The wrong way to deal with a housing boom, courtesy of Toronto

By John Michael McGrath - Published on August 23, 2016
City of Toronto skyline from across the lake.
Bill 204, the Promoting Affordable Housing Act, would allow more affordable housing in big Ontario cities. (Agnieszka Gaul/iStock)

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A few years back a nephew of mine was presented with the choice of seeing the animals at the Norfolk County Fair or clambering over tractors. Being an eight-year-old boy, it wasn’t a hard choice for him—until we had to leave and he still wanted to see the animals after all.

As we explained to him that he’d made his choice and now he had to live with it, he sulked (briefly, he’s a great kid) and said, “I hate making choices.”

Which brings me to Toronto City Council, which has taken a choice offered by Queen’s Park and decided it wishes it didn’t have to choose. It’s more endearing when an eight-year-old does it.

Some background: the Liberal government has introduced Bill 204, the Promoting Affordable Housing Act. Among other things, Bill 204 would grant a long-held wish of Toronto and other big Ontario municipalities, allowing them to use inclusionary zoning. That lets cities require builders to make a certain portion of their new homes affordable housing.

The catch is that Bill 204 as currently written would require municipalities to use inclusionary zoning or a different section of the Planning Act, but not both. Section 37 lets cities negotiate case-by-case deals with developers. In exchange for permission to build, developers have agreed to pay for recreational facilities, public art and more. Toronto has made a lot of deals with that power.

According to the Toronto Star, councillors have written to Queen’s Park saying this choice is unacceptable. The city’s chair of the affordable housing committee, Ana Bailão, says affordable housing is just one of the pressures the city needs to address and doesn’t want to see one need compete with others.  Josh Matlow, another city councillor, says: “It’s time for developers to pay their fair share to support the new residents that they are profiting from.”

There are real problems with how Ontario municipalities deal with the pressures of growth, but the problem for Toronto is that there’s no clear definition of what a “fair share” from developers would be, except that it always seems to mean “more.”

The city can and does already levy development charges on new construction, and Bill 73, passed last year, expands those powers. (Toronto isn’t above abusing its development charge bylaws, having recently had to settle a case tied to the Scarborough subway.) The city is banking on $609 million in development charges to help finance its capital needs out to 2022.

Developers can also be compelled to set aside land for parks or pay in cash if that’s too difficult. Bill 204 won’t affect either of those powers, though Bill 73 did add some transparency measures to make sure Ontario cities don’t engage in accounting tricks. During the boom years Toronto has collected hundreds of millions of dollars dedicated to parks but has largely left it unspent. (The failure of the city’s cash-in-lieu system for parks hasn’t dissuaded it from wanting to duplicate it for affordable housing, per the Star’s reporting.)

There’s also the financial benefit when builders replace low-value parking lots and warehouses with higher-value homes and offices. This assessment growth added $232 million in found money to the city’s coffers from 2010 to 2016, about as much as the city added in property tax revenue in the same period.

Development charges, park levies, and assessment growth all help pay for the increased costs of growth, alongside Section 37 (and contribute far larger sums of money.) So why are some councillors drawing the line at Section 37? For some, the legal tool has done legitimate good work in their communities, putting money into everything from parks to libraries and child care spaces. But councillors also score political points by securing highly visible perceived victories on every development they secure a Section 37 agreement to—something they hope voters remember come election time, alongside council’s recent history of voting to keep taxes low.

Indeed, Toronto’s low-tax politics since Rob Ford’s mayoralty are part of why its latest request is being met with irritation at Queen’s Park. A city that has refused to raise property taxes even fast enough to cover inflation for most of a decade has instead used the easy money of the boom years to paper over the cracks in its budgets. It then had the nerve to cry poverty, while other GTA municipalities bite the bullet and raise their own taxes faster than inflation.

Meanwhile, the government has a pragmatic political concern and a policy question. The policy question is a simple one: in a region where home prices are already spiralling upward, will giving cities the power to pile on development charges using inclusionary zoning, Section 37 and Bill 73 mean even fewer families can afford to own one? Section 37 is an easy target because it’s opaque, unaccountable and can’t ever seem to escape the stench of palm-greasing.

Politically, forcing cities to choose between inclusionary zoning and Section 37 (they can still rely on Section 37 if they really, really want to!) is a way of sweetening a bitter pill for developers who hate the uncertainty the process adds to development applications. Dismiss their concerns if you want, but just last year the Liberals’ proposal to allow cities outside Toronto to use municipal land transfer taxes got shot down by the realtors lobby. For housing advocates the lesson ought to be: better a compromise that can actually pass at Queen’s Park than something that dies on the front pages.

Toronto and other cities do have a point when they say they don’t have sufficient revenue tools to meet their growing needs. That was a major theme of this year’s Association of Municipalities of Ontario meeting (and was last year, and the year before that, and the year before that...) But that deficit isn’t going to be addressed by Section 37 because it can’t possibly raise the kind of funds needed—Toronto has raised only about $300 million with it since the city’s amalgamation almost 20 years ago.

What would a real solution for growing cities look like? In numerous other countries, it’s simply giving cities access to sales and income taxes, either for cities to levy themselves or as large block grants from higher orders of government. For example, 80 per cent of revenue for German cities comes from sales taxes or personal and corporate income taxes levied by the national government. It’s not just that cities get more money: It also means there’s a much more direct benefit to a growing population and jobs base than Ontario’s cities currently see. Revenue from sales and income taxes grow with a rising economy; revenue from property taxes less so.

If voters won’t accept tax increases there are other creative alternatives: The Brazilian city of São Paolo raised roughly $1 billion for infrastructure in five years by effectively auctioning off development rights, more transparently tying new construction to the public good.

Cities that are serious about meeting their community-building needs can lobby for serious changes like those ideas, or many others. Cities that aren’t serious don’t have to worry about doing the hard work: they’ve got Toronto on their side.

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