On November 9, 2021, Toronto City Council adopted Inclusionary Zoning. These changes take effect on September 18, 2022 at the earliest.

City Council Adopts Inclusionary Zoning

At its meeting on November 9, 2021, Toronto City Council adopted an Inclusionary Zoning framework, which will take effect on September 18, 2022 at the earliest.

Because Inclusionary Zoning policies and regulations are not subject to appeal by the public, it is critical to understand how this change will impact existing and future development proposals.

This post provides a high-level summary of the Inclusionary Zoning regime adopted by City Council. For further guidance, please contact Jonathan Cheng or Calvin Lantz.

What Is Inclusionary Zoning?

Inclusionary Zoning is a regulatory tool that allows municipalities to require affordable housing units to be provided in new residential developments.

City Council adopted an Official Plan Amendment and Zoning By-law Amendment to establish Toronto's Inclusionary Zoning framework (the "IZ Amendments").

The IZ Amendments cannot be appealed to the Ontario Land Tribunal (the "OLT"), except by the Minister of Municipal Affairs and Housing (the "Minister").

Once the City gives formal notice that the IZ Amendments have been adopted and passed, the Minister has 20 days to appeal the IZ Amendments to the OLT.

Where Does Inclusionary Zoning Apply?

In Toronto, Inclusionary Zoning only applies to lands that satisfy two locational criteria:

  • the lands must be within a Protected Major Transit Station Area1; and
  • the lands must be within an identified Market Area.

Protected Major Transit Station Areas

The Growth Plan for the Greater Golden Horseshoe (2019) defines "Major Transit Station Areas" ("MTSAs") as:

"The area including and around any existing or planned higher order transit station or stop within a settlement area; or the area including and around a major bus depot in an urban core. Major transit station areas generally are defined as the area within an approximate 500 to 800 metre radius of a transit station, representing about a 10-minute walk."

Protected Major Transit Station Areas ("PMTSAs") are a subset of MTSAs that have special status under the Planning Act.

PMTSAs must be approved by the Minister, and once approved, PMTSA policies and regulations are not appealable to the OLT by the public (except in very specific circumstances). Applications to amend PMTSA policies are also not permitted, except where Council has passed a resolution allowing such an application to proceed.

In order to designate a PMTSA, the City must introduce Official Plan policies that:

  • delineate the PMTSA boundaries;
  • identify the minimum number of residents and jobs, collectively, per hectare that are planned to be accommodated within the area;
  • identify the authorized uses of land in the area and of buildings or structures on lands in the area; and
  • identify the minimum densities that are authorized with respect to buildings and structures on lands in the area.

The City is presently conducting a Municipal Comprehensive Review ("MCR") that will identify MTSAs and PMTSAs across Toronto. Although the MCR is to be completed by July 1, 2022, the City has adopted a phased implementation that will advance some PMTSAs for the Minister's approval prior to the completion of the MCR.

At present, no PMTSAs for Toronto have been approved by the Minister, although there are two PMTSAs currently before the Minister for approval (i.e., the Finch West Transit Station Area and Sentinel Transit Station Area).

Market Areas

Inclusionary Zoning will apply only to PMTSAs that are within certain Market Areas, as shown on Official Plan Map 37.

Through this mapping, the City has delineated the boundaries for three Market Areas, each with distinct affordable set-aside rates, as discussed below.

Exempt Forms of Development 

Inclusionary Zoning will apply to development, except for the following exempt forms of development:

  • Development containing fewer than 100 dwelling units and less than 8,000 m2 of residential GFA;
  • Development that will be owned and operated by:
    • A non-profit housing provider with 100% ownership interest; or
    • A non-profit housing provider in a partnership in which:
      • The non-profit housing provider has an ownership interest that is greater than 51%; and
      • A minimum of 51% of the dwelling units will be affordable housing units;
  • Student residences, retirement homes, nursing homes, and residential care homes.

Impact of Inclusionary Zoning

Set-aside Rates

The IZ Amendments impose requirements to produce affordable housing as shown in the linked summary tables.

The distinct set-aside rates track onto each of the three Market Areas and will be phased in, with annual increases beginning on January 1, 2025 through to January 1, 2030.

Depth of Affordability

The IZ Instruments define the depth of affordability that will be required, as summarized below.

Affordable Rental Housing

Affordable Rental Housing Units will have a total monthly shelter cost (i.e., gross monthly rent inclusive of utilities for heat, hydro, hot water, and water) that is the lesser of:

  • one times the average City of Toronto rent by dwelling unit type, as reported annually by the Canada Mortgage and Housing Corporation; or
  • 30% of the before-tax monthly income of renter households in Toronto, as per below:
    • Studio units: one-person households at or below the 50th percentile income;
    • 1-bedroom units: one-person households at or below the 60th percentile income;
    • 2-bedroom units: two-person households at or below the 60th percentile income; and
    • 3-bedroom units: three-person households at or below the 60th percentile income.

Affordable Ownership Housing

Affordable Ownership Housing Units will have a purchase price that is at or below an amount where the total monthly shelter cost is affordable, which is 30% of the before-tax monthly income as set out below:

  • Studio units: households at or below the 30th percentile income;
  • 1-bedroom units: households at or below the 40th percentile income;
  • 2-bedroom units: households at or below the 50th percentile income; and
  • 3-bedroom units: households at or below the 60th percentile income.

The "total monthly shelter cost" for Affordable Ownership Housing Units includes:

  • The mortgage principal and interest, based on a 25-year amortization, 10% down payment, and the mortgage rate for a conventional 5-year mortgage as reported by the Bank of Canada in January of the applicable year;
  • A mortgage insurance premium;
  • Property taxes, calculated on a monthly basis based on the purchase price; and
  • Standard condominium fees.

Affordability Period

Affordable housing units secured through Inclusionary Zoning will remain affordable for 99 years, beginning from the date the unit is first occupied.

Net Proceeds from Sale of Affordable Housing Unit

If an affordable housing unit secured through Inclusionary Zoning is sold, the City will receive the following from the net proceeds of sale:

  • If sold during the 99-year affordability period, the City will receive up to 20% of the net proceeds of the sale (i.e., the difference between the purchase price paid by the owner and the resale price), equivalent to no more than 2% of the sale price; and
  • If sold after the 99-year affordability period at market price, the City will receive 50% of the net proceeds of the sale.

Implementation

Legal Agreements

The owner of lands subject to Inclusionary Zoning is required to enter into Inclusionary Zoning agreements ("IZ Agreements") with the City that are registered on title.

These agreements will secure Inclusionary Zoning obligations over the 99-year affordability period, including the timely delivery of affordable housing units and any phasing of the units, requirements ensuring affordable units are provided to eligible households, an approach for determining the maximum resale price of an Affordable Ownership Housing Unit based on Consumer Price Index increases, and requirements for ongoing administration, reporting, and monitoring to ensure the units remain affordable over time.

Additional details on matters proposed to be secured through IZ Agreements are set out in the draft Inclusionary Zoning Implementation Guidelines, which were endorsed by Council for consultation purposes. Staff are to report back to Council in the first half of 2022 with final recommended Implementation Guidelines.

Offsite Units

Offsite units may be secured at the discretion of the City, provided the units meet certain proximity and occupancy requirements.

Incentives

No parking spaces are required for affordable housing units secured through Inclusionary Zoning.

Any other financial or regulatory incentives provided by the City will only be considered where a development proposes to exceed the Inclusionary Zoning requirements (e.g., where the development proposal provides more affordable housing units or secures deeper levels of affordability than otherwise required).

Transition Provisions

There are two layers of transition for existing development applications and approvals to be grandfathered and exempt from Inclusionary Zoning:

  • The Province's Inclusionary Zoning regulations ( O.Reg. 232/18); and
  • The City's transition provisions contained in the Inclusionary Zoning By-law.

Province's Inclusionary Zoning Regulations

Under the Province's Inclusionary Zoning regulations (O. Reg. 232/18), Inclusionary Zoning does not apply in either of the following circumstances:

  • On or before the day City Council adopts Official Plan policies authorizing Inclusionary Zoning (i.e., November 9, 2021 for Toronto):
    • An Official Plan Amendment application (if required) and a Zoning By-law Amendment application were made in respect of the development along with an application for either of the following:
      • Approval of a Plan of Subdivision under section 51 of the Planning Act; or
      • Approval of a description or an amendment to a description under section 9 of the Condominium Act, 1998; or
    • On or before the day City Council passes the Inclusionary Zoning By-law (i.e., November 9, 2021 for Toronto):
      • An application is made in respect of the development for:
        • A building permit;
        • A development permit;
        • A community planning permit; or
        • Site Plan Approval under subsection 41(4) of the Planning Act.

City of Toronto's Transition Regulations

The City's Inclusionary Zoning By-law includes transition provisions that go beyond the grandfathering provisions contained in the Province's regulations.

Under the City's transition provisions, Inclusionary Zoning does not apply to development for which any of the following situations apply:

  1. A complete application for a Zoning By-law Amendment and Site Plan Approval were filed on or prior to the later of September 18, 2022 or notice of approval of a PMTSA by the Minister;
  2. A Zoning By-law Amendment came into force prior to the passing of a Community Benefits Charge By-law and a Section 37 Agreement for height and density bonusing was executed on or prior to the later of September 18, 2022 or notice of approval of a PMTSA by the Minister;
  3. A complete application for Site Plan Approval was filed on or prior to the later of September 18, 2022 or notice of approval of a PMTSA by the Minister;
  4. A complete application for Minor Variance was filed on or prior to the later of September 18, 2022 or notice of approval of a PMTSA by the Minster;
  5. A complete application for a Minor Variance was filed after September 18, 2022 or notice of approval of a PMTSA by the Minister in respect of a building permit referred to in Situations 6 or 7 below;
  6. An application for a building permit was filed on or prior to the later of September 18, 2022 or notice of approval of a PMTSA by the Minister; or
  7. An application for a building permit was filed after September 18, 2022 or notice of approval of a PMTSA by the Minister in respect of a Zoning By-law Amendment or Site Plan referred to in Situations 1, 2, or 3 above, or a Minor Variance referred to in Situations 4 or 5 above.

Next Steps

The earliest that the Inclusionary Zoning framework will come into effect is September 18, 2022, and even then, it will only apply to lands within a PMTSA approved by the Minister.

In the meantime, City Council has directed staff to undertake additional market analysis for certain areas in Toronto to examine the feasibility of including those lands within the Inclusionary Zoning regime.

Council has also directed staff to report back on the impacts of Inclusionary Zoning one year after it takes effect to re-assess the framework and make further amendments as necessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.