The difficulty in building more affordable housing Image

The difficulty in building more affordable housing

By Sam Reiss on Apr 24, 2019

A recent Real Estate New EXchange article caught my eye and reminded me of the Inclusionary Zoning regulation that will soon be discussed at Toronto City Council.   

The residential development industry in Montreal recently voiced their concerns about the 20-20-20 proposal, which would make it so that new large residential developments included 20% social housing, 20% affordable housing, and 20% three-bedrooms. 

The proposal was part of the Project Montréal election campaign (Mayor Valérie Plante assumed power in November 2017). The proposal will go to Montreal Council this June, and builders and developers are sounding the alarm. 

Currently, Montreal has a regulation that says new large residential developments must include 15% public housing and 15% affordable housing, and there’s no three-bedroom requirement to be met. Developers in Montreal are saying that the 20-20-20 proposal will make housing even more expensive. 

According to the article I read, some of the 20% three-bedrooms can be included in the social and affordable housing, so condo developers wouldn’t actually be regulated on 60% of their project inventory.

The City of Montreal believes that the 20-20-20 regulation will cause housing prices to rise by 4.5%, while Altus Group is leaning more towards a 16% increase. The Greater Montreal Area isn’t exactly the most expensive (relative to Toronto) with the average home price just above $400,000, but pricing is already rising steadily.  

If the 20-20-20 rule were to take effect, the City is planning an 18-month transition period. Developers are asking that if any changes are made that they have a three- to five-year transition period.   

I feel like the 20-20-20 concept wouldn’t work in Toronto, especially downtown where the majority of the high density housing is located, because the price per square foot is too high for three-bedrooms to sell. If a new condo development has 500 units, then 100 of them would have to be three-bedrooms. With an average price per square foot in the downtown area hovering around $1,000 per square foot, and three-bedrooms typically above 1,000 square feet, you’re already looking at well over $1 million.  

The reason this story caught my eye is because the province of Ontario announced the Inclusionary Zoning regulation in April 2018. This allows municipalities to dictate how many affordable units must be included in a new residential development. 

Currently, there is a scenario where the City of Toronto will require 20% affordable housing in a new development, but it’s only when “a developer seeks an increase in height and or density on a site larger than 5 hectares, the priority community benefit (known as a Section 37 benefit) requested by the City will be that 20 percent of the housing units approved as a result of the height or density increase will be affordable housing.”

The thing that’s somewhat concerning to me is that Inclusionary Zoning will give municipalities a lot of power. The amount of affordable housing units required may be consistent in a given municipality, but could also be determined on a site-by-site basis. I see this as just another step in the already lengthy approval process. The longer the approval process takes, the more costs that get passed down to the homebuyer. 

I’m not familiar enough with Montreal’s real estate market to know whether the 20-20-20 proposal makes sense, but I will say that I find it unlikely that this share of social, affordable and three-bedroom housing is required consistently at every residential site in Montreal. 

And the same thing applies here - I understand that the amount of affordable housing required may differ from site to site in Toronto. I just hope that municipalities across the GTA find a way to adopt the Inclusionary Zoning regulations in an efficient manner so that developers can easily accommodate the site requirements from the onset of planning. 

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