoning legislation is effective.
“We’ve said to government that we believe a partnership model is best,” says Collins-Williams. “In a partnership framework, the private sector, the development industry would accept responsibility to develop affordable housing, but there would not be understanding that the responsibility lies with the public sector.”
Developers would accept some short-term costs for delivery, administration, as well as the investment in equity and the risk involved. But the municipal governments would have to cover the developers’ costs of delivering the units, he adds, noting the incentives offered in U.S. jurisdictions: offsets, trade-offs, and parking allocation, among others. Ontario municipalities might offer to waive land transfer taxes or HST, or make other allocations under section 37 of the Planning Act, notes Collins-Williams.
Section 37 authorizes municipalities to grant increases in height and density of development in exchange for the provision of “facilities, services or matters.” However, under Bill 204, where a municipality passes an inclusionary zoning bylaw there will be a prohibition from passing a section 37 bylaw with respect to the same lands, buildings or structures. Simply put, a developer will have to build affordable housing alongside market-value housing in the same development, and will not be able to give cash in lieu of anything else in exchange for those affordable units.
And what impact could this legislation have on the practice of lawyers in Ontario, for example, lawyers who practise municipal law, planning and real estate?
“What’s interesting is that the official plan policies and bylaws brought in by municipalities that are enforcing inclusionary zoning can’t be appealed; only the minister can appeal them,” Sliwa notes. She doesn’t expect more Ontario Municipal Board hearings as a result of Bill 204 being passed, though, noting that the building industry is asking that buildings with less than 100 units not be included in mandatory inclusionary zoning.”
Both Collins-Williams and Sliwa expect the bill to pass in some form. “The province has certainly indicated it will proceed,” the OHBA’s policy director notes, “but the rules and structure used to put it together is still being consulted on.
“I think the government will be aggressive in getting this through the legislature," says. "It could be done by Christmas, but no guarantees.”
Elizabeth Raymer is a Toronto-based journalist with a specialty in legal affairs.