The Frustrating Necessity of Starting Slow with Inclusionary Zoning

With home prices continuing to defy gravity and the lack of reasonably-priced rentals in Toronto, inclusionary zoning is being hailed as a solution that could solve our affordability crisis. Pretty much everyone agrees that the framework now making its way through City Council should have been implemented decades ago. All of which makes it even harder to swallow the harsh reality that inclusionary zoning is a policy in which we need to start slow to succeed in the long run.

The premise for inclusionary zoning (or IZ as the insiders like to call it) is pretty straightforward: new condo developments and new subdivisions are required to deliver a percentage of units as affordable. Further, there’s an arrangement with the local municipality to ensure that units are kept affordable from one occupant to the next. Hence, IZ is a powerful way to leverage the significant capacity of the development sector to secure affordable units while ensuring that future communities are inclusive communities.

In recent years, IZ has been adopted with varying degrees of success by a growing number of municipalities in North America and beyond. In 2018, the Ontario government provided municipalities with the legislative framework to make it happen here. The City of Toronto has taken the lead, investing thousands of hours of staff, consultant and stakeholder time to put together a proposed approach. There is much more on the line here as what happens in Toronto will become the blueprint for other municipalities across the country.

As IZ comes before City Council for a final vote, intense debate continues over one particular detail — something that has divided councillors, staff developers, non-profits and citizens — how much affordable housing should be required in new developments and how fast can we move on this?

Housing activists urge the City to be aggressive, arguing for 20% of new units to be affordable at the outset — or, better yet, 30%. Why should Toronto start with seemingly meagre requirements of 5% to 10% as recommended by City staff? Why freeze the starting rates for three years and then only tiptoe up to 16% to 20% affordable housing requirements by 2030? Surely we can think bigger and move faster than that, right? It certainly appears that real estate developers and investors are doing well and can afford to help. Proponents point to other jurisdictions with affordability requirements of 20 and 30%. Surely, Toronto developers can afford to do the same?

Sadly, comparisons can be tricky. Toronto’s status as the 2nd least affordable housing market in North America results in a larger gap between market prices and “affordable prices” than in almost every other city. Translation: Toronto developers will lose more profit per affordable unit than developers in less expensive markets. Add to this the question of depth of affordability. In New York’s IZ policy, a family of three would qualify for an affordable rental unit at an income of $85,000. With Toronto’s proposed policy, that same family would qualify with an income of $74,000 or less. Moreover, whereas most jurisdictions offer incentives or fee relief for the affordable units, Toronto’s proposed policy leaves developers to pay as much as $80,000 in municipal fees per affordable unit.

Inclusionary zoning is a policy that only works if developers build homes — and lots of them. So, if the IZ bar is too high, the return on investment is compromised. What happens if investor capital moves elsewhere and projects don’t get built? Fewer homes built for everyone in a city that already is not keeping up to demand. Fewer affordable units produced. And an added kicker: lower supply creates upward cost pressure limiting the number of affordable units that non-profit housing providers are trying so desperately to produce.

Inclusionary zoning is long overdue, but if misfired, it could have serious unintended consequences. As frustrating as it is to accept, this is a policy where starting slow has the best chance of long-term success. The City of Toronto has multiple other avenues to speed up the rate of new affordable housing. Accelerate programs to build affordable housing on surplus city-owned land. Be more aggressive with density and resist NIMBYism. Make rooming houses affordable everywhere in the city. But on inclusionary zoning, start slow. Commit to regular reviews and phased increases. The stakes are too high to bet wrong.

IZ will not be the panacea that solves all our affordable housing woes. However, if we start slow to go fast, we may just turn it into a powerful one in the long run and build a more livable, more inclusive city for everyone in the process.