Inclusionary Zoning is “definitely a good thing” — developer

Now this is what I like to hear. In the lead up to the municipal election, developer Alfonso Romano, President of Castlerock Numa, joined Steve Paikin and three other panelists to cheer on Inclusionary Zoning.

Mr. Romano described Inclusionary Zoning as “definitely a good thing,” that would create a level playing field for developers across the City. In Romano’s words, “You really need to legislate this and basically say [to the development industry], ‘You have to take up this social responsibility and be part of the solution.”

Exactly so. 

Inclusionary Zoning (IZ) is the way cities like Toronto can ensure that affordable housing is created with every new residential development. It’s an approach that has proved successful in over 800 US jurisdictions in 25 states. These jurisdictions tap the gains from rising real estate values by requiring developers to sell or rent 10 to 30 per cent of new homes to lower-income households.

Now it’s Toronto’s turn

We have the opportunity. A successful inclusionary zoning policy depends on the sort of hot housing market Toronto has sustained for the past two decades. According to Mr. Romano, if Toronto had the legal powers 20 years ago to enact Inclusionary Zoning – powers that were gained only this past spring – Toronto would have been 30,000 units ahead today.

We know the benefits. We all know Toronto is in the midst of an affordable housing crisis. But the benefits of IZ go beyond creating more affordable homes. The morning after his re-election, Mayor Tory talked about the increasing division between rich and poor neighbourhoods. IZ ensures that affordability is built right into new development. It’s the opposite of ghettoization. Toronto Board of Trade President and CEO Jan deSilva, another member of the Paikin panel, noted that IZ was needed to reduce the daily commutes of workers employed downtown, but forced to the edges of the city because they can’t find affordable housing close to their jobs.

Inclusionary Zoning done right

A third panelist on Paikin’s panel was Tim Hudak, CEO of the Ontario Real Estate Association. He agreed IZ offered public benefits “if done right,” but wanted to ensure the costs of making homes affordable were not simply passed on to their next door neighbours.

He can put his mind at ease. The costs of making homes affordable are not paid by the neighbours. Instead, IZ gently reduces the price of land.

To learn how Inclusionary Zoning really works, check out this short plain-language video by US Inclusionary Housing authority Rick Jacobus. Jacobus reminds us that the price of a new home is not based on the developer’s costs. It is set at whatever the market will allow. (Just as the market price of my own home has quadrupled since I bought it, not because my costs have gone up, but because the market has.)

When the market jumps, as it has in Toronto, developers may be the first to profit. But these profits attract other developers who in turn compete for a limited supply of land, and so landowners can charge higher prices for their land. When the City requires developers to make some units affordable, developers are no longer willing or able to pay inflated prices for land, and so the price of land drops.

Finding the sweet spot

Reducing the excesses of land speculation can be one of the benefits of a good IZ policy. But the City also has to be cautious. If the price of land drops too quickly or too much, property owners will simply hold onto their land. Less housing will be built, and the price of housing will rise.

To ensure they find the “sweet spot” that creates the most affordable units without curtailing supply, municipalities are advised to base their IZ policies on a credible feasibility study, including an in-depth analysis of market conditions, accompanied by test-runs with hypothetical development prototypes.  Many US municipalities also provide incentives to help bring down developers’ costs. These can include density bonuses, reduced parking requirements, waived or deferred fees or a streamlined approvals process in return for an increased number of affordable housing units.

But these offsets and incentives are not the same as the City buying units. That was the approach the City used in 2014 to secure 80 affordable units for the Bayside affordable housing pilot in Toronto’s Central Waterfront. The initiative helped the City to make good on its promise to ensure 20 per cent of homes built on City-owned central waterfront lands would be permanently affordable. But the public cost was $33,657,000 —  $420,712 per unit – including $150,000/unit in Federal/Provincial funds, and $270,712/unit in City capital funding, interim financing, waived fees, charges and property taxes, and the value of the land.

By comparison, let’s look at the City’s direct investment in new non-profit and co-op housing through the 2017 Open Door Program, The program enabled Innstead Co-op, St. Clare’s Multifaith and Akwa Honsta Non-Profit Aboriginal Homes to bring 100 per cent of their proposed 79 affordable homes below market. The average City investment in grants and waivers? $81,765/unit.

City subsidies are precious. Let’s make the most of them by investing directly in new affordable housing, or by subsidizing low-end-of-market rents to make them deeply affordable. And then let’s use IZ to do its part: ensuring the public – and not just land speculators – benefit from a rising real estate market.

It’s time

Starting in 2004, Toronto City Council has sought powers to enact inclusionary housing policies. It asked again in 2005, 2006, 2007, 2009, and 2015, and perhaps other times as well.

In December, 2016, the Ontario Government introduced the Promoting Affordable Housing Act, amending the Planning Act to allow municipalities to create inclusionary zoning policies.  On February 1, 2018, City Council voted 34 to 3 to call on the Ontario Government to create regulations that would support robust “made in Toronto” inclusionary zoning policies. On April 11, 2018 they got what they asked for.

During the 2018 municipal election campaign, a majority of the new City Council signed on to the TO Housing Pledge to “support inclusionary zoning policies that ensure permanently affordable housing – including deeply affordable homes – is part of every new development.”

It’s time to turn 14 years of wishing into reality. I can hardly wait.