What the heck is inclusionary zoning anyway?

I believe that I first heard the term ‘inclusionary zoning’ (or IZ) in 2018 when I ran for council in Kitchener. It was early in my understanding of housing and development issues but there was a lot to like about it…or so I thought. While I still believe there is some appeal to inclusionary zoning, my thinking about it has shifted quite a lot since 2018. Today, I’ll share some of the reasons why that is. But first, what exactly is inclusionary zoning anyway?

Inclusionary zoning allows a municipality to require private developers to include a certain percentage of affordable units within new, multi-unit housing developments. It works by leveraging increases in land value to provide affordable housing. Therefore, IZ programs typically don’t need to rely on government subsidies in the same way as, say, subsidized housing.

So why wouldn’t we do it? As More Neighbours Toronto states, “It sounds perfect: more affordable housing, at almost no cost to the taxpayer. Only those greedy developers building soulless glass skyscrapers would pay.” It seems like a great deal! However, More Neighbours claims that, “The consequence will be fewer homes built, and fewer affordable units paid for exclusively by new buyers, sending already prohibitively expensive costs for housing even higher as supply tightens.” If IZ results in less housing overall and what gets built is more expensive, is it really something we should pursue?

Emily Hamilton is a researcher who has studied inclusionary zoning, specifically looking at how IZ policies have affected housing production and housing prices. She has found that inclusionary zoning policies are indeed associated with higher housing prices, and the effect grows larger the longer an IZ program has been in place, but they're not necessarily associated with fewer housing permits. 

Before we take a closer look at Emily’s research though, I want to highlight another term that often comes up in housing discussions - exclusionary zoning. While exclusionary zoning sounds like the opposite of inclusionary zoning, it’s not exactly. Rather, exclusionary zoning, Hamilton explains, “usually refers to things like zoning that allows only one house per parcel, or minimum lot size requirements, height restrictions.” Essentially, it refers to zoning that only allows for single-detached housing to be built. In many North American cities, this zoning covers the majority of land within a municipality. Exclusionary zoning policies often “cause us to build less housing, and make the housing we do build more expensive, both of which result in higher rents and home prices.”

When the majority of land in a city is exclusively reserved for single-family housing, it forces overdevelopment onto the remaining small parcels of land. More Neighbours Toronto asks, “Should we cheer on councillors who want to make those small parcels of land more inclusionary, while suspiciously making wealthy neighbourhoods more exclusive?”

Emily Hamilton notes, “One of the well known outcomes of exclusionary zoning has been cementing segregation along race and income lines, as localities have zoned certain jurisdictions or certain neighborhoods as places where only expensive housing is feasible to build.” If inclusionary zoning can push back on that, clearly it is worth considering. However, Hamilton found that, “inclusionary zoning fails in a few important ways to achieve broad based integration. Oftentimes, we're talking about a very small number of units that are going to be below market rate units. So we might get some integration at the building level. But it's very rarely or never a policy for integrating (a community) to a level that we would find satisfactory.”

Like More Neighbours Toronto, Emily Hamilton understands that inclusionary zoning, “appears to be cost free. It's not requiring any outlay of public revenue. It doesn't require any difficult budgetary trade offs. So it seems like a way to improve housing affordability for nothing.” However, Hamilton’s research finds that, “each year a mandatory inclusionary zoning program is in place, localities have experienced about a 1% increase in their median price per square foot relative to what they might have expected without that program being in place. That's a big effect over time, because that's a compounding effect on the median per square foot price.” Her research shows that while there may not be a direct cost to the ‘taxpayer’ for inclusionary zoning policies, the cost bears out in higher housing prices.

IZ policies may also impact what gets built. Hamilton found that “developers have shifted to building multifamily projects that come in under the size threshold that triggers the inclusionary zoning requirements.” So, for example, if the inclusionary zoning policy states that any new building with more than 10 units must include a certain percentage of affordable units, developers shift to building nine (or less) unit buildings to stay under the threshold. While some may celebrate small-sized developments, we must ask if that’s an approach we want to use when the CMHC says we need to be building much more housing to meet our needs.

As noted by Shane Phillips (from the UCLA Lewis Center for Regional Policy Studies), one of the problems with IZ is “for density bonuses to work, you have to keep the zoning at densities below what the demand for housing would otherwise dictate.” Basically, inclusionary zoning only works when the demand for housing exceeds supply, which, of course, is very much the case in many North American cities today. However, is that the system we want to pursue? What if instead of strengthening the system of restricted supply through inclusionary zoning, we took the opposite approach?

Hamilton sums it up well:

“I think first and foremost, the remedy is repealing exclusionary zoning. Not creating these really complex regulatory webs (through inclusionary zoning policies) to try to maintain exclusionary zoning while getting rid of its problems. Every local government can make improvements toward getting rid of exclusionary zoning by: reducing their minimum lot size requirements, expanding the areas where multifamily housing is permitted, and reducing parking requirements.” 

More Neighbours Toronto seems to agree. “We need to change our housing policies to create abundant, available, and attainable housing options in every neighbourhood. We must build greater quantities of affordable and market-rate multifamily housing everywhere, not just on avenues, polluted transportation corridors, or former industrial sites.”

In their housing platform, Waterloo Region Yes In My Backyard (WR YIMBY) outlines several actions local governments should take to address our housing shortage and to make housing more affordable, including:

• Allow construction of four-storey housing as-of-right across the cities of Waterloo Region.

• Allow Multi-Tenant Homes (aka rooming houses) as-of-right throughout Waterloo Region

• Permit high-rise apartment buildings as a minimum zoning permission within 800 metres of iON stops (major transit station areas).

As WR YIMBY states, it’s important that we '“don’t just allow housing, but make it feasible.”

Locally, the Cities of Kitchener, Waterloo and Cambridge have partnered, with support from the Region of Waterloo, to explore the feasibility of adopting a new tool to increase the supply of affordable housing. Visit EngageWR to learn more.

EngageWR states that, “Because inclusionary zoning programs result in lower revenues for developers through lower rents or sales prices than would otherwise be the case, programs have to be carefully designed to ensure that residential development continues to be financially viable for private market housing providers.”

Various issues can influence development feasibility including the proportion of units required to be affordable (i.e. 5% vs 20% of units), the duration of affordability (how many years a unit must stay affordable), depth of affordability, and the tenure of affordable units (rental vs. ownership). As outlined on EngageWR, there are some province-specific considerations as well, including:

• Location: Provincial regulations limit inclusionary zoning to Major Transit Station Areas

• Scale of development: Provincial regulations limit inclusionary zoning to residential developments of 10 units or more

• Depth of affordability: Research suggests that inclusionary zoning works well for creating affordable housing for households in the 30th and 60th percentile of income distribution. These households tend to earn too much to be eligible for community (government subsidized) housing, but not enough to afford market rents/prices.

While I think our efforts are best spent on eliminating exclusionary zoning, if inclusionary zoning is implemented locally, we may do well to consider some of the options outlined by More Neighbours Toronto: “density bonuses, fee waivers, relaxed urban design guidelines, limited public consultation processes, expanded as-of-right approvals, and direct financial incentives. These rules make it possible for developers to build denser, faster, and with greater efficiency from scale.”

There is a lot more to explore on inclusionary zoning so you can expect another post or two on this topic. In closing for today though, let’s do another poll.