Torontoist Explains: What is Inclusionary Zoning?

Buying and renting a house in Toronto is crazy expensive. Here's how the City could make it more affordable.

By Catherine McIntyre

Photo by Vik Pahwa from the Torontoist Flickr Pool.

It’s foolish to believe that the free market can provide enough affordable housing for any municipality’s low- and middle-income residents. Yet, for the past two decades, governments have entrusted developers–guided by the market–to house those on the cusp of poverty. Now, as the Province moves forward with new residential zoning legislation, municipalities can finally gain some control over how their vulnerable populations are housed.

Earlier this month, the Province released an updated version of its long-term affordable housing strategy, which included one new item of particular interest: inclusionary zoning. The proposed legislation would give Ontario municipalities the option to make affordable housing mandatory for every new residential development.

Here, we unpack the zoning law meant to boost affordable housing without building ghettos.

What is inclusionary zoning?

Typically regulated by municipalities, inclusionary zoning is one way to make sure affordable housing gets built in a way that promotes socio-economically diverse neighbourhoods. It works by requiring developers to include a set portion of below-market units, usually 10 to 30 per cent, either to buy or sell in every residential building of a certain size.

Inclusionary zoning can be mandatory or incentive-based–also called discretionary or voluntary. The latter offers developers incentives to build units valued below typical market rent or sale prices. Some municipalities may offer density bonuses so developers can build and sell more units, or they may waive development fees or fast-track projects through the approval process. Volunteer programs are often more attractive to developers, and can be for municipalities as well, since they aren’t as likely to inspire opposition and legal challenges the way mandatory programs can. However, they tend to result in fewer affordable units being built.

Mandatory programs, which were proposed by the Ontario government, don’t give developers a say in how and when to build affordable units–those regulations are set by local governments. Some municipalities that require inclusionary zoning, however, also offer developers breaks, such as density bonuses.

One potential drawback of mandatory inclusionary zoning is that developers who don’t want to participate may take their project to a municipality where the legislation doesn’t apply. The Province, after all, is only giving municipalities the option to mandate inclusionary zoning, not the requirement to do so. And while Toronto is poised to take advantage of the opportunity, other municipalities may not be.

How affordable are we talking?

Affordability is always relative, but it is generally defined based on the market or incomes. A house is considered affordable relative to the market if it’s at or lower than the median market value for comparable houses. Although the Bank of Canada uses this method to determine affordability, it can be unreliable; housing markets can be hot, but that doesn’t mean most people can afford to buy into it.

Income is a better indicator of what people can afford. For example, in the United States, where inclusionary zoning is widespread, affordable rentals are typically reserved for residents earning between 50 and 80 per cent of the median income. To buy, income eligibility increases to between 60 and 120 per cent the median income.

It’s important to note that neither inclusionary zoning model, whether based on the market or income, will create affordable housing for people in severe poverty.

Photo by Lori Whelan from the Torontoist Flickr Pool.

Why does Toronto need the Province’s permission for inclusionary zoning?

“[Municipalities] exist at the whim of the Province,” says housing advocate Michael Shapcott, euphemistically referring to cities’ powerlessness as a “quirk of Canadian constitutional law.” And while the City of Toronto has been angling for inclusionary zoning for years, until now, it’s never had the go-ahead from the powers that be.

In 1991, the City helped initiate a study that found requiring a modest amount of affordable units in new developments (five to 10 per cent) would make strides towards their affordable housing objectives. But it couldn’t implement the study’s recommendations without the Province updating the Planning Act.

A couple of years earlier, Burlington, Ontario went ahead and implemented inclusionary zoning anyway, requiring 25 per cent of all new residential buildings to be affordable housing. That only lasted until 1991, after developer Reemark Holdings challenged Burlington at the Ontario Municipal Board and won. Since then, no Ontario city has tried implementing inclusionary zoning.

Doesn’t Section 37 allow inclusionary zoning?

Kind of, but not necessarily. Section 37 of the Planning Act lets developers increase height or density of a project in exchange for “community benefits.” Those benefits can be anything from cash-in-lieu, to playgrounds, to affordable housing, which is up to councillors and developers to negotiate on a case-by-case basis. Often they agree on “desirable visual amenities” such as parks, roads and streetscapes, and public art–rarely affordable housing.

Why aren’t developers keen on the legislation?

Developers began protesting immediately after the Province announced it would adopt the new legislation. Presumably, buildings made up of 30 per cent below-market units, for example, would be less valuable than those wherein every unit is rented or sold at the going rate. With that in mind, developers worry that with inclusionary zoning, they would have to sell off units (or entire buildings) at a loss in order to comply with the regulations. Otherwise, they would have to jack up prices for residents occupying market priced units to make up for the developer’s expected loss from the affordable units. CEO of the Ontario Home Builders’ Association, Joe Vaccaro, expressed this in a statement [PDF] following the Province’s announcement: “Many people are quick to say that they can produce new housing units with no government money, but that’s because they are making everyone buying a new home pay the bill for them.”

Not all developers reject the program. Mitch Cohen, president of Daniels Corporation, the developers behind the Regent Park mixed-income revitalization project, spoke in support of inclusionary zoning when the updated strategy was announced. “Affordable housing will not be built by accident, by happenstance, or simply by virtue of good intentions,” said Cohen, adding that inclusionary zoning, in his opinion, is the only way to secure enough affordable housing for every Torontonian who needs it.

How does it look in other jurisdictions?

Inclusionary zoning programs have been in place across the U.S. since the early 1970s, and today there more than 400 communities with some form of inclusionary zoning. While some Canadian cities (Vancouver, Montreal, and Toronto) have programs that use inclusionary zoning, there are none as extensive as those in the U.S., or even legislated, like Ontario has proposed to do.

Chicago, Illinois

The city of 2.8 million people—often seen as Toronto’s American counterpart—is the largest jurisdiction with inclusionary zoning. It came into effect in its current form in 2007, and requires all new buildings of 10 units or more to include 10 per cent affordable units; when government subsidies are offered, 20 per cent of units should be affordable. Major building revitalizations are also meant to add affordable units if they don’t already meet the quota.

For ownership, housing must be affordable to those earning 100 per cent or below the median income. Rentals should be affordable to residents earning 60 per cent or less of the median income. Each unit is guaranteed to be affordable for at least 30 years, although the government began imposing 99 year terms for affordability. During that term, affordable units can only be rented or sold at the originally established price, plus a percentage of the market appreciation.

Developers can opt out of the program for a fee of $100,000 for every affordable unit they don’t build. Sixty per cent of those fees go towards building new and repairing old affordable housing, and 40 per cent goes towards rental assistance for low income residents.

Burlington, Vermont

The northern Vermont city of 40,000 may be small, but it’s progressive with its affordable housing initiatives. Burlington’s inclusionary zoning program was launched in 1990 and amended in 2008. It’s the only city in the state where inclusionary zoning is mandatory, requiring 15 to 25 per cent of units in new residential developments to be affordable. The mix of affordable housing increases as the development becomes more expensive. For example: developments that serve residents with a median income of 139 per cent or below require a 15 per cent mix of affordable units; those that serve residents making 180 per cent or more than the median income need to make 25 per cent of the units affordable.

All affordable units are reserved for those making less than the average income based on household size: residents eligible to buy affordable housing need to earn 75 per cent or below the median income, and renters need to make 65 per cent or less.

Developers have two options (given only under strict conditions) if they don’t want to build affordable housing in a particular development: they can meet their quota by building on another site in the city, or they can pay fees-in-lieu. The exceptions are never allowed for developments on the city’s desirable lakefront, however. Like in Chicago, fees-in-lieu cost developers $100,000 per unbuilt affordable unit. Burlington also offers developers cost offsets, such as allowing density increases and requiring fewer parking spaces.

How many Torontonians could benefit from inclusionary zoning?

According to Jennifer Keesmaat, the city’s chief planner, Toronto could have built 12,000 new affordable units in the last five years–largely by piggybacking on the condo boom–had mandatory inclusionary zoning been in place. Keesmaat’s is a low-ball estimate, however, given that more than 44,000 new condo units were completed in 2014 and 2015 combined. If we were to assume a 30 per cent mix of affordable housing (the ratio inclusionary zoning proponents have suggested), that makes 13,300 new affordable units in the last two years alone.

With 94,000 individuals and families waiting for affordable housing in Toronto, the zoning amendment won’t eradicate housing insecurity over night, but it will certainly chip away at it.