By Ted McIntyre
What are municipalities doing to meet housing supply and affordability demands?
Economics 101 explains that when demand exceeds supply, the product price is driven up. It’s certainly a primary market force behind the exorbitant cost of buying a home in Ontario.
And while multiple interest rate hikes have helped to douse the fire of the pandemic housing price spike, demand isn’t going anywhere—particularly given the federal government’s plan to welcome 1.45 million new permanent residents to Canada over the next three years. It’s those types of numbers that are driving the Ontario government’s call for 1.5 million new homes by 2031.
That mandate, coupled with the formidable shortage of skilled trades, has added emphasis on the need to grease the wheels of the often-burdensome development approvals machine so that builders can get shovels in the ground faster, while keeping costs down in the process.
To that end, the Ford government introduced Bill 23 last fall. The legislation, which was passed into law on Nov. 28 (with consultations on the bill’s regulations having extended until the end of 2022), will support Ontario’s newest Housing Supply Action Plan: “More Homes Built Faster.” This plan is part of a long-term strategy to increase supply and provide attainable housing options, including more affordable and purpose-built rental housing across the province—one of the many focuses being on development near transit stations.
With government charges and fees adding nearly $200,000 to the overall cost of building an Ontario home, according to an October press release by the Ontario government, Bill 23’s amendments to the Planning Act, Development Charges Act and the Conservation Authorities Act will freeze, reduce and exempt fees. Affordable and inclusionary zoning units, as well as non-profit housing developments, will be exempt from municipal development charges (DCs), parkland dedication levies and community benefits charges. Rental construction will also have reduced DCs, and conservation authority fees for development permits and proposals would be temporarily frozen.
The Province “is also working with industry partners to consult on the issue of land speculation as a detriment to the government’s housing supply goals, and whether potential regulatory changes under the New Home Construction Licensing Act are required to address the issue. This winter there will also be a consultation on a policy framework setting out the key elements of local vacant home taxes. Right now, only a handful of municipalities have the authority to charge this tax on unoccupied residential units to incentivize owners to sell or rent them out.”
As a means of further discouraging foreign speculation in the local housing market, Ontario also has the highest and most comprehensive Non-Resident Speculation Tax (NRST) in the country, at 25%.
Bill 23’s “changes to the Planning Act will also remove site plan control requirements for most projects with fewer than 10 residential units (with limited exceptions),” the Province added. “This would reduce the number of required approvals for small housing projects. Changes also include focusing responsibility for land use policies and approvals in certain lower-tier municipalities to eliminate the time and costs associated with planning processes by upper-tier municipalities. This would give the local community more influence over decisions that impact them directly, clarifying responsibilities and improving the efficiency of government services for citizens.”
Paul Freeman, Chief Planner with York Region, is concerned about losing that type of control at the regional level, as well as other aspects of the legislation. “We are aligned with the provincial goal of building homes and increasing the speed of approvals; we are committed to this,” says Freeman. “But Bill 23 takes a disappointing approach, making it punitive to municipalities who carry a partial role in building homes. There are many unintended consequences that will hinder the ability for housing unit construction to occur any faster.
“Regional planning plays a critical role coordinating growth with necessary infrastructure to ensure financial sustainability, (which will now be) a missing gap, with local municipalities taking on a heavier workload, limited resources and tighter deadlines.
“The proposed legislation reduces the amount of DCs, parkland dedication fees and community benefits charges collected by municipalities to fund growth-related capital costs of infrastructure and services for new housing, and to provide the essential services to residents,” Freeman adds. “The proposed legislation will force municipalities to delay construction of infrastructure needed to service new housing, assume additional risk by taking on more long-term debt and consider service level reductions. Further housing supply will be restricted, as infrastructure projects are deferred due to restricted municipal revenue. And existing taxpayers will see the consequences in the cost of growth, which is already lacking proper funding. Further, attempts to reduce development charges will not translate into lower home prices, as such prices are market driven.”
Delays, Delays
Housing affordability and availability, however, have been a focus for the Ontario government, with many of the legislative changes likely motivated by the Ontario Housing Affordability Summit a year ago. The purpose of that January 2022 virtual meeting, which included big-city mayors and regional chairs, was to “gain a collective understanding of what can be done to tackle the ongoing issue of Ontario’s housing affordability crisis and to increase efficiencies and innovation in creating housing supply.” (Separate conferences were also held with the smaller, northern and rural municipalities shortly thereafter.)
The summit highlighted a late-2021 report by the World Bank indicating “that Canada (and Ontario) lagged behind other developed countries in the time it takes to get new developments approved, with an average of 249 days needed to obtain all necessary approval for a standard reference project (an industrial warehouse in the country’s largest city) compared to an average of 152 days across the 38 OECD (Organisation for Economic Cooperation and Development) countries.”
“Delays and barriers at the municipal level are slowing down supply,” the summit report (which was not made public) noted. Among the many reasons for delay were unclear requirements (with variations across municipalities) and public consultations—“There may be multiple rounds of consultation on the same matter. And, as our communities grow, sometimes local residents simply do not want change that is needed.”
Builders weren’t absolved. In response to the concern of some sitting on approved developments, the report noted various tools that municipalities can use to spur idle developments, and that the Province could also consider time-limited planning approvals for things like zoning and site plans, as well as imposing tax measures on vacant/undeveloped lands where approvals have been obtained.
Incomplete applications were also cited as an ongoing issue. “Most of the developers we deal with are pretty sophisticated,” says Jill Hogan, Milton’s Commissioner of Development Services. “With quality submissions we can turn things around extremely quickly. But sometimes you get studies accompanying an application that are incomplete or are very poorly done, and you end up needing multiple resubmissions because the quality is lacking and the technical review can’t take place.”
The municipalities, for their part, have pointed out that planning/staff resources required to accommodate “frequent” provincial changes to planning legislation and guidelines in recent years have forced multiple delays. And reduced staffing since the onset of the pandemic has been a significant impediment.
Failing Grades
To help streamline the process and develop meaningful performance indicators to track progress within this province, the 2022 summit presented profiles of 38 Ontario municipalities, grading their use of various housing supply and affordability tools. The 15 metrics used ranged from whether the municipality publishes application numbers for site plan and rezoning approvals (and how fast they do so), to modernization initiatives to streamline the process.
“The housing tools progress reports will track which tools municipalities are using to enable and incentivize the creation of housing,” the summit report noted. “This will allow municipalities to identify their areas of strength and help them find new opportunities to increase housing supply and cut red tape.”
While stressing that “this information represents a particular point in time and is meant to be a starting point for further discussion and feedback,” the report card was not good, offering a passing grade to only 12 of the 38 profiled municipalities, with York Region topping the list at 70%.
Areas of concern at the municipal level were also highlighted by the second edition of the Greater Toronto Area Municipal Benchmark Study, released in September. Compiled by research firm Altus Group for the Building Industry and Land Development Association (BILD), the study found that average development approval timelines had increased by 41% since the first edition of the report was published in 2020. The fastest average approvals were recorded in Milton, Whitby, Barrie, Oakville and Brampton, with each municipality averaging less than 16 months. The worst were in Caledon, Toronto, Richmond Hill and Vaughan, each at 27 months or greater. Smaller projects were cited as equally susceptible to those delays as larger ones.
According to the report, each month of pre-construction delay is estimated to result in $2.60 to $3.30 per square foot in additional construction costs. To put it another way, “A 125-unit high-rise incurs $276,000 in extra costs due to loan-carrying charges, increased municipal charges and inflation for every month of delay, while a 125-home low-rise development incurs $456,000,” according to the Residential Construction Council of Ontario (RESCON), which noted in November that “presently, up to 45 agencies and groups outside a municipality may be involved in reviewing, commenting on, or approving an application.”
Development Charges on the Rise
More damning, however, may have been the Altus/BILD study’s revelation of eye-opening increases in development charges and municipal fees in the GTA—up 30% for low-rise development and up 36% on high-rise development since the 2020 study, with charges amounting to $53 per square foot for low-rise housing and to $99 per square foot for high-rise housing. In the 2020 study, six of the 16 municipalities had low-rise charges that exceeded $100,000, and two had charges that exceeded $125,000 per unit. In the current study, nine of the 16 municipalities now have charges that exceed $100,000 per unit, and seven exceed $125,000. On the high-rise side, no municipality exceeded $100,000 per unit in the 2020 study, but in the current study, four municipalities have charges above $100,000.
That added fuel to a fire ignited by a late-2021 report entitled, “New Homeowner Money in the Government’s Bank: How Unspent Municipal Reserves are Impacting Building Livable, Affordable Communities in the GTA.” That research, also compiled by Altus for BILD, indicated that more than $5 billion in development charges and fees was sitting in Ontario municipal reserve funds—with the City of Toronto accounting for more than $2.6 billion alone.
“We understand that development charges pay for growth, and we are happy to pay them,” says OHBA Chief Executive Officer Luca Bucci. “The issue we have is that since Covid, we’ve been seeing huge increases in development charges without any rationale as to why these increases are taking place. And quite frankly, these are also occurring while cities like Toronto are sitting on large development charge reserves.
“For the past year, municipalities have been using development charges as a revenue generator rather than for its intended purpose, which is to facilitate the development of infrastructure,” Bucci says. “We just want development charges to be levied in a fair way, and we believe the mechanisms being brought in by Bill 23 achieve that fairness.”
Trimming the Fat
As part of its housing strategy, the Ontario government has been utilizing its Lean & Continuous Improvement Office, a part of the Cabinet Office. Core to the “lean” philosophy is the principle that expenditure of resources for any goal other than the creation of value for the end customer is wasteful and therefore should be a target for elimination. One of the overarching themes emerging from the office’s research has been a lack of data from municipalities, such as how long it takes for a typical application to go through the approvals process. Transparency and tracking were often noted, all of which can be improved with the better use of technology, the 2022 summit observed.
Fortunately, investing in development-submission and tracking software has been on the front burner for many regions since the summit. The Canada Mortgage and Housing Corporation (CMHC) has recently invested $2.35 million for a pilot project in Simcoe County that could provide a template for municipalities that have yet to digitize the cumbersome development approvals process. The venture will include a data exchange platform to enable transfer of information between groups, application tracking to support applicants and inform policy decisions, and a workflow engine to develop a seamless process that will improve efficiency, reduce errors and lead to better communication on files between municipalities, Indigenous communities and others.
The Province of Ontario has also allocated up to $350 million through 2022-23 to help municipalities identify and implement modern solutions, including through the Municipal Modernization Program and Audit and Accountability Fund. Of the total, $45 million has been allocated to the new Streamline Development Approval Fund (SDAF), which will help Ontario’s 39 largest municipalities unlock housing supply by streamlining, digitizing and modernizing their approach to managing and approving applications for residential developments.
Milton is among the communities to take advantage of the funds by developing its own public-facing portal. “Phase one—building permits—will be up and running this spring,” Hogan says. “And then we are expanding it to our planning applications and engineering permits. It should be fully up and running by late 2024. So it will be a one-stop shop, where everything can be done digitally, including payments.”
York Region has been at the forefront of expediting the approvals process thanks to the automation and transparency provided by its YorkTrax digital development application and tracking system.
Pulling their Weight
Although it received a failing grade according to the 2022 summit’s overall performance report, Milton appears to be pulling its weight in multiple regards. It ranked No. 1 in the Altus study for fastest development approval times and third overall for planning processes, planning features and government charges, among the 16 profiled communities. As timelines for approvals go, Milton’s first-place average of 10 months per project was less than half the 21-month average time.
“With Bill 23, the More Homes Built Faster Act, municipalities are meant to make pledges. Milton’s pledge was 20,000 new homes by 2031, and our forecast already blows that out of the water—and that includes a range of housing units, from apartments to singles,” says Hogan.
“We have shovel-ready land for affordable housing with the zoning in place,” she adds. “I think that’s critical if developers are to be able to purchase land and do what they need to do to get approvals in place. And right now we are working with Halton Region on a large affordable housing project within the vicinity of our GO station. Again, all of that land is zoned and has incentives for affordable or not-for-profit housing. And it would allow some additional height and density permissions if 51% of the units are considered affordable.”
The summit also highlighted success stories. “Under its Development Charges Bylaw, the City of Ottawa offers DC reductions for eligible non-profit and/or affordable housing development, as well as for several different forms of additional residential units, such as secondary units, in existing single-detached dwellings and garden suites.”
In Kingston, “an online portal called the Development and Services Hub (DASH) is used to submit development applications and monitor their status, or for the public to view development activity in their community.”
Sudbury and the City of Thunder Bay, meanwhile, “have implemented Community Improvement Plan incentives that support the development of affordable housing through, for example, the creation of housing above commercial units in downtown areas of Thunder Bay and within Sudbury’s built boundary in close proximity to essential services such as transit, schools and healthcare facilities.”
Waterloo, meanwhile, offers regional DC grants for affordable housing projects to offset DCs, and London has a Municipal Housing Facilities Bylaw that allows Council to exempt all or part of DCs for certain affordable housing projects.
“But municipalities really have to take a hard look at their operations and admit some things aren’t working, and that we can’t just keep the status quo,” suggests OHBA’s Bucci. “We have to embrace the changes that the Province has set through Bill 23 and look at a few ways to get shovels into the ground faster.”
One of the barriers is philosophical. At loggerheads with the 1.5 million-home mandate is the increasingly protectionist stance from many regions, whose residents (and voters) don’t want the required development occurring in their neighbourhoods.
“Some municipalities have shown that they understand the crisis we’re in and are willing to step up,” Bucci says. “But the political ideologies that back NIMBYism are starting get in the minds of city councillors and mayors and it’s becoming very destructive.”