Canada: New "Affordable" Housing Definitions Proposed For Development Charge Exemptions

On September 28, 2023, the Minister of Municipal Affairs and Housing introduced Bill 134, Affordable Homes and Good Jobs Act, 2023. The new legislation proposes to amend the Development Charges Act, 1997, for the purposes exempting affordable residential units from development charges. At this time, Bill 134 is in the second reading stage, with the ordered referred to Standing Committee of Heritage, Infrastructure and Cultural Policy on October 4, 2023.

If enacted, this new legislation will incorporate an income component into the definition of "affordable" housing and will provide an exemption from development charges for units that meet the new definitions. In 2022, Bill 23 had brought forward proposed definitions of "affordable" that was exclusively based on 80 percent of average market rents and prices for the purposes of exemptions, though that definition has not yet been brought into force. The approach to defining affordability set out in Bill 134 will be consistent with the definition found in the Provincial Policy Statement, 2020, which considers the financial ability of households in addition to market value. The proposed definitions are based on average market rates as well as incomes levels for a local municipality, which are to be determined by the opinion of the Minister. The proposed definitions of "affordable" are as follows:

• For rental residential units, the rent is no greater than the lesser of:
  • 30 percent of the 60th percentile of gross annual incomes for renter households in the local municipality; and
  • The average market rent identified for the residential unit set out in the Affordable Residential Units bulletin
• For non-rental residential units, the price is no greater than the lesser of:
  • A purchase price that would result in annual accommodation costs equal to 30 percent of the 60th percentile of gross annual incomes for households in the local municipality; and
  • 90 percent of the average purchase price identified for the residential unit set out in the Affordable Residential Units bulletin.

In short, a residential unit will be considered "affordable" provided the cost is below the average market value, or less than 30 percent of annual household income in a municipality. Average market values and gross annual income of households are to be set out in the Affordable Residential Units bulletin, which is to be published by the Minister of Municipal Affairs and Housing at an unspecified future date. In the meantime, the Minister has not conducted a cost analysis to assess whether the development change exemption will exceed the reduction in profit of "affordable" units at market price. Until the Minister releases the bulletin, we will not be able to determine if this development charge exemption will practically provide incentive to construct "affordable" residential units.

On September 14, 2023, the federal government announced the introduction of legislation to enhance the Goods and Services Tax (GST) Rental Rebate on new purpose-built rental housing to incentivize the need for rental homes. The enhancement proposes to increase the GST Rental Rebate from 36 percent to a full 100 percent recovery and remove the phase-out thresholds for purpose-built rental housing projects. As of the latest legislation, there is no information regarding how the Enhanced GST Rental Rebate and "affordable" unit development charge exemption will not qualify together. Ontario's Fall Economic Statement, released on November 2, announced that the province will remove the 8 percent provincial Ontario Harmonized Sales Tax (HST) on qualifying projects for new purpose-built rental housing.

This will remove the full 13 percent HST on new qualifying rental buildings when combined with federal level enhancements.

A special thanks to Alan Han for co-authoring this article.