Send us your thoughts and feedback on the discussion paper

We presented our Discussion Paper outlining our draft policy and program directions to Waterloo City Council and Kitchener City Council in June. We will be engaging with Cambridge City Council at a future date. Read the Discussion Paper

We would appreciate your thoughts and feedback on the directions outlined in our Discussion Paper. The Discussion Paper is long and you may prefer to read the Executive Summary instead. The summary is below and available as a PDF.

Please share your ideas with us by sending us an email by September 30, 2023.

The team is available at the following emails:

• Tim Donegani, City of Kitchener: Tim.Donegani@kitchener.ca
• Michelle Lee, City of Waterloo: Michelle.Lee@waterloo.ca
• Judy Maan Miedema, Region of Waterloo: JMannMiedema@regionofwaterloo.ca
• Matthew Blevins, City of Cambridge: BlevinsM@cambridge.ca

Executive Summary

View as a PDF

The Cities of Kitchener, Cambridge and Waterloo, in partnership with the Region of Waterloo are exploring Inclusionary Zoning (IZ) as a means to increase the amount of affordable housing near the ION rapid transit stops. IZ is a tool that allows municipalities to require a certain percentage of affordable housing units within new private developments containing 10 or more dwelling units in Major Transit Station Areas (MTSAs). The tool has been implemented successfully in a number of jurisdictions across North America.

IZ is unique from other affordable housing programs in that it can provide new affordable units over time without reliance on significant government subsidies. It also can help ensure the creation of new affordable units in areas near light rail transit, which can help to counter the impacts of rising land values and gentrification that are typically associated with large transit investments. While IZ can’t address all the region's housing challenges, it can be used to create a sustainable supply of affordable units for moderate income households who are unable to afford market rents. More moderate cost housing can take pressure off the subsidized housing system by providing affordable housing options for those households who have the capacity and desire to leave the subsidized housing system. Used in combination with other tools, such as ongoing government investments in emergency, temporary and subsidized housing, and adopting planning policies and regulations that enable an appropriate housing supply, IZ is a promising tool to support a healthy housing system.

This discussion paper reviews and recommends policy options for a coordinated, Regional IZ policy and program. Policy recommendations are based on legislative requirements, a review of best practices from other jurisdictions, feedback obtained through public engagement, and modelling of the potential financial impacts on the local housing market. Key recommended policy and implementation directions and rationale are identified below:

1. Locations: An IZ policy should apply to new residential developments in all 24 MTSAs in Waterloo Region. Policy requirements should be tailored to the market for each MTSA. Rationale: To ensure the program maximizes IZ unit potential in strong markets and signals policy intentions to emerging markets to inform private market land transactions.

2. Building size: IZ should apply only to buildings with 50 or more residential units (exact threshold to be determined as part of development of draft zoning). Rationale: Focus program on larger developments to avoid potential negative impacts on the financial feasibility of missing middle and medium density housing types, recognizing that these built forms already face significant financial obstacles in MTSAs.

3. Affordable unit tenure: Affordable units should be provided as rental units within a condominium building (see 10. Administration) , within a purpose-built rental building or offsite. Rationale: Proposed Provincial IZ regulations set limits on minimum affordable rents and prices. While the proposed minimum of 80% Average Market Rent (AMR)[1] is affordable to households in the moderate income range, the proposed minimum of 80% Average Market Resale Price (AMRP) for an affordable ownership IZ unit would be affordable to only those households in the top 20^th percentile of the income range. Ownership units within the 80% AMRP bracket are already provided by the market without the need for an IZ policy and associated administration and enforcement.

4. Set-aside rate: Proportion of units or Gross Floor Area to be affordable should start low and transition slowly upward to a maximum of 5%, in accordance with the local market conditions. MTSAs considered to fall within Prime Market Areas should start at 2% and increase to 5% by 2031; MTSAs within Established Market Areas should start at 1% and increase to 3% by 2031; MTSAs within Emerging Market Areas should start at 0% and increase to 2% by 2031. Rationale: Proposed amendments to O. Reg. 232/18 limit set-aside rate to 5%. A low initial set-aside rate and relatively slow transition to the maximum rate will help avoid market disruption and signal to the market future policy intentions. Financial feasibility modeling suggests that stronger (prime) markets can better absorb the costs associated with an IZ policy compared with weaker (emerging) markets.

5. Level of Affordability: Affordable rental units in condo buildings should not exceed 100% Average Market Rent. Affordable rental units in purpose-built rental buildings should not exceed the greater of MLI select rent (currently $1,425) or 100% of average market rent. Rationale: A minimum affordability threshold of 100% AMR (proposed for condominiums) falls within the limits proposed by the Province and provides rental units that are affordable to most moderate income households. The proposed affordable rents balance city objectives for greater affordability with financial feasibility for housing providers. The slightly higher proposed affordable rent for purpose-built rental buildings aligns with Canadian Mortgage and Housing Corporation’s (CMHC) Mortgage Loan Insurance Select program for rental developments. Alignment with this program can help streamline project planning and design, and limit financial impact on purpose-built rentals which are typically more financially challenging to develop than condominium developments. This approach can ensure the provision of some units that are affordable to moderate income households in purpose-built rentals.

6. Eligible households: Households eligible for the affordable units should be low or moderate income households, having a gross annual income at or below the 60^th percentile of regional renter household income range; and with a maximum monthly income at time of occupancy of 3.3 times the IZ unit rent. In 2021, low and moderate income household would have a before tax income of less than $58,900.

7. Duration that units would be affordable: Affordable units should be maintained as affordable for 25 years. Rationale: Proposed amendments to O.Reg 232/18 limit duration of affordability to 25 years. A shorter term of affordability would limit the positive impact of the program on the affordable housing supply. The implementation program will support options for affordability beyond 25 years where IZ units are owned by the third (non-profit, co-operative and other mission-aligned) sector (see #10).

8. Incentives: Affordable units provided through IZ are exempt from Development Charges. IZ units (prorated portion) will also be exempted from Community Benefits Charges and Parkland Dedication Charges but these exemptions are not yet in force. The minimum required parking rates for developments within MTSAs should be as low as possible and should range from 0 to no higher than 0.7 spaces/unit where possible, with no parking requirements for IZ units. Additional heights and densities for developments in MTSAs should be considered through comprehensive updates to the planning framework as well as on a site-specific basis, where appropriate. Rationale: The high cost of providing structured parking has a significant impact on the financial feasibility of a development and limits the potential yield of affordable and regular units in areas well served by transit. Reduction in overall residential parking rates, combined with the removal of parking minimums for affordable units would help to offset the cost of providing affordable units and is appropriate given the proximity of the developments to rapid transit and alignment with other city objectives (e.g., greenhouse gas emissions reduction targets and commitments). Increases to development heights and densities concurrent with the introduction of an IZ program can help offset the financial impact of the program, particularly for developers who purchased properties prior to IZ program adoption.

9. Offsite units: The required affordable units identified through a development application may be provided in a development located on an alternative site, provided that the alternative site is in an MTSA within the same municipality. Rationale: Offsite units are a crucial option to make IZ rental units work for condominium developments. They provide opportunities for creativity, partnerships and cost-sharing to create efficiencies and minimize pro forma impacts of the affordable units, while still achieving the intent of the IZ program to create high quality affordable units in mixed income communities near transit. Opportunities could include developers partnering with non-profit organizations to create offsite units within a non-profit owned building, and locating affordable units within buildings having lower construction costs, or on lower cost sites. The provision of offsite units was a concept that was widely supported by both representatives from the development industry and affordable housing providers as a tool to create affordable units that could be constructed and maintained in a cost-effective manner. This approach can leverage more affordable units, more deeply affordable units, longer affordability periods and opportunities for on-site support as compared to onsite units alone.

10. Administration and implementation: The Region of Waterloo has expressed an interest in taking a leading role in monitoring, enforcement and waitlist management. The Cities of Kitchener, Cambridge and Waterloo will secure affordable units through the development review process, in accordance with IZ Implementation Guideline Document (to be developed). Should the IZ program require rental as the tenure for affordable units (see item #3), implementation should include pathways for a third sector (non-profit, co-operative or other mission aligned housing provider) to own affordable units created in a condominium building. The Region may be able to assist with financing to support third sector ownership. Rationale: Centralized administration by government or a single mission-aligned, arm's length organization with sufficient operational funds is required to ensure consistent monitoring and enforcement of the program. Enabling third sector ownership and operation of affordable rental units within condo developments will address condominium developers’ concerns about capacity to operate affordable units and will ensure affordability beyond 25 years.

11. Monitoring and reporting: An IZ program should be reviewed and modified as necessary, every two years to respond to land development economics and changing market conditions. If requirements are too lax during periods of strong development economics, the program will miss opportunities to deliver on affordability outcomes. If it is too demanding in weak economic conditions, it could stifle the development of much needed housing supply, affordable or otherwise. The Partners will report biennially on the IZ program and table potential amendments to these programs to optimize the program and respond to emerging issues and trends.

Recommended Set-aside Rates

* Set-aside rate applies to total GFA of proposed development

Recommended Maximum Rents for IZ units

* Calculated as the greater of 100% AMR or MLI Select definition of affordability (currently $1,425).
** Calculated as 100% AMR

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