By Ted McIntyre

The Ontario Ministry of Municipal Affairs and Housing identifies its provincial vision as: “Every person (having) an affordable, suitable and adequate home to provide the foundation to secure employment, raise a family and build strong communities.”

To that end, the Province has updated its Long-Term Affordable Housing Strategy (LTAHS) to make affordable housing more integrated into the land-use planning process. That includes the May 18 introduction of Bill 204 – Promoting Affordable Housing Act, 2016. Beyond an attempt to help to address Ontario’s growing ‘affordability gap,’ the proposed legislation highlights the implementation of inclusionary zoning as part of a commitment to “create inclusive, complete communities with a broad mix and range of housing types.”

Schedule 4 of the Planning Act proposes amendments that, if passed, would allow municipalities to implement inclusionary zoning bylaws, subject to certain requirements in the proposed legislation and potential additional requirements that may be set out by regulations. The proposed inclusionary zoning authority would allow municipalities to increase the supply of affordable housing through bylaws that require development proposals to include affordable housing units. The proposed amendments would also, if passed, provide the Minister of Housing with the authority to make regulations relating to the proposed provisions.

While the Province has clearly established its own destination, the path will involve active direction from municipalities, developers and other interested parties through consultations over the course of the summer. “Working towards these goals requires a system built on partnerships with the private and non-profit sectors, and between all levels of government,” the ministry observes.

“Partnership is something that the former minister (Minister of Municipal Affairs and Housing Ted McMeekin) has talked about many times before,” says OHBA Director of Policy Mike Collins-Williams. “Inclusionary zoning is something we continue to have major concerns with, but now that government has moved forward with legislation, it’s essential we work with government to ensure they come to the table as actual partners to deliver affordable housing units.”

Collins-Williams notes that this summer’s discussions are critical for the industry, particularly given how many questions remain to be answered. For example, what will the project size threshold be at which inclusionary zoning requirements are triggered and what will be the threshold of the percentage for affordable units required in the project?

“Another key for the industry is transition policies,” Collins-Williams adds. “If this legislation is passed, will projects already in the planning process be caught in a new reality? Or will new applications as of a particular date have to meet these new policies? You have some City Councillors saying they want this power today for all those projects currently in planning. But from an industry perspective, you can’t change the rules in the middle of the game.”

“It remains to be seen whether the Province will be very prescriptive and set a clear framework for what municipalities can and cannot do, or if it will be open-ended, in which case you could get Brampton doing something completely different from Mississauga or Collingwood,” Collins-Williams adds. “You could end up with a hodge-podge of policies in different jurisdictions.”

 

THE SUM OF ALL FEARS

What most worries developers? “My biggest fear is that somehow free affordable housing is going to make its way into the market,” says BILD Chair and Tribute Communities V.P. of Land Development Steve Deveaux. “From the way it’s being pitched, it’s almost like all this affordable housing is somehow going to magically appear by the wave of a wand, when in fact there’s a cost to providing these units, just as there is a cost to providing market units. I worry that this legislation and the following regulatory framework will not take that into account, and that it will be left to the builder and the end purchaser of the market units to finance this on behalf of the government. In order for it to be a true partnership, there has to be a recognition that there’s a sharing of responsibility, both from an administrative and financial perspective.”

“There certainly are benefits to having inclusive, mixed-income communities: It creates stronger neighbourhoods and you don’t end up with ghetto-ization that you see in many area of the States,” suggests Collins-Williams. “But this is a bit of an abdication of government responsibilities. In the past, government determined what their priorities were in terms of health care, education, etc. If housing was determined to be a priority, the broader tax base would contribute to building affordable housing, or government would work with the private sector to that end. In this situation, though, it’s a case of government backing away and saying, ‘You know what? We’re just going to make the private sector do it.’”

There are two ways that could be done, Collins-Williams explains. “First, it could be a pure extraction, which is essentially a tax on housing. It’s a rather unique circumstance where, to create affordable housing you’re taxing the rest of the housing in the development, driving up the cost of market homes, which makes those homes less affordable.”

The alternative is for municipal and provincial governments to offer sufficient supports to compensate builders for the undertaking of costs, management and some of the long-term financing of affordable units. Those supports could take multiple forms, including the waiving of development charges or other fees.

“If you think about rental units in New York City, the property taxes are waived for up to 25 years—not just for affordable units, but market units too,” says Collins-Williams. “That’s how the builder is able to offset the costs. It’s a huge incentive. That’s what a partnership model is about.

“Even the Province should be involved. They have a land transfer tax and they charge HST on affordable units—both of which they could waive,” says Collins-Williams. To help frame those guidelines moving forward, OHBA and BILD submitted a Statement of Intent to the provincial government, signed by 13 developers in the GTA, which outlines details of their position on inclusionary zoning and how it could work.

Another alternative is for government to leverage existing assets such as land holdings when they send them out for RFPs, suggests Deveaux. “If government wants to capitalize on those assets they can show leadership and have requirements for portions of those land holdings to have affordable housing within them. The City of Toronto is starting to do that through their Open Doors Toronto program.”

In an age where government taxes and fees already account for 20-25% of the cost of a new home, getting options of possible offsets written into the regulations is key, says Deveaux. “There’s a lot that’s been said of other jurisdictions around North America where there’s been some success with inclusionary zoning, but those quotes typically don’t provide the context surrounding it in terms of significant government tax breaks and incentive and fees provided that worked toward making the builder whole in providing those units.”

“Without those offsets, developers or builders may look at the project feasibility and not build the project at all,” says Collins-Williams. “And if they don’t build, you get no affordable units, but you also get fewer market units. And when you’re decreasing the supply of housing, it creates pressures on pricing while providing fewer jobs and lower government revenues. There are potentially some unintended consequences if the government proceeds with such a program.”

 

FEARS UNJUSTIFIED?

But that’s an overreaction, suggests Richard Drdla, a longtime affordable housing consultant and advocate. Drdla points out that while this marks new ground for Ontario, inclusionary zoning has been used extensively by communities around the world, including England, and municipalities across the U.S. There are also limited examples in Canadian cities such as Vancouver, Montreal and Toronto, although they lack both the scope and implementation of such programs south of the border.

“I’ve heard fear-mongering statements being made by more than one developer that this will drive up the price of housing for everyone else—that the developers will pass on the cost increases to the other purchasers—but that’s unfounded,” says Drdla. “If you look at the experience in the U.S., going back 40 years and over 500 communities, the research shows that house prices do not go up in communities that adopt inclusionary zoning, and that they’re equivalent to neighbouring communities without it.  Developers cannot simply pass on the cost increase of new homes to purchasers because housing prices are inelastic in that respect—there will be resistance from buyers, who will choose to buy elsewhere. Builders use this argument to scare politicians and the public in general, but there’s no research to support that.”

Clarifying the terminology might also help allay some concerns, Drdla observes. “Affordable housing is not social housing—that’s often overlooked,” he says. “While Planning Gain, which is what it’s called in the U.K., does provide for some social housing, inclusionary zoning in the U.S. does not. And neither are replacements for government-funded housing. What we’re talking about here in Ontario might be better called ‘gap’ housing or ‘below-market’ housing. In the U.S., they generally charge something like 10-20% below the market price for a ‘affordable’ housing. You could call it a shallow subsidy program. Housing being provided by these programs tend to be for the moderate income housing needs of people who have been left out of the market due to rapidly escalating prices—people who 20 or 30 years ago would have been readily available to buy a house but can no longer do it now because prices have gone up so much in Toronto, Vancouver and other communities. It’s addressing problems that have been associated with that rapid growth. In that respect, the development and real estate industry should be supportive of this since it will extend the number of people who are going to be able to buy houses.”

 

LINGERING QUESTIONS

Local legislation, however, currently makes this an apples-and-oranges comparison for local builders. “About 90% of what gets built in New York City gets built ‘as-of-right,’ says Deveaux in reference to a development that complies with all applicable zoning regulations and does not require any special permit or variance by a city planning commission. “The challenge we have in the GTA is that zoning hasn’t been updated in 60 or 70 years. So there’s never a circumstance when we come in and just build ‘as-of-right.’ And while there may be a density incentive as a tradeoff to providing affordable housing in the New York model, it doesn’t mean anything to me in Toronto because absolutely every application I come forward with constitutes a rezoning by virtue of the outdated zoning. So I don’t know what my realistic zoning ought to have been ‘as-of-right’ in order to be able to properly determine what actual bonus I’d be receiving in exchange for providing affordable housing.”

There are also questions surrounding Section 37 of the Planning Act. Currently, municipalities may authorize buildings to exceed the height and density otherwise permitted in the zoning bylaw in exchange for community benefits, such as public art or community daycare. The Act, if passed, would prohibit municipalities from using Section 37 if the same land, building or structure were subject to inclusionary zoning.

One fear that can likely be put to rest is whether the provision of affordable housing adversely affects the price of market residences in the same neighbourhood. The Daniels Corporation has partnered with Toronto Community Housing to re-develop the Regent Park neighbourhood to help inject a new vitality to Toronto’s Downtown East. A key tenet of the revitalization is including both rent-geared-to-income and market units together in the same community—and Daniels has been selling the latter residences at market rate. When completed over the next 10 to 15 years, 12,500 people will live in 5,115 units across 69 acres of the largest publicly funded community in Canada. The plan includes the replacement of the 2,083 existing social housing units with new, energy-efficient, modern units and the introduction of approximately 3,000 market units for sale.

Beyond the physical infrastructure, the revitalization is acting as a catalyst for social and economic change, with more than 465 jobs already created for local residents.

Some, however, question whether the proposed legislation actually solves the affordable housing problem or exacerbates it. Citing a string of studies, including “Housing Supply and Affordability: Do Affordable Housing Mandates Work?” (2004, the Los Angeles-based Reason Foundation) and “Can Inclusionary Zoning Help Address the Shortage of Affordable Housing in Toronto?” (2009, the Canadian Policy Research Networks), the Federation of Rental Housing Providers of Ontario (FRPO) suggests that as the cost of buying a house continues to rise in Ontario, renting a home is the more affordable—and prudent—option. “The supply of rental housing has not kept up with demand due to the already high costs of development in Ontario. Inclusionary zoning will result in fewer rental housing units being built, which will further limit supply and increase rents for current and future tenants,” says FRPO president and CEO Scott Andison. “More rental housing creates affordable housing.”

Nevertheless, the wheels are in motion to bring about some form of inclusionary zoning legislation to Ontario later this year, making it incumbent upon OHBA to help suggest a plan that might actually work.

“With this consultation period, we’ll certainly be listening to our members and local associations over the summer and OHBA will be preparing a submission with our recommendations,” says Collins-Williams.