The Toronto City Council adopted an Inclusionary Zoning (IZ) policy framework during the Council meeting from November 9-12, 2021, making it mandatory for certain new residential developments to include affordable housing.
The approved Inclusionary Zoning Official Plan amendment, Inclusionary Zoning Bylaw amendment and draft Implementation Guidelines impose requirements on developments to deliver affordable housing on residential developments that are:
- located in an Inclusionary Zoning Market Area (IZ Market Area);
- in an approved Protected Major Transit Station Area (PMTSA); and
- contain at least 100 units and 8,000 square metres of new residential gross floor area (GFA).
It is worth noting that in the future not only PMTSAs could be relevant, but if the City implements a Development Permit System (DPS) those areas could also be subject to IZ requirements.
Inclusionary Zoning Market Area
There are currently three IZ Market Areas approved by the City, as shown on Official Plan Map 37. To be included in an IZ Market Area the geographic area must achieve at least 50 percent of a minimum number of indicators demonstrating high development viability and strength. Indicators include resale prices, new rental and condominium prices, intensity of development activity and the results of a financial viability analysis conducted by the City.
The City has committed to conducting a review of the Inclusionary Zoning requirements after one year to determine whether the market has changed and the requirements should be adjusted. This review raises the potential for the IZ Market Areas to be expanded (likely) or reduced (very unlikely).
DPS and PMTSA
To date, no DPS areas have been identified within the City. Thus the Inclusionary Zoning policy framework focuses on PMTSAs. PMTSAs are a subset of the approximately 180 Major Transit Station Areas (MTSAs) and are areas within an approximate 500 to 800-metre radius of a higher-order transit station. Once adopted by the City and approved by the Province, PTMSAs will have requirements for minimum number of residents and jobs, minimum densities for buildings and structures and specified uses of land in the area.
It is anticipated that the first PMTSAs could be in effect in late Q1 or early Q2 2022. However, once City Council adopts the PMTSAs, they are still subject to Minister approval. The Minister is given 120 days to consider and approve the final PMTSAs, or the City could appeal the non-decision. There are currently two PMTSAs before the Minister for approval, with more expected to be sent to the Minister in later 2021 or early 2022, and the complete list of initial PMTSAs expected to be before the Minister by July 2022.
Section 5.1 of the Planning Act prohibits Inclusionary Zoning except within PTMSAs or DPSs. Accordingly, while the City has set September 18, 2022 as the recommended transition date to begin implementation of the Inclusionary Zoning requirements, the date the requirements come into effect will vary depending on Minister approval of the individual PTMSAs.
Inclusionary Zoning Policy Requirements:
The required quantity of affordable housing will vary between 5 to 10 percent according to the IZ Market Area. From 2025 onward the quantities will increase between 0.5 percent and 1.5 percent to phase-in the affordable housing requirements. By 2030 the quantities will range between 8 to 22 percent.
An exception to this general rule is purpose-built rental projects, which will be exempt from affordable housing requirements until 2026. Following 2026, purpose-built rental projects in IZ Market Area 1 will be required to provide five percent of the total residential GFA as affordable rental units and purpose-built rental projects in IZ Market Area 2 will be required to provide three percent of the total residential GFA as affordable rental units. Purpose-built rental projects in IZ Market Area will remain exempt until at least 2031.
The requirements for eligible residential developments from the implementation of the Inclusionary Zoning policy framework until 2030 are summarized below.
Depth of Affordability
The Inclusionary Zoning policy framework implements a new income-based definition of affordable housing:
- Affordable rental housing and affordable rents are defined as housing where the total monthly shelter cost (gross monthly rent, inclusive of utilities for heat, hydro, hot water and water) is at or below the lesser of: (1) one times the average City of Toronto rent (by unit type); or (2) 30 percent of the before-tax monthly income of renter households between the 50th and 60th percentile of household incomes in the City of Toronto (by unit type and household size).
- Affordable ownership housing is defined as housing which is priced at or below an amount where the total monthly shelter cost (mortgage principal and interest, property taxes and standard condominium fees) is affordable, based on paying no more than 30 percent of before-tax monthly income for households within the 30th to 60th percentile of household incomes in the City of Toronto (by unit type).
These definitions target households with an annual income of $32,486 to $91,611. Each year these incomes will be updated based on the most recent census results or, in non-census years, inflation.
The net result of these definitions is, on certain unit types, a dramatic drop in the amount of rent that is considered "affordable" and an increase in the costs to developers in providing these affordable units.
The Inclusionary Zoning policy framework requires that the affordable housing remain affordable for 99 years, commencing from the date of initial occupancy of the affordable housing unit. During this period, rent will not exceed the maximum affordable rent. Rent increases for tenants of the affordable rental units will be limited to the provincial Guideline increase on an annual basis for the duration of the tenancy.
For affordable ownership units sold to a new purchaser during the 99-year affordability period, resale price will be limited to the change in Consumer Price Index from the Month and Year of the first sale and the Month and Year of the resale date, plus administration costs.
The Zoning by-laws will not apply to development or redevelopment containing less than 100 new residential units and less than 8,000 square metres of new residential GFA. Portions of a development or redevelopment containing residential care homes, retirement homes, nursing homes or student residents will also be exempt.
Developments will also be exempt from the Inclusionary Zoning requirements if on or before September 18, 2022:
- a complete application for a zoning by-law amendment is filed and comes into force prior to the passing of a community benefit charge by-law and a Section 37 agreement securing a community benefits package is registered;
- a complete application for a zoning by-law amendment and site plan is made;
- a complete application for a minor variance is made; or
- a complete application for a building permit is made.
The new community benefit charge by-law came into force on September 18, 2020, with a two-year transition period to implement the framework. Thus the transition date for the Inclusionary Zoning requirements will align with the implementation of the community benefits charge by-law.
Financial incentives will not be provided by the City to meet the affordable housing requirements, although, incentives may be considered where a development or redevelopment proposes to exceed the requirements.
The City did include a minor "incentive" in the final Zoning by-laws, in that no parking for the affordable units will be required.
At the City's discretion, some or all of the affordable housing requirement may be provided on an alternate site if the offsite affordable housing units provide improved housing outcomes, are ready and available for occupancy on a timely basis corresponding with completion of the residential units and are located within the same IZ Market Area to the proposed development or redevelopment.
The Inclusionary Zoning policy framework represents the first of its kind in Ontario and is reliant on the Ministers approval of the City's proposed PTMSAs. The Province has until December 13, 2021, to appeal the Inclusionary Zoning Official Plan amendment and Inclusionary Zoning Bylaw amendment. If no appeal is made, the Inclusionary Zoning policy framework will come into effect. Bennett Jones will continue to monitor any developments and provide updates as the PTMSAs are approved and the policy framework comes into place.