Toronto’s purpose-built rental housing incentive program sees strong demand but faces funding gap for expansion

Michael Lewis

Special to Ontario Construction News

The residential construction industry has responded positively to a Toronto program that axes development charges and a portion of property taxes on purpose-built rental housing projects where one in five units is affordable.

The city says it received 75 applications for its Purpose-built Rental Housing Incentives program from private builders accounting for 32,600 new rental homes including more than 7,400 affordable units in 21 of Toronto’s 25 wards. 

Since the number of homes applied for is four times greater than the city has resources to accommodate, staff were only able to approve 17 projects in 12 wards for 7,156 net new rental units including 6,109 purpose-built rentals and 1,047 affordable homes. 

That leaves at least 58 additional applications, representing 24,450 rental homes, which cannot move forward without major contributions from the provincial and federal governments. 

Announced on November 18 with the window for applications closed less than two weeks later, the program gives builders an indefinite deferral of development charges on eligible projects and a 15 per cent property tax cut for 35 years — potentially representing more than $400 million in foregone municipal revenue.

Toronto also plans to establish a multi-residential property tax subclass, offering a 15 per cent municipal tax rate reduction for eligible developments starting in the city’s 2025 budget.

Senior levels of government would need to contribute nearly $8 billion for the program to proceed to a second phase for construction of another 13,000 rental homes. 

The contribution would include $7.3 billion in low-cost loans from Ottawa as well as a rebate from the province to cover the value of deferred development charges and 85 per cent of property taxes for eligible purpose-built projects for 35 years. 

So far, no firm funding commitments have been forthcoming although the federal Liberal government’s fall economic statement promised more cash for affordable rental housing.

“We’ve done as staff the most that we can, which is to bring in a program that works,” said Abigail Bond, executive director of Toronto’s Housing Secretariat. “This is the best route we can take to increase the likelihood that we will get support from other levels of government.” 

The commitment to proceed with the first phase of the program was approved in a 22 to three vote at council’s meeting on December 17. Coun. Gord Perks, chair of the city’s planning and housing committee, congratulated staff for an oversubscribed program he said will deliver affordable housing in record time.

Coun. Stephen Holliday, among those who voted no, said the program shifts costs to already burdened ratepayers.

“These developers are getting major subsidies,” he told the council meeting.

“This is an enormous amount of money that’s going to have to be made up for somewhere. Twenty per cent is affordable but the other 80 per cent goes to developers.” 

Mayor Olivia Chow, who urged councillors to support the plan, said city incentives are needed to unlock affordable rental projects because “no one is building” amid high interest rates and inflated building costs.

She also said the incentive does not cost the city money it has on hand. “We are not collecting because they’re not building. Why not collect 85 per cent because right now we’re collecting zero.”

To tackle Toronto’s ongoing housing crisis, city staff in November released a report recommending the creation of 20,000 new rental homes. The plan, titled Build More Homes: Expanding Incentives for Purpose-built hi Rental Housing, includes up to 16,000 purpose-built rental units and at least 4,000 affordable homes.

The report said that despite a pause in building, demand for stable rental housing is mounting due to population growth and a homeownership market that remains unattainable for many residents.

It said a new incentive for purpose-built rental homes aligns with targets set by federal and provincial housing initiatives, which aim to create 41,000 affordable rental units as part of 285,000 housing starts in Toronto by 2031.

The report said deferred development charges amount to $37,636 per unit for purpose-built rental homes while the cost of a 15 per cent property tax reduction for 35 years is estimated at about $20,396 per unit. Full financial incentives for affordable rental units potentially reach $97,264 per unit.

To qualify for purpose-built incentives projects must dedicate at least 20 per cent of units as affordable, according to the city’s new income-based criteria, and must commence construction by the end of 2026. Most of the new units are expected to be built on privately held land.

Coun. Holyday also voted against the plan in November, arguing that spending taxpayer dollars on incentives does not guarantee success and that the funds could be better used to improve city parks and roads.

“This is a cost of hundreds of millions of dollars to the taxpayers, an enormous strain on our ability to deliver the important infrastructure in the city that you see all around you.”

Neighborhood Pods TO, a network of community groups, also voiced concerns in a written submission, arguing that eliminating development charges and taxes for developers could reduce funds for Toronto’s parks, recreation facilities, and other public spaces. 

City staff acknowledged the need for a balance, but said the incentives would not detract from infrastructure obligations.