Cornerstones – Inclusionary Affordable Housing

Cornerstones Inclusionary Affordable Housing

Recommendation:
That Transportation and Public Works Committee recommend to City Council:
  1. That Administration prepare an inclusionary affordable housing policy for Council's consideration in January 2008 that requires all residential developments of five or more units to provide at least 5% of the units as affordable housing, as detailed in the mechanism outlined in November 9, 2007, Asset Management and Public Works Department report 2007PW6475.
  2. That in consideration of reviewing planning applications, Administration work cooperatively and proactively with all developers and builders to incorporate measures that will help offset, to the greatest extent practical, the private sector’s financial contribution associated with the inclusionary affordable housing policy.

Report Summary

This report recommends a policy and mechanism that would ensure all housing developments provide for affordable housing.

Previous Council/Committee Action

  • At the January 30, 2007, City Council meeting, the report on Land Use Planning Measures for Affordable Housing was considered, and the following motion was passed:
  1. That Administration prepare:

a.Options for policy direction to provide affordable housing in suburban and mature neighbourhoods, and in large-scale development projects.

b.Options for implementation measures to achieve affordable housing in suburban neighbourhoods, mature neighbourhoods and large-scale infill projects.

2.That Administration and the Mayor approach the Province for amendments to the Municipal Government Act, notwithstanding the City’s ability to mandate inclusionary zoning.

  • At the July 19, 2005, City Council meeting, the report onCornerstones: Edmonton’s Plan for Affordable Housing 2006-2011,was approved, and the following motion was passed:

That Administration provide a report to City Council on the potential policies and mechanisms that could be established by the City to require private developers of housing projects of a certain size to provide at least 5% of these units as affordable long-term housing.

Report

  • The starting point for development of this policy was Council’s Low-Income and Special Needs Housing Strategy, 2001-2011, which sets out as its first principle that: “Access to safe, adequate and affordable housing is fundamental to the physical, economic and social well-being of individuals, families and communities.”
  • Based on the 2001 federal census, over 38,000 Edmonton households had significant rental affordability problems. Since 2001, increases in rental rates and house prices have greatly exceeded increases in income, so most assuredly the number of households in need has increased and the ‘affordability gap’ has dramatically increased.
  • The vision of an inclusionary housing policy is that affordable housing should be located in all neighbourhoods of the city where residential development or redevelopment is occurring, rather than concentrated in certain pockets of the city.
  • In responding to Council’s directive to develop an inclusionary housing policy, it was guided by the following seven principles:

Targeted – the affordable housing procured through this policy will be targeted for occupancy by households in need: (Note: For purposes of this policy, households in need were defined as earning 80% or less of the median income and paying more than 30% of their gross household income on rent).

Integrated – the affordable housing will be integrated and interspersed throughout the residential developments in which they are located.

Indistinguishable- the external appearance of the affordable housing units will be visually indistinguishable from the market-priced housing units in the development.

Partnerships – it will take a public/private partnership to bridge the ‘affordability gap’, between the market price of housing and lower income households’ ability to pay.

Innovative/Flexible – while this policy outlines a mechanism to procure affordable housing in all residential developments, it should be administered in a flexible manner. The City has acknowledged with industry that it will work proactively to consider various measures to offset the private sector’s contribution including, for example, modifications to development standards (i.e. parking requirements); density bonusing; accelerated processing times; and fee rebates for affordable units.

Equity – all types of housing development: infill developments; redevelopments; and suburban developments should include affordable housing.

Long-term – the housing provided should be affordable for the long-term (minimum of 20 years).

  • The City previously (1972 – 1979) had a policy that required developers to provide land for social housing, based on RF5 densities, sufficient to accommodate 5% of the projected population of a neighbourhood. Utilizing federal and provincial funds, social housing was built on these parcels throughout the older suburbs. The advantage of the policy was that land for social housing was provided throughout the City, rather than being concentrated in parts of the City. This policy was challenged in the Courts and ultimately struck down in 1979.
  • In developing a new policy, consideration was given to inclusionary housing practices in other Canadian cities. To highlight, the City of Toronto requires that 20% of housing in large-scale projects must be long-term affordable housing. The developer is responsible for bridging the ‘affordability gap’ - the difference between the average market rent and the affordable rent based on 30% of tenant’s income. In addition, in any redevelopment, 100% of the affordable housing demolished must be replaced with affordable units. Vancouver requires the inclusion of 20% non-market housing in projects that are rezoned from non-residential to residential. Montreal employs a voluntary, incentive based plan that encourages large housing projects/sites to incorporate a diverse mix of housing including 15% for social housing and 15% for affordable housing.
  • Throughout the process of developing the policy there was fairly widespread agreement amongst stakeholders with the vision of the policy and most of the principles. The divisive issue was who should pay, and how much.
  • Generally the position of the private development industry and home builders can be summarized as follows. They believe that the provision of affordable housing is the responsibility of government and hence should be ‘paid for’ through the taxation system. They see that their role is to make housing more affordable, which can be assisted through such measures as the relaxation of development standards (i.e. parking provision), increased density and other measures. While making housing more affordable is a worthy goal and should be vigorously pursued, without more direct intervention the housing will still not be affordable to tens of thousands of households in Edmonton.

Consultant’s Proposal

Administration hired a housing specialist consultant to assist with stakeholder consultation, research, and a recommended approach. The consultant’s recommended policy framework was as follows:

  • For lands designated for low density residential, a fee equivalent to 50% of the assessed value for 5% of the serviced lots.
  • For multi-family designated lands, the City would have the option to purchase 5% of the units at 60% of the appraised value. Alternatively the City could accept money-in-lieu.
  • Plus, where lands are being rezoned to provide for additional units, the City would have the option to purchase 20% of the additional units at 60% of the appraised value. Alternatively the City could accept money-in-lieu.
  • Plus, where a new development resulted in the demolition of four or more existing rental units, the City would have the option to purchase additional housing units (at 60% of the appraised value) equal to at least 25% of the total rental units to be demolished. Alternatively the City could accept money-in-lieu.
  • The consultant’s proposal was shared with stakeholders at a meeting held on July 20, 2007. The development industry was generally not in favour of the proposal, but in particular expressed concern with the financial implications of providing units at 60% of market value, and being required to provide 20% of the up-lift from a rezoning, and 25% of the units to be demolished.
  • Following extensive consultation and a detailed review with the consultant of the financial implications of the inclusionary housing policy, as well as five additional meetings with executive representatives of the Urban Development Institute and Canadian Home Builders Association – Edmonton (CHBA-Edmonton), the policy was modified to: make the proposal more equitable between land developers (lots) and builders (units); reduce the builder ‘subsidy’ on the units; and eliminate the requirement to replace rental units to be demolished for redevelopment. The loss of existing affordable rental units resulting from a redevelopment is a concern. However, the consultant’s proposal was considered too punitive, and could result in redevelopments not proceeding.

Recommended Policy

The following elements are recommended by Administration to form the basis of an inclusionary affordable housing policy.

  • All housing developments consisting of five or more residential units will include provision for at least 5% of the units as affordable housing. At the City’s sole discretion it may accept money-in-lieu.
  • In addition to the above, where a rezoning results in a development increasing the number of permitted residential units, a levy will be assessed on a percentage of the additional units resulting from the rezoning.

Recommended Mechanism

  • Include the Inclusionary Housing Policy into Plan Edmonton -Edmonton’s Municipal Development Plan. This will allow the policy to be reflected in a statutory plan that provides direction for the implementation of the policy in structure plans and areas of the city that do not have a current structure plan.
  • Council would specifically direct the Inclusionary Housing Policy in Area and Neighbourhood Structure Plans, as well as a condition of re-zoning.
  • For single detached or semi-detached units, the developer will provide to the City, at the time of subdivision or development, a financial contribution equivalent to the value of 5% of the proposed lots for those units based on the raw land value (unserviced). The monies collected will be deposited in the Affordable Housing Reserve and may only be used to create affordable housing units. In terms of low density residential development, the proposed policy is generally consistent with Council’s previous policy from the ‘70’s.
  • For multiple family residential developments, the builder will provide the City with the option to purchase, at its sole discretion, 5% of all units at 80% of their market value. Alternatively the City, at its sole discretion, may accept money-in lieu to be deposited in the Affordable Housing Reserve for the sole purpose of creating affordable housing units. For multiple family types of housing, the developer/builder ‘subsidy’ is in essence a contribution of some or all of the profit margin that they will forego on 5% of the units.
  • In addition, where rezoning results in an increase in the number of residential units permitted, the developer/builder will be assessed a levy at 10% of the units resulting from the zoning uplift at 20% of market value. The proceeds from this levy will be deposited to the Affordable Housing Reserve to be used to fund the development of affordable housing units. As in other jurisdictions the requirement that additional units and/or a levy be imposed is based on the premise that Council by virtue of the rezoning is conferring a benefit to the developer/builder, and hence it is reasonable that the developer/builder should provide some public benefit in return.
  • In those instances where the developer/builder intends to retain the new multi-family units as rental stock, the City at its sole discretion may choose to forego purchase of the units. In return the developer would enter into an agreement with the City that would ensure that the equivalent number of units is provided as long-term affordable units. In the same manner that the City would bridge the ‘affordability gap’ on the City purchased units, the developer/builder would be eligible for a ‘grant’ to bridge the affordability gap, in return for providing the units at 20% below average market rents.
  • In essence, this proposed inclusionary housing policy is a public/private partnership approach. The private development/building industry is very efficient at producing housing units, so the public is leveraging that skill to produce affordable housing units in an expeditious manner. In terms of financing, the cost of providing these units at affordable levels is shared between the public and private sector. With the private sectors participation, more money ($65.8 million) is available within the Cornerstones Roadmap to create additional affordable housing units. Given the leveraging opportunity, it is estimated that this $65.8 million will generate a further 354 units over the next three years.
  • The operational details, including a representation of the financials associated with the policy’s mechanism, are shown in Attachment 1.

Policy

This report is consistent with Council’s Cornerstones policy.

Focus Area

Diverse Communities

Public Consultation

  • An Advisory Committee was established to guide the development of this policy. Six meetings of the Committee were held. The Committee consisted of representatives from the housing industry (private and non-profit), private land developers, the Edmonton Joint Planning Committee on Housing, as well as representatives from the Planning and Development Department and the Asset Management and Public Works Department.
  • A stakeholder consultation was held on February 2, 2007. It consisted of a half-day event where the draft policy and implementation mechanisms were shared and discussed. The written results of the stakeholder session were shared with all those attending the session.
  • A subsequent consultation session was held on July 20, 2007, and included all those invited to the original consultation session, and other stakeholders. The consultant’s final draft of the Affordable Housing Inclusionary Policy Framework and Implementation Mechanisms was shared at the meeting.
  • Five subsequent meetings were held with executive members of the UDI and CHBA-Edmonton to further discuss the proposed policy.
  • Administration has modified the policy and implementation mechanisms recommended by the consultant taking into account the feedback provided in the consultation sessions.

Budget/Financial Implications

  • Based on the City’s Socio-Economic Forecast of housing starts, the City would be eligible to acquire an estimated 690 housing units under this policy over the next three years. However, it has been assumed that the City will choose to accept money-in-lieu for 20% of the units, being the more expensive units. The total cash outlay to purchase the remaining 80% of units (555 units) is estimated to be approximately $131.6 million.
  • The funding collected from single family lot levies, cash-in-lieu payments, and the levy on the zoning ‘uplift’ units is $52.9 million.
  • In addition, the net proceeds of the affordable rental payments will finance the principal and interest payments on $36 million of self-liquidating debt that the City will take out to finance the purchase of the units. In essence this is the amount paid by the occupants of the affordable units.
  • The net shortfall in cash requirement of $42.7 million will come from the Cornerstones Roadmap for Affordable Housing (City and Provincial dollars).
  • The actual cost to acquire these units and provide them at affordable rents will be dependent upon a number of factors, including financing costs, the market value of the units being acquired and the tenants’ household incomes.
  • While the policy direction proposed is intended to remain within the parameters of the Municipal Development Plan (MDP), the magnitude of realized housing units through the implementation of the inclusionary housing policy beyond three years is dependent upon additional funding from the Province and/or Federal Government for affordable housing, along with debenture debt that is supported by the net rental proceeds.
  • Based on the ‘road map’ approved by Council there will be $65.8 million available in the Affordable Housing Reserve, after purchase of the 555 units from the private sector under this policy, for other housing providers that wish to create affordable housing units (new or purchase of existing).

Legal Implications

  • It would provide clarity if the Municipal Government Act (MGA) were amended to expressly enable municipalities to require the dedication of land, units or cash-in-lieu for the provision of affordable housing.
  • The Law Branch advises that the MGA (Part 17) does empower municipalities to regulate land use. Inasmuch as housing is a land use, Council has the authority to enact an inclusionary housing policy. Once such a policy was in place, Council could legitimately refuse a rezoning or plan enactment that did not comply with the policy, on the basis that such a rezoning or plan enactment would not achieve the “beneficial development or use of land.” As outlined in the MGA (s.617) Council could make an exception to the policy and approve such a rezoning or plan amendment if it felt that it otherwise achieved the beneficial development or use of land. The Law Branch also advises that the City can enforce the zoning condition requiring the dedication of units for affordable housing at the subdivision or development permit stage. However, if a proposed development complies with the existing zoning, the City cannot require the dedication of units.
  • The City’s position on the desirability of Provincial amendment of the MGA to expressly enable inclusionary affordable housing is very clear. The City’s submission to the Provincial Affordable Housing Task Force made such a recommendation earlier this year. City Council also directed the Mayor to formally request such an amendment to the MGA. Finally, the City of Edmonton’s submission to the Provincial Standing Committee on Managing Growth Pressures, presented by CouncillorK.Leibovici on October 4, 2007, specifically recommended the Provincial Government amend the MGA to provide clarity and certainty to the provision of affordable housing.

Justification of Recommendation
1.A mandatory inclusionary housing policy will ensure the provision of much needed affordable housing in all parts of the City; will promote creation of diverse communities where households of a wide range of incomes can live; and may overcome local opposition to affordable housing, as it will be a common requirement in all major developments.
2.In recognition of the financial impact to the development industry, the City’s direct cooperation with the industry to provide, as appropriate, compensating measures, such as modification to development standards, density bonusing, accelerated processing times and fee rebates, will contribute to the successful implementation of the Inclusionary Affordable Housing Policy.

Attachments