The Municipality’s Inclusionary Zoning Proposal Does Great Harm And Little Good

When we hear governments talking about “affordable housing” the inference is that it is to help those who are homeless or struggling to pay their rent. A successful example is the federal Rapid Housing Initiative, which funds projects “for those in need of deeply affordable housing.”

Sometimes there is support from other levels of government. Non-profits in HRM have several other worthy projects hoping for funding.

As has been previously noted in this space most of the other programs are not relevant to that goal. A CMHC program provided a 1% reduction in borrowing costs for developers in exchange for rentals at a 10% discount from market rates had no process to ensure that lower income people received the benefit.

Halifax Regional Municipality’s proposed inclusionary zoning program would be another expensive failure.

The notion is to designate inclusionary zones within which HRM could require on-site affordable housing in every new residential construction as a condition of obtaining a development permit.

The requirement within a designated zone might be that 20% of the units to be built have to rent for 20% less than the prevailing market rates in the area.

This proposal is deeply flawed.

  1. HRM is busy remaking the Cogswell interchange into a much more sensible grid of streets and housing, with attractive public spaces. There will be space for multiple residences, which are conservatively estimated to house 2,500 people.
    The buildings will have magnificent harbour views and easy access to the waterfront. Developers will be able to charge a premium rent, so they will bid top dollar for the building sites. The total could pay a substantial portion of the redevelopment cost.
    Suppose a developer imagines a building with an average rent of $2,500. If they are required to rent 20% of the buildings at $2,000 they will calculate the present value of the lost rent and reduce their bid for the land by 100% of that amount. This will put a big dent in the proceeds from land sales.
  2. The rule of thumb for housing is that it should not cost more than 30% of pre-tax income. For a $2,000 monthly rent, that means household income of at least $80,000, about the same as the median income reported for Halifax households in 2020. So the beneficiaries of the 20% discount on the Cogswell site would be higher income earners. There would be no benefit for low-income earners, let alone the homeless.
  3. It can take many years for developers to accumulate land for multi-unit apartment buildings. Like HRM, they will experience a severe hit on their land value if the site they have created becomes part of an inclusionary zone. This is manifestly unjust. The developer might cancel their project and make future investments in other jurisdictions.
  4. The housing shortage in HRM is felt at all income levels. Every building that gets completed is part of the solution. Developers not directly affected by the inclusionary zoning might also take a pause, wondering what other capricious choices by HRM may damage their business prospects. The overall impact will add to the challenges of higher interest rates and further decelerate the rate of new builds, pushing rents up in all sectors of the market.
  5. The provincial government is fully committed to a fast pace of homebuilding. Decisions by HRM that would slow things down would likely provoke another intervention by the minister.

It is insanity to implement a program that will discourage construction everywhere and seriously reduce the proceeds from the land it owns, while doing little for those unable to afford adequate housing.

Governments rightly shy away from the prospect of building and owning more residential properties. The not-for-profit sector has taken a leadership role in projects focused on neediest households, primarily in conjunction with the federal Rapid Housing Initiative.

A 38-unit supportive housing project on Brunswick Street was announced in March, with the province supplementing funds from the federal program. At that time there were nine similar projects seeking funding. They focus on those most in need. Having greater municipal participation may help to unlock further support from the provincial and federal governments.

Initiatives need to go beyond the homeless. A promising example is the province’s $21.8 million forgivable loan for 373 of the 875 units to be built at Mount Hope in Dartmouth. The resulting discounted rents, available only to tenants below an income threshold, could be as low as $605 per month for a one-bedroom apartment, or $788 a month for a two-bedroom.

Perhaps HRM and the province could jointly enable more of that kind of development for people with a mixture of incomes. For $15 million a year from each, it should be possible to create 500 more units attainable by low income households. The HRM portion might be achieved by giving or lending the land.

If we sustain the rapid growth of recent years, the tax revenues for all levels of government will also grow rapidly.