In Conversation With... Dave Wilkes, President and CEO, Building Industry and Land Development Association

If you’re in the market for a new home or condo, you’re quite likely learning a little about city planning and community development, along with the where, what and from whom you’re going to buy and, of course for how much.

Indeed, developers go to great lengths to highlight and market the key features and amenities of their communities and projects, as much as they do the exterior, interior and finishings of the actual homes they build. In fact, they look for certain qualities when selecting their development sites – proximity to transit, greenspaces, nature, employment growth, up-and-coming neighbourhoods and other appealing characteristics.

But there’s a recent, more pressing issue that could well affect new home development, supply and prices in Toronto – at a time when the last thing we need are more challenges in these areas. It’s something called Inclusionary Zoning.

Charged with representing the industry in such matters, in this case in discussions with the City of Toronto, is Dave Wilkes, president and CEO of the Building Industry and Land Development Association (BILD).
We sat down with Wilkes to get his insights on this important, looming issue, and why prospective homebuyers should be concerned about it.

For readers who may not be aware, what exactly is Inclusionary Zoning?

Inclusionary zoning is a planning term that refers to a regulatory tool that allows municipalities to require a certain percentage of new residential units within a given project to be set aside as affordable. IZ is a planning tool that is in place in a number of jurisdictions across North America. Its basic premise is a partnership between developers and builders and municipalities, to encourage the building of affordable housing units that would not otherwise be built. The lynchpin of this partnership is that, in exchange for building units to sell for below-market rates, builders and developers are provided with incentives or concessions (for example, higher density) that helps to offset the costs. IZ works well as a planning tool, when these types of partnership frameworks are in place from the beginning.

Where did all this come from? At a time when Toronto is already dealing with a serious new home supply issue, something like this could just exacerbate the issue… it seems to be surfacing at exactly the wrong time…

The City released policy proposals in September 2020 that provide its draft framework to guide the implementation of the delivery of affordable housing units by private developers, as part of their planned developments, in and around provincial major transit station areas (PMTSAs). The City is calling these policies “Inclusionary Zoning.” However, because the City’s proposals lack the fundamental components of an IZ policy, where offsets and incentives are included to counter potential market distortions, the City’s proposed policies are really inclusionary zoning in name only, not in function.

What is the process? What is the City’s timeline for implementing this proposal, and what can organizations such as BILD do about it?

The City will return to Committee and Council in the fall of 2021 with a set of final proposals for consideration and adoption. The final set of policies will also include transition provisions that have yet to be announced. Right now, the City’s IZ policies would not take effect until January 2022, but since the process to approve the policies has been delayed, so too should the implementation date. The building industry has requested a phase-in of the policies to allow the market to appropriately adjust to these changes.

What has been the City’s response to your feedback thus far?

At this point, the City continues to accept comments from all stakeholders. The response will really come to fruition with the release of the final draft policies.

What can Torontonians or prospective homebuyers do about it? Is there any opportunity for them to weigh in?

Prospective new-home buyers need to be vocal to local councillors (decision-markers) that the costs associated to IZ should not be simply transferred on to them. This will simply create more disparity for those on the cusp of being able to afford a new home without any government assistance.

Please explain how offsets or density bonuses work, and how they would compensate for the cost of building the affordable units.

The most typical incentive offered is an increase in height or density upon rezoning. Projects benefit from mandated density bonuses available for as-of-right projects through the relaxing of certain development standards, such as parking, is common in most North American cities, and offer waivers or reductions of Development Charges and other fees. Rental development can be incented by property tax waivers. Toronto is offering to eliminate the minimum parking standard, which isn’t really an incentive, as the City is looking to do this city-wide anyway.

You say that “many projects will become financially non-viable. This will limit the supply and choice of homes available for new-home buyers, again impacting availability and affordability.” If that’s accurate, this is exactly what the Toronto housing market doesn’t need… How serious is this possibility? Which types of projects or locations would most likely become financially non-viable?

The most important lens through which the City of Toronto’s current proposal should be considered is the impact it will have on the consumer, namely those citizens or residents looking to buy a new home. In the absence of offsets or incentives to defray the cost of building Inclusionary Zoning units, they are as follows:
1. To cover the costs of building the required number of IZ units, based on economic modeling developed by the Altus Group, the price of market rental units in designated developments will have to rise by an average of $116,000.
2. Despite the fact that the City already collects funds for affordable housing through Development Charges, and soon the Community Benefit Charge, the city is abdicating its responsibility for providing these services, artificially keeping property taxes low and placing the financial responsibility solely on the backs of new-home owners, instead of the broad property tax base.
3. The social responsibility to provide below market rate housing should be shared across the City’s entire tax base, and not limited solely to new-home buyers in certain development areas.
4. Because of market distortions introduced by the City’s proposal, many projects will become financially non-viable. This will limit supply and choice of new homes available for new-home buyers, again impacting availability and affordability.

Projects in and around provincial major transit station areas (PMTSAs) will be greatly affected.

What other unintended consequences might result?

The common objective is the delivery of more affordable housing units. But, without an IZ policy that is fair and equitable, it will simply deter developers from building in these areas and acquiring new land to develop in these areas, which means that we may not see the affordable housing units being built at all. This also pauses market units to be built in these areas that are ripe for increased density.

How are other municipalities dealing with this issue? How many others in the GTA are looking at similar IZ policies, and perhaps might follow Toronto’s lead?

There are other municipalities in the GTA that are looking into IZ policies, such as Richmond Hill, Vaughan, Markham, Peel and Simcoe, to name a few. But, ultimately the Toronto proposal is furthest along in its preparation, and so the other municipalities are looking to Toronto to see what they think can work.

What other municipalities in Canada have handled the IZ issue effectively, and how does their policy differ from what Toronto is proposing?

Vancouver and Montreal. Both offer incentives to support the IZ units.

Potential market consequences of Inclusionary Zoning

• Pricing of market units would have to absorb the cost of IZ in order for developers to satisfy minimum business risk-adjusted returns

• If the market cannot absorb significant further price increases, developers will not proceed with projects, which in turn would have a further negative impact on future housing supply

• Developers may favour smaller projects (less than 100 or 140 units) in premium locations to avoid the IZ requirement, thereby inhibiting potential future housing supply

• In many cases, depending upon location strength, the density attributed to IZ would be valued at $0 per sq. ft. buildable (or less) by developers, given that the all-in costs exceed the capitalized value of IZ units. Notwithstanding, landowners, for the most part, will expect to achieve selling prices that are similar to, or greater than, recent transaction activity. This perceived spread in land value would effectively collapse land transaction activity, again inhibiting future housing supply

• Development approval periods regularly take two to four years to achieve, so developers that acquired lands in the past few years may be penalized if they cannot issue formal development applications prior to IZ implementation date

• Significant municipal Development Charges, parkland and Community Benefit Charge discounts or exemptions would likely be required for IZ density to be a realistic option for developers to take on. Otherwise, developers may focus attention on adjacent or surrounding suburban markets that do not impose IZ on new developments

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