A new Building Industry and Land Development (BILD) association report indicates the City of Toronto’s proposed inclusionary zoning (IZ) approach, which will require a certain percentage of affordable housing units in new developments to create mixed-income housing, is flawed and could have unintended consequences.
According to the report, Affordable Housing in the City of Toronto, a summary of study findings of inclusionary zoning reports and studies, the proposed policies could increase costs for new purchasers and decrease new housing supply.
“Under this proposal the city is placing the burden solely on the back of purchasers of new homes at a time when housing supply is already under great pressure,” explained Dave Wilkes, president and CEO of BILD. “It’s time for municipalities to realize that layering more costs into building housing is one of the root causes of our current housing crisis.”
Under the proposed 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, indicates a release. Government fees, taxes and charges already account for almost a quarter of the cost of a new home in the GTA.
“We are concerned it will affect the viability of some of the projects because of the added costs that are being layered on and therefore reduce the supply of housing instead of increase it,” Wilkes stated. “What it would do is call into question whether the investments that were planned make sense and should continue to go forward.”
In September 2020, the city released policy proposals with IZs and a framework to guide the implementation of 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 IZ policy would pertain to applications on Jan. 1, 2022 and would apply to developments in PMTSAs in strong or moderate market areas.
Inclusionary zoning policies have been implemented in a number of jurisdictions, but Wilkes said the City of Toronto is taking an unprecedented approach that does not provide offsets, incentives or density bonuses to the development community. It does not compensate for the cost of building the affordable units, which could reduce the amount of new development activity in some areas around PMTSAs.
“We do have challenges not with the concept but rather some acute challenges with the current structure of the City of Toronto’s proposals. We think it will have many unintended consequences,” Wilkes said.
Due to market distortions introduced by the city’s proposal, many projects will become financially non-viable and could limit the availability and affordability for new home buyers, the report states.
“The City of Toronto, if it implemented the policy as its drafted now, it would be starting out as the most aggressive inclusionary zoning policy launched anywhere in North America,” said Peter Milczyn of PM Strategies who has been studying inclusionary zoning policies for years. “All jurisdictions provide some measure of offsets or incentives to help inclusionary zoning become a reality. Whether that’s a reduction or waiving of development charges or other fees and charges.”
The city already collects money for affordable housing from a new development through Development Charges and soon under the new Community Benefit Charge, he added.
“To compensate for the lost revenue for providing those units either the project won’t proceed or they’re going to have to charge everybody else who is purchasing a unit or renting a unit in the development more to make up the difference,” Milczyn said. “It will make market housing less affordable in order to create a certain percentage of seemingly affordable other housing. Plus, it’s also potentially creating a disincentive for the rental side to build anything at all because the expectation the city seems to have is everybody else’s rent will cross subsidize the affordable rents.”
The report summarizes four studies conducted by independent experts and Wilkes said potential solutions can be found in those studies.
“The solutions we are looking for really reflect the best practices that have been implemented in other jurisdictions across north America where we have seen IZ work to achieve the objectives of providing more affordable housing,” he pointed out.
The proposed policy also rushes to mandatory implementation and does not provide a cash-in-lieu option, the report states.
“We need to have a very clear and reasonable implementation timeframe and have it phased in. We need to have a very clear transition,” Wilkes said.
BILD is advocating for a partnership model.
“What we are looking for is an IZ policy that works for the city, that works for the developer, that works for new homeowners and achieves a goal of more affordable units,” Wilkes noted. “We do believe the current structure is not one that will achieve the goal.”
The City of Toronto was supposed to table the policies in June but has delayed it until September to allow for more consultation.
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