Item - 2024.EX18.2

The Executive Committee recommends that:  

Establishing a New Purpose-built Rental Homes Incentives Stream

1.  City Council endorse the development of a new Purpose-built Rental Homes Incentives stream under the City’s Rental Supply Housing Program to support 20,000 rental homes, including up to 16,000 purpose-built rental homes and at minimum 4,000 affordable rental homes by:

a.  supporting in the short-term up to 5,600 purpose-built rental homes through a deferral of development charges payable and 15 perecent property tax reduction for 35 years, estimated at $325.0 million; and

b.  requesting the provincial government to support an additional 10,400 purpose-built rental homes by providing a Build More Homes Rebate to the City, equivalent to the value of development charges payable and 85 percent of property taxes owed by eligible projects for 35 years, estimated at $1.0 billion.

2.  City Council direct the Executive Director, Housing Secretariat to require the rental housing projects approved under Part 1 above to deliver at least 20 percent of homes as affordable rental homes (at least 4,000 affordable rental homes) which meet the requirements of the Rental Housing Supply Program, and:

a.  approve financial incentives for at least 1,400 affordable rental homes to be supported through the Rental Housing Supply Program, estimated at $136.2 million; and

b.  request the Federal and Provincial Governments as part of a Canada-Ontario-Toronto Build program, to each provide the City with $225.3 million in grant funding to support the creation of at least 2,600 affordable rental homes beyond those identified in Part 2a above.   

3.  City Council request the Federal Government to immediately allocate a $7.3 billion, three-year portfolio of Canada Mortgage and Housing Corporation low-cost financing at competitive rates and terms for the 20,000 affordable and purpose-built rental homes, and work with the City to accelerate the financing application and underwriting process to complete from start to finish in 90 days.

4.  City Council direct the Executive Director, Housing Secretariat, the Chief Planner and Executive Director, City Planning, and the Executive Director, Development Review, in consultation with the Chief Financial Officer and Treasurer, to develop and recommend for City Council approval in 2025 an appropriate implementation tool for the new Purpose-built Rental Homes Incentives stream, that includes securing the value of City benefits and rental tenure of projects.

5.  City Council request the Chief Financial Officer and Treasurer to consider opportunities for adaptable funding approaches, through the process described in Part 4 above, to support the Purpose-built Rental Homes Incentives stream through a variety of growth-funding tools and revenue sources, and funding provided by provincial and federal governments intended for housing initiatives, in accordance with program requirements, for the purposes of supporting investments in growth-related infrastructure.

6.  City Council request the Executive Director, Housing Secretariat and the Executive Director, Development Review to report back to the Executive Committee before the end of 2025 on the results on the implementation of the new Purpose-built Rental Incentives Stream with recommendations to support the approximately 102,000 affordable and purpose-built rental homes currently proposed and not yet built in the City’s development pipeline to reach construction start by 2030.

A New Multi-Residential Property (Municipal Reduction) Tax subclass

7.  City Council adopt the New Multi-Residential Property (Municipal Reduction) Tax subclass (the "Subclass"), approve the Subclass eligibility criteria and amend City of Toronto Municipal Code Chapter 767, Taxation, Property Tax, to add the Subclass, all in accordance with Attachment 1 to the report (October 30, 2024) from the Deputy City Manager, Development and Growth Services, and the Chief Financial Officer and Treasurer.

8.  City Council direct that the Chief Financial Officer and Treasurer report back to City Council through the 2025 budget process on a recommended rate reduction of 15 percent for the New Multi-Residential Property (Municipal Reduction) Tax Subclass of the municipal portion of the existing New Multi-Residential Property Class rate.

9.  City Council direct the City Clerk to give written notice of the By-law adopting the New Multi-Residential Property (Municipal Reduction) Tax subclass for the City of Toronto to the Municipal Property Assessment Corporation.

10.  City Council direct the Chief Financial Officer and Treasurer to engage the Municipal Property Assessment Corporation to request that properties in the New Multi-Residential Property (Municipal Reduction) Tax Subclass continue to benefit from the rate reduction in future reassessments. 

City Support for 7,000 rental homes including at least 1,400 affordable rental homes

11.  City Council authorize the Executive Director, Housing Secretariat to immediately release a Call for Applications under the new Purpose-built Rental Homes Incentives stream described in the report (October 30, 2024) from the Deputy City Manager, Development and Growth Services, and the Chief Financial Officer and Treasurer, to identify 7,000 rental homes, including at least 1,400 affordable rental homes, in eligible rental housing projects, and to approve:

a.  City benefits available under the Rental Housing Supply Program to eligible affordable rental homes within the approved projects, including capital funding, exemptions from development charges, parkland dedication fees, community benefits charges, if not already exempted by provincial legislation, and the waiver of planning application and building permit fees; and

b.  a deferral of development charges payable by the purpose-built rental units within the approved projects in accordance with Part13 below.

12.  City Council authorize the Executive Director, Housing Secretariat to negotiate and execute, on behalf of the City, any agreements or documents necessary including Municipal Housing Facility Agreements (the City’s Contribution Agreement), with the appropriate legal entities for the developments approved through the Call for Applications described in Part 11 above, to secure the financial assistance for the development and operation of the affordable rental housing, on terms and conditions satisfactory to the Executive Director, Housing Secretariat, and approved by the Chief Financial Officer and Treasurer, and in a form approved by the City Solicitor.

13.  City Council authorize the Executive Director, Housing Secretariat, in consultation with the Chief Financial Officer and Treasurer, to enter into agreements, pursuant to Section 27 of the Development Charges Act, to defer the payment of development charges payable in relation to purpose-built rental units within projects approved through the Call for Applications described in Part 11 above, for as long as they remain as purpose-built rental containing at least 20 percent affordable units and on such other terms and conditions as may be satisfactory to the Executive Director, Housing Secretariat and in a form satisfactory to the City Solicitor.

14.  City Council authorize the Executive Director, Housing Secretariat and any other member of staff of whom it is requested, to enter into a non-disclosure or similar agreements, on terms and conditions satisfactory to the Executive Director, Housing Secretariat and in a form approved by the City Solicitor, with the appropriate legal entities for the developments approved through the Call for Applications described in Part 11 above to allow information with respect to the developments to be provided to City staff.

15.  City Council authorize the Executive Director, Housing Secretariat to execute, on behalf of the City, any security or financing documents required by the appropriate legal entities for the developments approved through the Call for Applications described in Part 11 above to secure construction and conventional financing and subsequent refinancing, including any postponement, tripartite, confirmation of status, discharge or consent documents where and when required during the term of the City Contribution Agreement, as required by normal business practices, and provided that such documents do not give rise to financial obligations on the part of the City that have not been previously approved by City Council.

16.  City Council direct the Executive Director, Housing Secretariat to consult with the President and Chief Executive Officer, Toronto Community Housing Corporation and the Chief Executive Officer, CreateTO, to assess applications from in-flight housing projects on City-owned and City-controlled land under the Purpose-built Rental Housing Incentives stream, in consideration of other financial support provided by the City to these developments.

17.  City Council approve changes to the Rental Housing Supply Program, as outlined in Attachment 2 to the report (October 30, 2024) from the Deputy City Manager, Development and Growth Services, and the Chief Financial Officer and Treasurer, to further unlock purpose-built rental homes including affordable rental homes.

18.  City Council direct the Executive Director, Housing Secretariat, in consultation with the Deputy City Manager, Development and Growth Services and the Chief Financial Officer and Treasurer, to report directly to the December 17, 18 and 19, 2024 meeting of City Council with updates from the Call for Application process referenced in Part 11 above, including any further approvals necessary to approve additional affordable rental homes.

Toronto is facing two housing crises – one where there is a lack of deeply affordable and supportive homes for low-income, marginalized, and vulnerable residents, as well as those experiencing homelessness; and a more recent one in which rising rents have made it increasingly unaffordable for middle income earners, key workers and professionals to live in the city. To respond to this dual crisis, City Council has pledged to meet the Provincial housing target of 285,000 housing starts in Toronto by 2031, and has expanded its HousingTO 2020-2030 Action Plan (HousingTO Plan) targets to approve 65,000 rent-controlled homes, including rent-geared-to-income (RGI) and affordable rental homes, by 2030.

An adequate supply of purpose-built rental homes is central to a well-functioning housing system that can meet the housing needs of current and future residents. However, Toronto is facing a shortage of purpose-built rental homes as a direct result of insufficient investments from all orders of government since the early 1990s. As governments stepped back from investment in new purpose-built rental homes, new private investment in condominiums increased leading to a situation where 85% of all new rental homes created in Toronto in the past 10 years are from the secondary market (wherein condominium investors rent out their units). These homes provide less security for renters than purpose-built rentals, and on average have rental rates that are over 40% higher than existing purpose-built rental homes.

The current lack of purpose-built rental housing in Toronto is likely to worsen due to high interest rates and financing costs, inflation, and increasing construction costs which have resulted in a significant slowdown in new residential development. Housing starts in the City of Toronto for August and September, 2024, are down 75% and 81% respectively over the same months last year, indicating a significant slowdown in new housing development. Further, industry data indicate that between 18,000 to 26,000 purpose-built rental homes are currently stalled due to challenging market conditions.

All orders of government have historically played a larger role in shaping the housing system to create new purpose-built rental homes than they do today. While there have been recent federal and provincial actions aimed at supporting new rental housing development (including GST/HST waivers on purpose-built rental homes, and development charge discounts for rental units), these have not proven sufficient to significantly increase purpose-built rental housing supply. While the City has made significant investments in housing in recent years, particularly affordable rental housing, the constraints on the City’s finances are considerable and it cannot trade-off investments in infrastructure with un-capped incentives for purpose-built rental housing. Much more action is required from the federal and provincial governments to achieve the level of rental housing growth needed in Toronto, Ontario, and Canada.

The City is prepared to take a number of actions and lead the way in building a housing system that delivers the new rental homes Toronto’s current and future residents and economy needs to thrive. This report recommends City Council unlock 20,000 new rental homes comprised of 16,000 new purpose-built rental homes, and 4,000 affordable rental homes, primarily on private land. This report also recommends City Council invite other orders of government to collaborate with the City in making a generational shift in the housing system, where governments influence the housing system and work with private land-owners and investors to make the delivery of purpose-built rental housing a priority. As directed by Council in June, 2024, staff have undertaken consultation with industry stakeholders, and conducted extensive analysis with an independent third-party consultant, in order to inform the development of the recommendations in this report.

These 20,000 new homes will be delivered under a new Purpose-Built Rental Homes Incentives stream (as part of the recently approved Rental Housing Supply Program). A minimum of 20% of these homes will be provided as affordable rental homes, meeting the City’s new income-based definition of affordable rental housing, and be secured for a target of 99 years and a minimum of 40 years.  

To move immediately to action, this report also recommends City Council:

-  Support 7,000 new rental homes comprised of 5,600 purpose-built rental homes, and at least 1,400 affordable rental homes, to be identified through a rapid call for applications which will be released immediately upon Council approval;

-  Approve a New Multi-Residential Property (Municipal Reduction) Tax Subclass consistent with EX16.8, and direct staff to implement a 15% property tax reduction for all new purpose-built rental developments for a 35-year period as part of the 2025 budget process; and

-  Immediately support the 5,600 purpose-built rental homes by deferring development charges otherwise payable in respect of an eligible development, for as long as the development maintains the rental tenure.

The estimated value of the deferral of developments changes for 5,600 purpose-built rental homes is $210.8 million. Like all new purpose-built rental homes, they will also benefit from the 15% reduction in property taxes for 35 years (estimated value of $114.2 million).

The City’s contributions towards these purpose-built rental homes will complement financial incentives for the at least 1,400 affordable rental homes to be delivered through this call (estimated at $136.2 million, including foregone property taxes for 40 years and waived planning and building fees).

Subject to adoption of this report, staff will report back to Council on an implementation tool to provide incentives for purpose-built rental homes. To this end, staff will consider the use of a Community Improvement Plan, among other options.

The City’s jurisdictional and financial capacity to shift the housing system is limited, and it cannot act alone. As such, this report recommends City Council:

-  Request the Province immediately establish a Build More Homes Rebate estimated at $1.0 billion, for the value of development charges and 85% of property taxes for 10,400 purpose built rental homes. - ----  Upon approval by the Province, the City will release a call for applications to offer incentives for the next 13,000 rental homes, including 20% affordable rental homes (2,600 units);

-  Request the federal government to immediately allocate a $7.3 billion portfolio of low-cost financing to support the delivery of the new affordable and purpose-built rental homes described in this report (20,000 homes total); and

-  Request the federal and provincial governments work with the City in implementing a Canada-Ontario-Toronto Builds program that will align efforts and resources across three orders of government including land, funding & financing, partnerships, and approvals processes, to build more affordable and purpose-built rental homes for low- and moderate-income residents.

The proposed two-phase strategy to reach 20,000 new rental homes, including 4,000 affordable rental homes, is summarized in Table 1 below.

Table 1 – Summary of Rental Housing Outcomes Proposed through this Staff Report

New federal and provincial housing programs including the Housing Accelerator Fund (HAF) and Building Faster Fund (BFF) have made capital funding contributions contingent on municipalities achieving targets for new housing starts. In addition to meeting the demand for rental homes, increasing new rental housing supply can support the City in accessing much needed capital funding which can be directed to funding new rent-geared-to-income and affordable rental homes, and housing enabling infrastructure.

Without immediate action by all orders of government to shape the housing system by ensuring sufficient supply of purpose-built rental homes, more residents, specifically renters, will experience housing instability and potentially homelessness; Toronto’s health and social service sector will face a deepening key worker staffing crisis; and Toronto’s businesses will be unable to attract the workforce and labour supply they need to grow, thereby limiting our economic growth.