City hall proposes to waive development fees, drop property taxes for some rental builders

In a bid to increase sorely needed rental supply, the City of Toronto is dangling the promise of fee waivers for rental builders willing to offer a fifth of their new units at more moderate prices — with a new report that also suggests those rental building owners be charged 15 per cent less in property taxes.
The proposed interventions by city staff, which have the backing of Mayor Olivia Chow but require council approval next month to proceed, would offer an “indefinite” deferral of development charges for eligible projects, as long as they remain rentals — an incentive the city estimates to be worth $37,636 per unit. Building owners of eligible sites would also see their property taxes reduced by 15 per cent for 35 years, with an estimated value of $20,396 per unit.
City hall is initially prepared to offer these incentives to developers of rental buildings until they reach a total of 7,000 rental units. For a project to be eligible, 20 per cent of the units in the project must meet city hall’s new definition of affordability, which is based on target households incomes. 
The move is aimed at relieving financial pressure on developers of purpose-built rentals at a time when housing construction in Toronto has slowed — with many projects struggling to launch or reach the finish line amid higher interest rates, thinned pre-construction sales for owned homes and rising construction costs.
Despite signs of relief on the horizon, including a half-percentage-point Bank of Canada rate cut this month, the development slowdown has jeopardized city hall’s target of approving the construction of 65,000 new rental units citywide by 2030.
“Right now, the housing market is stuck. Shovels are not hitting the ground,” Chow said at city hall on Wednesday while unveiling the staff report. “Why? The short answer is the math doesn’t work for new rental homes.”
The pitch is specifically aimed at developments currently in the works — including some that already have a proportion of lower-cost rental housing in their plans. To claim the incentives, a project has to start construction by 2026. 
While any moderately affordable units planned in these buildings were already eligible for a host of incentives and fee waivers, Chow said on Wednesday that the newly proposed incentive program — which also offers aid for the market-priced units — would mean $461 million in forgone revenue to city hall.
Under the city’s new definition for moderately affordable rentals, as of 2021, a one-bedroom unit would need to be affordable to a household earning $43,600 per year, meaning a rent cost of $1,090 per month. For a two-bedroom, the income target would be $73,901, making their monthly rent payment $1,847.
To qualify for the new incentives, the moderately affordable rental units in the buildings would have to stay at those lower rents for between 40 and 99 years.
While city hall is proposing to offer the new incentives for the construction of up to 7,000 units — which, by requirement of the policy, would include at least 1,400 moderately affordable units — it also outlined a potential second phase to extend the same offer for another 13,000 units in the years ahead. But that expansion, it said, would require significant funding from higher governments, including $1 billion from the province to cover their losses, and $7.3 billion in low-cost financing from the federal government.
“We have limited jurisdictional and financial capacity to shift the housing system,” said Abigail Bond, director of city hall’s Housing Secretariat. If city council approved the proposed incentives at its next meeting in November, Bond noted the first call for applications was expected to open imminently.
The proposal was met with some skepticism on Wednesday, with Canadian rental developer Fitzrovia issuing a statement calling the city pitch “a step in the right direction,” but arguing a much larger, multi-government approach would be needed to deliver enough rental housing to meet expected demand. 
As the Toronto area has faced a housing affordability crisis in recent years, analysts and observers have repeatedly called for more attention on increasing purpose-built rental supply. Boosting that segment of the market, they’ve argued, can reduce competition between would-be tenants that can then drive up prices, while providing more stable, long-term rental units.
While Toronto has seen asking rents come down in the last year, the average asking price for a one-bedroom in August was still $2,418 per month, according to rentals.ca. To meet national affordability standards, a household would need to earn at least $96,000 per year. For the average two-bedroom listing, at $3,164, a household would need to earn at least $126,000 per year.
Back in June, city council approved a sweep of other incentives aimed at boosting rental development, including loans, fee waivers and tax exemptions. The new report responds to council’s request, at the time, to continue talks with the housing sector and look at further ways to spur rental construction.
While city hall has previously stressed its dependence on development charges, raising alarm about losing needed money for roads, transit and other infrastructure when the province changed the rules, Chow on Wednesday said the risks of a housing slowdown were steep enough to forego some revenue.
“It is difficult, of course, because the city needs the funds to make sure our subways are in good state of repair, city hall (to) stop leaking,” she said.
“But if we don’t take any action, if we don’t give directions, then nothing is happening — which is what is happening right now. Everything is frozen because of the high building costs, labour costs, interest rate costs. While the interest rate is coming down, it’s not at a place where builders can build.”