Press release and backgrounder
Yesterday Ravi Kahlon announced the province will be introducing legislation to set guardrails on “inclusionary zoning,” a common practice where municipalities require new high-rise projects to include a certain percentage of non-market rental apartments (typically 20%), cross-subsidized by the market apartments.
This is an in-kind tax on new housing, so it increases total project costs. As always, if costs increase too much, projects will need to wait for prices and rents to rise, resulting in the costs being passed on to homebuyers and renters. The provincial legislation requires that municipalities do a financial feasibility analysis to ensure that projects are still viable, and the provincial government will monitor how it’s actually implemented.
I’ll never forget when one Toronto councillor with giddy glee asked the chief planner if this can be used to block housing and his reply was 'that is not our intent' yet good luck to a developer providing up to 22% IZ that will come into force by the end of the decade in Toronto.
The City itself struggles to get that level of IZ over the line and that's after land is free and municipal charges are waived.
Density isn't an infinity money glitch and market-rate housing already pays affordable housing charges through CACs in BC and CBCs in Ontario. This is now double charging only certain types of development and of course it’s housing that is the cheapest not the most expensive.
From the backgrounder:
Inclusionary zoning:
Inclusionary zoning will give local governments the ability to require affordable housing in new developments.
Local governments can use inclusionary zoning to require that developers provide affordable housing when building minimum allowable densities in transit-oriented development areas.
When considering a draft inclusionary zoning bylaw for approval, local governments must undertake a financial feasibility analysis to understand how much density is needed to offset the costs to the developer for providing affordable housing.
The Province will monitor how the tool is implemented and will have regulation-making authorities to provide checks and balances to ensure communities do not deter building the housing people need.
Density bonus:
Currently, local governments use density bonuses to deliver much-needed housing and public amenities that support increased housing supply and growth.
The proposed density bonus changes clarify how the tool can encourage more affordable housing and amenities in new development, and ensure that it works with inclusionary zoning.
Burnaby
After widespread redevelopment of older low-rise rental housing near Metrotown resulted in a wave of renter displacement, Burnaby brought in a Tenant Assistance policy for redevelopment projects in March 2020. All new projects must include 20% non-market apartments. There’s a density bonus allowing more height, to offset the cost of providing the non-market apartments.
Renters in the old building have the right to return to an apartment at the same rent (plus annual increases) with the same number of bedrooms, and with the project providing rent top-up payments to cover any increase in rent while the renter is living in temporary housing.
Details on the inclusionary zoning policy: Rental Use Zoning Policy.
In June last year, staff presented the results of a Rental Use Zoning Policy review. The council planning and development committee had asked whether it would be possible to increase the inclusionary zoning requirements. Staff said that this was not possible, and recommended increasing the density offsets, based on analysis by Coriolis. The committee unanimously rejected the changes, saying that they were confused by the reasoning.
Lauren Vanderdeen, June 2023, Burnaby Now. Did Burnaby councillors really reject a plan to allow developers to build more condos? Yes.
Staff said some developers are struggling to meet the required 20 per cent rental requirement.
Ed Kozak, general manager of planning and development, said certain “well-advanced” projects in the planning stage are “precarious in terms of viability,” due to the cost of providing the non-market rental housing.
The Coriolis report said if the policy were adjusted to reduce the number of condos in exchange for the cost of building rentals, or to require more non-market rentals, or to build even more affordable rentals, developers would be less likely to build in Burnaby.
The councillors on the committee unanimously disapproved of the report’s findings and suggested the equations proposed by staff were too confusing.
The staff report noted:
In the RM3s District, where low-rise wood frame construction is most typical, the analysis indicates that apartment development is often not financially viable at the Base Density (before the Required Inclusionary and Offset Density is considered). This lack of financial viability is consistent with the limited number of RM3s rezoning applications received by the City in recent years.
It sounds like low-rise projects simply don’t have enough land lift to absorb the cost of the inclusionary-zoning requirement.
Vancouver
The Moderate Income Rental Housing Pilot Program (MIRHPP) allowed more height for rental high-rises with 20% non-market apartments.
For the Broadway Plan area, Vancouver adopted a very similar plan to Burnaby, although with no density offsets. Protecting renters in the Broadway Plan area. One of the goals of the policy is to provide an incentive for developers to first redevelop sites with no renters and no displacement (like parking lots and office buildings), because of the costs of relocating renters.
The city appears to have deliberately set height limits low, to slow down the pace of redevelopment. But rents have risen so much that there’s a lot of applications anyway. So far there’s 18 formal applications for rental projects, two for office buildings, and one for a condo project; plus a lot of pre-application inquiries. Frances Bula, March 2023, Globe and Mail. Proposals for new towers in Vancouver’s Broadway Plan worry homeowners and tenants.
More
Now Fully Funded, Portland’s Inclusionary Zoning Should Be a Model. Michael Andersen, Sightline, February 2024. The reduced revenue from the inclusionary apartments is fully funded through a reduction in property tax.
Lessons from Montreal’s Failed Inclusionary Zoning Experiment. Mario Polese, December 2023. “Almost three years since its adoption, just one development has been built in accordance with the 20/20/20 formula.”
Inclusionary Zoning: The Most Promising - or Counter-Productive - of All Housing Policies. Dan Bertolet and Alan Durning, Sightline, November 2016.