The City of Toronto is facing a housing crisis despite building a record number of units every year. The reality is, however, that most of the units built are condo units designed for individual purchase. A good portion of these units end up in the rental market, as purchasers buy them as investments but the units are rarely suited for affordable housing. The affordable housing myth is that affluent renters will choose to move up to these luxury condo units and leave behind their more affordable units to those more in need. This type of trickle-down, laissez faire, economics has been debunked as promoting neo-liberalism not only because it increases polarization between the rich and poor, but also has been proven as an inefficient means of adding supply to the rental market.
This is evidenced in today’s hot Toronto rental market as supply is so scarce that prices are escalating across all segments of the rental market. Adding further restrictions to Landlords such as rent controls and skewing laws to favor tenants are band-aid solutions which discourage investors from putting long term tenants in their units. What we need is a mass amount of new housing supply geared for the rental market.
In response the City of Toronto is passing a number of inclusionary zoning provisions. Previous blog posts have discussed the loosening of zoning provisions allowing multi-plexes in single-family zoned neighbourhoods, and increasing density near transit stations. In addition, the section 37 provisions in the zoning by-law that allowed developers a density bonus for providing amenities deemed to be a ‘public good’ has been replaced by a provision for a minimum amount of affordable housing units, or an equal benefit, for some new residential mid and high rise development.
Zoning changes will not be enough to meet rental housing demands. Development charges now represent a huge cost in building new housing. Development charges were first implemented in Toronto back in 1999 when Mel Lastman was mayor. At the time charges were $3,912 for a single family home, $1,624 for a 1 bedroom apartment and $2,644 for a 2 bedroom apartment. Commercial and Industrial development was exempt. Lastman pushed for an exclusion for affordable housing and was turned down by council.
Twenty-four years later, development charges are set to rise to $52,367 for a 1 bedroom unit and $137,000 for a new detached home! Back in October 2022 the provincial government proposed to cut the fees that municipalities can charge developers who build affordable housing. However, Mayor John Tory warned that Toronto could lose hundreds of millions of dollars in revenue and he would fight the proposal unless the province picked up the tab. The city has indicated it is willing to cut development charges for multi-plex units but only on duplexes and tri-plexes.
The last big rental boom in Toronto happened in the post-war years where ‘towers in the park’ high-rises were built not only in the central regions of Toronto but throughout the inner suburbs of the city. This form of housing was unique to Toronto compared to other large North American urban centers and went a long way to mitigate the sprawl and low density levels seen in most cities. The last rental boom was facilitated mostly by favorable tax laws which allowed developers of rental housing to accelerate depreciation rates which increased the rate of return in the early years of the investment. It also allowed rental owners to ‘pool’ capital cost allowances and carry them forward to another property acquired with the proceeds of a sold property, encouraging further building. This provision was eliminated in 1972 and together with other changes to the tax code killed the rental development market in Toronto.
Inclusionary Zoning is important. But to effect real supply change, Municipal, Provincial and Federal governments must work together to provide incentives to promote purpose-built rental development.
