On Oct. 28, the City of Toronto’s Planning and Housing Committee recommended the approval of the controversial inclusionary zoning policy, which many planners and developers have butted heads over in the past.

What is inclusionary zoning?

To understand fully why this will be a key change to affordability in Toronto, we must first understand what inclusionary zoning is.

The approved inclusionary zoning (IZ) policy is a planning tool which other major cities in North America have started to adopt and will be the latest addition to affordable housing efforts in Toronto. To achieve higher affordable housing stock, IZ mandates specific housing projects include a percentage of affordable units.

The recommended IZ policy in Toronto would specifically apply to new developments that meet these criteria:

– are situated in strong and/or moderate market areas;

– are built within 500 to 800 metres of any Protected Major Transit Station Area;

– and have over 100 units.

Seems simple, but what does this really mean for Toronto?

Exploring the inclusionary zoning bylaw in Toronto

Being located within market areas that are strong and/or moderate is the first criterion that will mandate affordable units. IZ is proposed for these areas since it is expected for the proponents of these developments to have greater capital to build new affordable housing because the demand for market-rate units will be priced high enough.

The next criteria for IZ is when a development is within 500 to 800 metres of a Protected Major Transit Station Area (PMTSA).

The City of Toronto has 180-plus Major Transit Station Areas as of fall 2021, but is expected to transition those to PMTSAs within the next few years, which will increase the number of developments that must comply with the new IZ policy if passed.

Earlier this year, a staff report proposed 16 different PMTSAs within Downtown Toronto. Further information about these proposed PMTSAs has yet to be shared with the public.

IZ can be mandated depending on the number of units proposed for a building.

One provision of this mandate is an exception for smaller developments. Developers do not include affordable housing in low- and mid-rise projects because the ratio of affordable and market-rate units is much smaller.

One concern already circling planners and developers alike is that this policy will generate an outcome where many new buildings are constructed with 99 units or fewer. A scenario like this would be counterproductive to the initiative as it could reduce housing supply and increase demand and prices.

To avoid this potential issue, the adopted IZ policy has included a minimum development size of 100 units on many sites within PMTSAs.

As a response to developers who have asked for a phased approach to implementing IZ policies, the city will be rolling out affordable housing requirements in two phases.

Two-phase implementation

For the first phase, all residential developments constructed from 2022 until 2029 will need to have five to 10 per cent of their total units as affordable units. The second phase will require from eight to 22 per cent of total units to be affordable and is effective starting in 2030.

Developments required to include these units also have to maintain their affordability for 99 years. Additionally, the development will have to meet either the high or low end of those percentages based on the area market (high or moderate).

One concern raised about IZ is about the definition of “affordable housing” as it is not clear how affordable “affordable” is.

The primary goal of IZ is to help those who fall within low- to moderate-income brackets have a home to live in, specifically those who do not qualify for social housing based on income and cannot afford a home at market value.

This population which cannot afford market-rate units but is also considered too high of income for social housing is what IZ is targeting.

Still, the definition of affordability depends on whether you are discussing the percentage of one’s individual income or based on the percentage of the average market cost.

The adopted definition of Affordable Rental Housing by the city in regard to this policy is consistent with the Provincial Policy Statement, which is to set affordable rates by applying what is least expensive.

So, residents of these units will have to pay the cheaper option between the average market rent, by bedroom type. for the City of Toronto, or what is affordable to low- and moderate-income households.

The income brackets would be used to determine the rent annually. Those who want to rent these units would need to fall within the eligible income range, based on no more than 4x the annual rent, in order to qualify. It is important to note rent is not tailored specifically to the renter’s income.

Within the current draft of the city’s IZ policy there are many options for the developers of properties to fulfill their new obligations.

The new IZ bylaw allows for affordable housing to be delivered through on-site units, off-site units, cash-in-lieu, or even by transferring an existing affordable rental building to the city to be owned and operated by a non-profit.

How might inclusionary zoning affect Toronto?

Now that we know what inclusionary zoning is, we can explore the effect it could actually have on housing and future developments in the city. As mentioned previously, the answer depends on who you ask . . . it has no obvious answer.

If asked their opinions of IZ, most developers will recognize the importance and positive outcomes that can arise for Toronto’s residents, but as always are concerned with the bottom line. Quick turnaround on implementation, alongside a lack of economic incentives, can lead to projects which are unfeasible to the developer.

This has the potential to lead to less housing in what Toronto has deemed as the best places to develop, around major transit stations.

Currently the city has its sights on implementing IZ policy in January 2022, and to combat concerns from developers has outlined a two-phased approach which would increase the percentage of affordable housing required after one decade.

Economically, developers want to see financial incentives for building these affordable units. Some examples of incentives for other types of development in Toronto include the new Community Benefits Charge, which charges up to four per cent of the land value for capital costs to go toward any public service associated with new growth, including parkland.

According to developers, this is not enough, however. They would like additional incentives specifically for developments regulated by IZ policy. Currently the OPA outlines that financial or regulatory incentives will not be provided by the city to meet the IZ requirements, so it does not seem too likely to change.

Through internal modelling, the city has measured the perceived impacts of this policy and has concluded that in most scenarios IZ will not have significant financial impacts on developers’ profit margins.

One interesting finding from the city’s modelling is that the value of land could decrease due to developers attempting to purchase land for less, as they may try to recover the expenses of providing affordable units.

While there is potential for negative outcomes, this policy is likely to cause a rise in affordable housing stock in Toronto, even if it is minimal. This is much needed and a step in the right direction, but alone will not solve the city’s housing crisis.

Moving forward

Now that the city’s inclusionary zoning policy is set to be implemented in the near future, the city and the industry as a whole should look to adjust some of the current guidelines which hurt affordability.

One example is to remove requirements such as buildings having to apply a minimum angular plane of 45 degrees from sensitive uses (backyards, for example).

This requirement is damaging to affordability because it forces developers and architects to make design decisions which protect backyards rather than allowing for additional units to be built.

Another example of zoning bylaws that unnecessarily decrease affordability is parking. Almost all large residential developments are forced to have massive underground parking facilities which cost hundreds of thousands of dollars per spot, costs which are passed on in the price of the condos.