Inclusionary Zoning – What Does It Mean for My Development Project?

Introduction

The City of Toronto (the “City”) has released details of its proposed inclusionary zoning framework. At its September 22, 2020 meeting, the Planning and Housing Committee endorsed a draft official plan amendment and zoning by-law amendment to implement inclusionary zoning as a basis for public consultation. While final approval by Council is still many months away, the details of the report paint a clearer picture for the development community in Toronto of what is to come.

Background

Inclusionary zoning is a powerful land use planning tool municipalities can use to require that a certain portion of a development project be made affordable to people with low and moderate incomes. Another way to look at inclusionary zoning is as a math equation: once the details of a development proposal are sorted out, the equation will tell us how many units must be built to specified affordability standards. Simply put, this means that developers must now account for a certain percentage of affordable housing in their pro formas.

City’s Draft Inclusionary Zoning Framework

The City’s inclusionary zoning framework is composed of two planning instruments. First, a draft Official Plan amendment—which amends Section 3.2.1 “Housing” and Section 5.1 “Managing Growth and Change: The Planning Tool Box” of the City’s Official Plan—outlines and authorizes the implementing inclusionary zoning by-laws. Second, the draft implementing zoning by-law amendment makes amendments to the City’s Zoning By-law No. 569-2013. This amendment adds the details of the City’s framework as enforceable zoning regulations.

Below is a summary of the key provisions of the City’s Inclusionary Zoning Framework.

i.        Geographic Application of Inclusionary Zoning

The Planning Act limits the application of inclusionary zoning to areas surrounding certain transit station areas known as Protected Major Transit Station Areas (“PMTSA”), or where a development permit system is in place, which is not the case in Toronto.

For reference, a Major Transit Station Area (“MTSA”) is generally defined as an area within an approximate 500-800 metre radius of a transit station, which represents a 10-minute walk. A PMTSA is a subset of MTSA that will have a specific policy framework related to minimum density and other metrics.

The City is proposing to implement inclusionary zoning in PMTSAs that are located within “strong market areas” and “moderate market areas.” These will be delineated on the City’s Official Plan mapping, “Map 37: Inclusionary Zoning Strong and Moderate Market Areas.” According to the City, these are the areas that have experienced the greatest increase in new housing supply and rental prices.

The City must first delineate its PMTSAs in order to implement inclusionary zoning standards. To do so, the City will undertake a Municipal Comprehensive Review. The City has set out a three-phased workplan to identify, study and delineate MTSAs based on priority of implementation. Transit stations identified in Phases 1 and 2 may be advanced as PMTSAs “where appropriate,” but there is currently no indication of which stations will be advanced and when.

The province has set a deadline for the City to complete the Municipal Comprehensive Review by July 1, 2022.

ii.       Substantive Requirements of Inclusionary Zoning

According to the draft inclusionary zoning framework, new development or redevelopment will not be approved unless it includes the required portion of affordable housing.

The concept of “Affordability” is defined in the draft inclusionary zoning by-law. Affordability for rental housing will be determined where “total monthly shelter costs” (i.e. gross monthly rent including utilities) are less expensive than the Average Market Rent data by unit type, published annually by the Canadian Mortgage and Housing Corporation, and determined with reference to household earning percentile and unit type.

Affordability for ownership housing will be determined where “total monthly shelter costs” (i.e. principal and interest on a mortgage amortized over 25-years, with a 10 percent down payment, and at a rate for a conventional 5-year mortgage as reported by the Bank of Canada, including monthly property taxes) are less than a fixed 30 percent of gross annual income for households within the moderate income range (30^th to 60^th percentile range), and also determined by reference to household earning percentile and unit type.

For new development or redevelopment located in a “strong market area,” a new condominium development must provide a minimum of 10% of the total new residential gross floor area as affordable ownership housing or affordable rental housing, whereas a purpose-built rental development must provide a minimum of 5% of the total new residential gross floor area as affordable rental housing.

For new development or redevelopment located in a “moderate market area,” those percentages are slightly lower. New condominium developments in moderate market areas must provide a minimum of 5% of the total new residential gross floor area as affordable ownership housing or affordable rental housing, and new purpose-built rental developments must provide a minimum of 3% of the total new residential gross floor area as affordable rental housing.

When the City’s Planning and Housing Committee endorsed the inclusionary zoning framework, it directed staff to conduct further analysis on including options to increase these percentages to achieve a range of 10-30% for condominium developments, and 5-20% for purpose-built rentals. It is unclear whether this direction applies only to “strong market areas” or to both strong and moderate market areas.

Affordable housing will be secured for a period of at least 99 years, based on the date of first residential occupation of the unit.

The draft framework would also require that 10% of the affordable rental housing gross floor area be secured at 80% of affordable rents for a period of 99 years. For example, where the “affordable rent” is determined to be $1,000 per month, this official plan policy would secure rent at $800 per month for 10% of the portion of the development set aside for affordable housing.

Lastly, the proposed official plan amendment requires that the unit mix of affordable housing reflect the market component of the development. This policy is meant to achieve a broader mix of unit types and sizes (e.g. two-bedroom, three-bedroom) to create more affordable housing suitable for families.

The above substantive requirements are in addition to any applicable residential rental housing replacement obligations pursuant to section 111 of the City of Toronto Act, 2006.

iii.      Exceptions

The draft framework provides for certain exceptions to inclusionary zoning. Inclusionary Zoning by-laws will not apply to the following developments and redevelopments:

• Within the Downtown Secondary Plan or Central Waterfront Secondary Plan boundary areas, developments with
  • less than 100 residential units and
  • less than 8,000 square metres of residential gross floor area;
• Outside of the Downtown Secondary Plan or Central Waterfront Secondary Plan boundary areas, developments with
  • less than 140 residential units and
  • less than 10,000 square metres of residential gross floor area;
• Development proposed by a non-profit housing provider, or proposed by a partnership where a non-profit housing provider has a 51% or greater interest and where a minimum of 51% of the units will be affordable housing; or
• Portions of development that contain residential care homes or institutional student residences.

iv.      Alternative Offsite Housing

The proposed framework would allow for inclusionary zoning requirements to be met by the provision of affordable housing on an alternative site. This flexibility recognizes that there may be circumstances where affordable housing can be better accommodated on another site.

This policy has two requirements:

1. The offsite affordable housing units must be ready and available for occupancy prior to occupancy of the proposed development.
2. The offsite affordable housing units must also be located in “proximity” to the development.

This proximity requirement will be satisfied where the alternate site is also located in an area where inclusionary zoning applies, and is in the same market category (i.e. strong market area or moderate market area). The acceptability of the offsite units is at the discretion of the City.

v.       Transition Provisions

(i) Default Planning Act Transition Provisions

A regulation made under the Planning Act sets out a minimum transition provision for any inclusionary zoning by-law. A development project would be exempt from inclusionary zoning where:

• a complete application for an Official Plan Amendment and/or a Zoning By-law Amendment, along with an application for either a draft plan of subdivision or a draft condominium description, are submitted to the City prior to Council’s adoption of the Official Plan policies authorizing inclusionary zoning; OR
• an application for a building permit or for site plan approval has been made prior to Council’s passing of the inclusionary zoning by-law.

For most complex development projects that require an official plan amendment or zoning by-law amendment, a site plan application will also be required. A site plan must be approved before building permits can be issued. In such a case, site plan approval must be obtained prior to the passing of the inclusionary zoning by-law in order to be exempt.

(ii) City’s Proposed Transition Provisions

The City’s proposed Inclusionary Zoning framework contains its own transition provisions that give the development community some additional time to brace for these new requirements. The proposed date the new regime will be in effect is January 1, 2022, though Council may pass the by-law before this date.

As currently presented, the standards of the proposed inclusionary zoning by-law will not apply to applications for a building permit (in compliance with Chapter 363 of the City of Toronto Municipal Code) filed before January 1, 2022. Likewise, the proposed inclusionary zoning by-law will not apply to complete applications for a zoning by-law amendment, minor variance or site plan approval filed before January 1, 2022.

Without this transition provision, the inclusionary zoning by-law standards would come into force immediately after Council passes the by-law. If that were to happen, all applications for a building permit made after that date would have to comply with the new inclusionary zoning performance standards, if applicable to the development project, as “applicable law” under the Building Code Act, 1992. This could lead to instances where a project that had obtained prior development approvals could not otherwise obtain building permits because the project, as proposed and approved, does not comply with the new inclusionary zoning standards.

As the City’s proposed transition provision is still in draft form, it is best to rely on the Planning Act transition provision when considering the timeline of a development project.

vi.      No Appeal

Unlike many other planning instruments, the Planning Act expressly precludes an appeal to the Local Planning Appeal Tribunal in respect of the official plan policies regarding inclusionary zoning and the implementing zoning by-law. The only person permitted to appeal is the Minister of Municipal Affairs and Housing.

Next Steps

Staff were directed to report back with a final recommendation report in the first half of 2021. At that time, the results of community consultation and further analysis will be presented, along with a clearer indication of what the final inclusionary zoning framework will look like.

Those in the development industry are urged to consult our Municipal and Land Use Planning Group for further updates and advice in respect of the City’s inclusionary zoning initiatives.