Reshaping The City With Inclusionary Zoning
Inclusionary zoning is a planning tool that allows municipalities to require developers to include affordable housing units in new residential developments. This tool has been given to municipalities under the legislation of the Province with the goal to add more affordable housing throughout the Greater Golden Horseshoe (GGH).
Under the new regulations, municipalities will be able to mandate that affordable units are included in new housing developments to create mixed-income communities. This affordable housing will be for low and middle-income families.
The City of Toronto is adopting this new policy because they want to provide their community with housing options for a full range of incomes and households. By implementing this framework, the City hopes to:
- Increase the supply of affordable housing;
- Continue to encourage housing development by supporting a diverse range of housing supply; and,
- Create more inclusive, complete and equitable communities.
In this article, we’ll get into the specifics of how inclusionary zoning will reshape Toronto’s development landscape and what this could mean for you as an investor.
An Explanation of Inclusionary Zoning:
What Is Inclusionary Zoning?
Cities across North America use inclusionary zoning to encourage the development of affordable housing units for people with low to moderate incomes. Now, the City of Toronto has implemented this new mandate that applies to new developments that meet the criteria:
- Developments that are located in strong and/or moderate market areas;
- Built within 500 to 800 metres of any Protected Major Transit Station Area (PMTSA); and,
- Any developments that have over 100 units.
PMTSAs are a tool provided to municipalities under the Planning Act to identify and plan for increased growth in areas surrounding existing or future higher-order transit stations or stops, including subway, LRT, and GO train stations.
PMTSAs are a subset of Major Transit Station Areas (MTSAs) that are defined in the Growth Plan. MTSAs are defined as the areas within a 500 to 800-metre radius of an existing or planned higher order transit station or stop.
Inclusionary Zoning can be mandated depending on the number of units proposed for a building. However, there is an exception for smaller developments. Developers do not need to include affordable housing in low and mid-rise condo projects because the ratio of affordable housing and residential units is much smaller.
To avoid the potential issue of developers only constructing new buildings with 99 units or less, the policy has included a minimum development size of 100 units on many sites that are within Major Transit Station Areas (MTSAs).
This new mandate will roll out an affordable housing policy in two phases to give time to developers and planners to prepare for this new requirement.
How This Two-Phase Implementation Will Work
The first phase indicates that all residential developments constructed from 2022 to 2029 will need to have 5 to 10 per cent of their total units as affordable housing. In the second phase, starting in 2030 and onward, between 8 and 22 percent of the total units must be affordable. Additionally, developments that are required to include these units also have to maintain their affordability for 99 years.
So, what is the definition of affordable housing? The main goal of inclusionary zoning is to help anyone within the low to moderate-income tax bracket with housing.
This means those who do not qualify for social housing based on income and cannot afford a home at market value. In all, inclusionary zoning targets those who cannot afford market-rate housing but are also considered to have too high of an income for social housing.
The definition of affordable housing for the City of Toronto has changed recently. Previously, affordable housing in the City's Official Plan was based on average market rent, which means the average rent paid by tenants based on unit type in purpose-built rental buildings. But City Councillors stated that market rent has been rising faster than income.
In order to ensure that homes will be affordable to residents in the long term, the new definition of affordable housing is tailored to an income-based approach.
This definition will help ensure that rents and prices for affordable housing reflect the incomes of low and moderate-income households. This definition better aligns with the Canada Mortgage and Housing Corporation (CMHC) affordability threshold, which sets affordability at no more than 30 percent of a household's before-tax income.
These income brackets will be used to determine rent annually. In order to qualify, renters would need to fall within the eligible income range, based on no more than 4x the annual rent. Additionally, housing benefits could also be applied to households in need of deeper affordable housing including reduced costs for utilities. Anyone that has to pay separately for any utility costs is entitled to a utility allowance deduction from their monthly rental cost. Utility allowances are adjusted annually based on the related Consumer Price Indices published each year by the Ministry of Municipal Affairs and Housing.
There are many ways for developers to fulfill their inclusionary zoning requirements. This new bylaw allows for affordable housing to be delivered through on-site or off-site units, cash-in-lieu, or by transforming an existing affordable rental building that can be owned and operated by a non-profit.
How Will Inclusionary Zoning Affect The City and Investors?
With this new policy framework in place, you might be wondering how inclusionary zoning will affect you as an investor. Affordable housing has been a topic of concern amongst investors and tenants for years now. Areas around the City of Toronto that have seen the greatest amount of new housing supply are also experiencing significant price escalation and rent increases. These same areas also have the highest number of households paying over half of their income towards rent, with many also living in overcrowded conditions. The purpose of inclusionary zoning is to alleviate the effects of the growing housing market. The housing market is undergoing a lot of pressure with the lack of housing supply and the ever-increasing demand.
Unfortunately, this demand is not going to slow down anytime soon as the population is expected to increase in the coming years due to immigration as well as more people moving back to the City for work. This new policy will have many benefits to add more affordable housing to a wide demographic of the population, and while the intention from the City is good, this new policy will only increase the cost of pre-construction condos as developers will now take on the cost of affordable housing that they will ultimately pass onto buyers. Prices of condo units will go up by $61,000 because of this new policy. That’s why it’s important to invest now if you’ve been thinking about purchasing a pre-construction condo. But, no matter when you decide to invest, our platinum agents will work with you to find a condo project that meets your needs and your budget.