These mandates in various but similar ways harness the planning regulations and associated development approval process to assist in the provision of affordable housing.

These mandates go well beyond expecting municipalities to use what might be called good planning practices — like providing sufficient development land, zoning for higher densities and cutting municipal red tape.

Under these mandates, municipalities are obliged to support the provision of affordable housing in an affirmative way. That means that the municipalities are required to assist in some way that will lower the cost of the housing, and make it affordable specifically to lower-income households.

These mandates set quantified targets for the municipalities as a way of defining their obligations or measuring their performance. In some cases, these targets are set through a specific allocation assigned to each municipality, and in others, through a standard minimum quota applied to all.

Read the full report

In the case of affordable ownership units, some programs add other eligibility criteria.  For example, they might limit the purchase to first-time buyers, or households who have not owned a home for a number of years.   They might also put limits on assets that the purchasers can have, in order to weed out those capable of buying a market unit.

Where there is a big demand for these units (as there generally is), the municipalities select the potential occupants from the pool of eligible candidates using either a lottery or a  “first-come/first-served” process.

Back to Frequently Asked Questions

Three major Canadian cities – Montreal, Toronto and Vancouver – have formally enacted inclusionary housing policies.  Although different in many ways, the policies share sufficient features to provide the basis for a limited but effective inclusionary housing approach that could be used widely across Canada.

This approach falls short of mandatory inclusionary zoning as practised in the US.  It can be seen as encompassing a set of practices that can be utilized within the current municipal powers in this country, and until municipalities are able to implement more demanding and comprehensive provisions.

Summary of the Three Policies

All three of these policies are directed at providing mixed-income housing in developments that otherwise would contain only market housing.

The following provides a summary of each of the policies.  The policies are also examined in greater detail in separate case studies.

Comparison of Inclusionary Policies in Montreal, Vancouver and Toronto with Typical IZ Programs in the US

Montreal’s Inclusionary Housing Strategy

This strategy – formally called a ‘strategy for inclusion of affordable housing in new residential projects’ – was adopted by the city in 2005.  It is the most comprehensive and productive of the three policies.

The strategy’s goal is to provide at least 30% of the new units as affordable units in major residential developments – half as social housing and half as affordable rental or affordable ownership.

It is applied to developments of 200 and more units because they are considered capable of accommodating a mix of housing generally, and also a viable social housing project.

The strategy is applied mainly to developments needing a major change to planning and zoning provisions, such as a change to the permitted land-use, density or height.  It applies to privately-owned lands, and also to lands owned by governments and public agencies whenever released for residential purposes.

The strategy was designed to provide suitable development sites for social housing built through government funding, and the construction of “low-end-of market” affordable ownership and rental housing built by private and possibly non-profit developers.

This approach is aptly called a strategy because it must operate within Montreal’s two-tier government.   The strategy was established by the city-wide government, but depends upon its constituent boroughs for implementation because the control local planning and development approval.

Read the full case study

Vancouver’s 20% Core Housing Need Policy

The city introduced an inclusionary housing program in 1988 through a  policy originally called its ‘20% core need housing policy’.  This policy is the most straightforward of the three.

This policy is applied to large privately-owned developments seeking a change of use to residential.  It affects only developments of more than 200 units because these are considered capable of accommodating a separate and reasonably-sized social housing project.

These developments are required to provide sites capable of accommodating a minimum of 20% of the units as social housing, and half of that as housing suitable for families.

The policy was designed to provide suitable sites for the development of social housing through government funding programs.

Read the full case study

Toronto’s Large Sites Policy

The basis for Toronto’s corresponding inclusionary housing approach is provided by the ‘large sites policy’ of its Official Plan.  The policy was approved in 2002, but did not come into effect until mid-2006.

This policy is the least developed of the three.  It has not been used, nor have any implementing regulations been prepared to expand upon the basic OP provisions.

Under this policy, on residential developments on sites generally greater than 5 ha, when an increase in the already permitted height and/or density is sought, the provision of 20% of the additional residential units as affordable housing will be the city’s “first priority community benefit”.

The policy has been designed to make use of section 37 of the Ontario Planning Act, under which the city is able to offer an increase in the permitted height and/or density in return for the provision of various “facilities, services or matters”, otherwise generally called community benefits.

The policy identifies alternative ways for meeting the affordable housing obligation.  Based on various considerations, it can be expected that the obligation will be met mostly by the conveyance of development parcels on the large sites rather than the construction of affordable housing, and these parcels will be used to support mainly social and possibly affordable rental housing built with government funding.

Read the full case study

Identification of the Shared Practices

The city policies incorporate a number of practices that provide the basis for an effective inclusionary approach.

Shared Practices

These policies provide an effective inclusionary approach, in the first place, because they are able to impose the affordable housing obligation on the developers of the selected projects.  The obligation can be successfully enforced by the denial of the development approval to these projects that do not comply.  Unless the developers are able to appeal the denial to some higher authority, they have no choice but to meet the obligation if they wish to develop.

At least two of these policies, if not all three, also share to some extent key practices.  (It is not possible to say conclusively that Toronto’s policy when implemented will incorporate all of these practices, but it seems very likely that it will.)  Those practices include the following:

• leveraging an approval for a major change in the development regulations to impose the affordable housing obligation;
• imposing the obligation on developments large enough to accommodate a separate project for social housing;
• securing the contribution of a developable site at a reduced cost for the social housing; and
• relying upon senior government funding as the primary source of subsidy for the social housing.

Other Practices

Montreal’s strategy has introduced two other key practices not seen in the other two, but these are very important for extending the effectiveness of these inclusionary policies.  The additional practices are these:

• applying the inclusionary housing obligation to publically-owned lands, and not just to the privately-owned; and
• including affordable rental and ownership housing, not just social housing, in the potential housing mix.

Comparison with Inclusionary Zoning

The inclusionary practices followed in inclusionary zoning programs in the US are different in than those in the three Canadian policies in a number of significant ways:

• They exploit the development approval to achieve substantial price reductions for the affordable housing.  This approach does not rule out the use of government funding to achieve still deeper subsidies, but it does means these programs are not dependent upon government funding to provide affordable housing.
• They impose the affordable housing obligation on all new residential developments, including generally those built as-of-right within the existing regulations.  When small developments are excluded, the cut-off is generally for developments in the range of 10-50 units.
• They require the private developers to build and provide the affordable housing.  The provision of sites or cash-in-lieu is often permitted, but generally only at the discretion of the municipality and where they achieve a greater benefit.
• They generate “below-market” affordable ownership, and sometimes rental, housing.  This is housing that is provided at price or rent that is substantially lower than that available for the equivalent housing on the market.
• They ensure that the affordable ownership housing remains “permanently affordable”.   Controls are used to protect the below-market price whenever the units are resold for a very long time or even permanently.
• They mix the affordable units within the market units, and generally design them in a way that makes the two largely indistinguishable.

The principal consequence of these provisions is that inclusionary zoning programs, in comparison with three Canadian policies, are able to effect the actual construction of affordable housing, and also to produce that housing on a much wider range of development sites.

One potential criticism of inclusionary zoning is that it does not support the provision of social housing.  While this is true for most programs, it does not mean that inclusionary zoning is inherently incapable of doing so.  Indeed, there are programs (see the inclusionary zoning program in Davis CA) that are similar to three city policies; they are designed to provide development sites at no cost for government-funded social or special needs housing in mixed-income projects.

Reasons for the Differences

The adoption of the more limited approach in the three Canadian cities is conditioned by certain considerations particular to this country:

• The lack of express legal authority in provincial legislation to impose a full mandatory affordable housing obligation.  As a consequence, cities are barred from requiring developers to provide affordable housing when they develop within the existing permitted zoning.
• The enduring conviction that the provision of affordable housing is fundamentally a problem that can only be addressed by federal and provincial funding.  So, municipalities generally do not feel compelled to utilize their regulatory powers to support other forms of affordable housing.
• The related conviction that supporting affordable ownership is not serving an important or legitimate housing need.  Therefore, promoting this form of housing is seen to be a misuse of energies and resources.

RD/15Jan10

Case studies have been prepared for six programs in the US.  These are drawn from the better-known and generally more successful programs.  They were also selected to include examples from communities of different sizes and from various locations across the US.

These case studies are based upon a review of the available literature on these programs, current municipal regulations and reports, as well as multiple interviews with the program administrators and other key staff.

Montgomery County MD: Moderately Priced Housing Program

Montgomery County, a large county of 950,000 directly outside of Washington DC, adopted one of the earliest and probably the single most productive program so far.  Despite its success, it cannot be considered a model program, as it continues to take a different approach on key aspects that have not been widely followed by later programs.

Read the full case study

Davis CA: Affordable Housing Program

Davis, a small city of 65,000 in northern California, is known for its progressive planning and environmental policies.  This program is notable for its efforts to provide a fuller range of housing types, including a variety of affordable ownership and rental housing as well as the dedication of land for social and special needs housing.

Read the full case study

Burlington VT: Inclusionary Zoning Ordinance

Burlington, a small city of 40,000 in northern Vermont, is known for its many and progressive affordable housing initiatives.  Its inclusionary program draws upon and incorporates many of the best practices developed elsewhere, while introducing innovations of its own – notably, imposing a higher affordable housing obligation in developments serving higher income levels.

Read the full case study

Boston MA: Inclusionary Development Policy

Boston, a city of 600,000, has one of the two earliest programs adopted by a major city.  Like its counterpart in San Francisco, it introduced a new approach in which inclusionary requirements were applied to developments going through the re-zoning process, while allowing the cost off-sets to be determined through negotiation.

Read the full case study

San Francisco CA: Inclusionary Affordable Housing Program

San Francisco, a city of 750,000, is one of two major cities first to adopt inclusionary zoning.  This program has been adapted in substantial ways over the years to make it more productive and demanding.  It imposes a different affordable housing obligation on developments needing re-zoning and those proceeding as-of-right.  It possibly is the only program that does not provide density bonuses or other cost off-sets for as-of-right developments.

Read the full case study

Chicago IL: Affordable Requirements Ordinance

Chicago, with its population of 2.8 million, is now the largest jurisdiction with an inclusionary zoning program.  Recently adopted after resistance from a powerful mayor, this program represents a political compromise that falls short of what was sought by the proponents of the program.

Read the full case study

RD/18Jan10

The basis for an inclusionary housing program in Toronto has been established by policy 9 of its Official Plan – its so-called ‘large sites policy’.  Toronto’s Official Plan was approved by Council in 2002, but part of this policy was appealed by the development industry to the Ontario Municipal Board (OMB), and did not come into effect until mid-2006 after mutually-agreed clarifications were made.This policy has not been used, nor have any implementing regulations or guidelines been prepared to augment the basic requirements found in the OP.

Provisions

The policy is directed at providing a mix of housing in terms of type and affordability on sites generally greater than 5 ha in size.  A minimum of 30% of the new housing – presumably, all market-rate – must be provided in attached and multiple housing forms.

In addition, when an increase in height and/or density is sought, the provision of 20% of the additional residential units as affordable housing will be the city’s “first priority community benefit”.

The affordable housing may take these forms:

• the construction of units on or near the site, or elsewhere in the city;
• the conveyance of land on or near the site; and
• the provision of cash-in-lieu for developing affordable housing on or near the site.

The off-site and cash-in-lieu options are allowed only at the discretion of the city.

The OP establishes a way to set eligible income levels through its definition of ‘affordable housing’.  The income levels are pegged to the average market rent according to the number of bedrooms in the unit, as determined annually by CMHC for the Toronto area.

The policy has been designed to make use of the regulatory tools provided by section 37 of the Ontario Planning Act.   Under this legislation, the city is able to offer an increase in the otherwise permitted height and/or density in return for the provision of  “facilities, services or matters”, otherwise generally called community benefits.

The OP identifies a long list of permitted s37 community benefits that can be obtained in return for the increased development rights, including purpose-built affordable rental housing but not affordable ownership.  The city’s subsequent s37 implementation guidelines adopted in 2007, however, identify new affordable ownership housing as an alternative to affordable rental housing when provided on large sites.

Under s37, the community benefits can be made subject to an agreement registered on title of the land.  That has the important consequence of binding all subsequent owners to the agreement.

Authority

The city, like other local governments in Ontario, lacks the authority to impose a mandatory affordable housing obligation on all housing developments.

The last attempt by a local government in Ontario to establish something like a mandatory inclusionary housing policy occurred in 1991.  The city of Burlington passed a policy imposing a 25% affordable housing requirement on all developments, along with related basic controls on income-eligibility and occupancy.

These provisions were established in response to the provincial housing framework set out in the 1989 Provincial Policy Statement.  That statement called upon municipalities to establish planning policies and standards that would enable at least 25% of new housing to be affordable.   (The 25% obligation was removed in 2005 when the current statement was released).

The policy was challenged by a local development to the OMB.  The board ruled that the Planning Act did not authorize this imposition, and at best, the city could only facilitate the provision of this housing but not make it mandatory.

Since that time, in light of this decision, municipal governments have been reluctant to consider mandatory inclusionary policies without having explicit authority from the province.

The ‘large site policy’ appears to have been sanctioned because the affordable housing obligation only falls upon developments receiving additional development rights as a consequence of re-zoning or other approvals.

Observations

In the absence of any actual experience with this policy, and even specific regulations or guidelines, its effectiveness clearly cannot be determined.  Nevertheless, there are many aspects that would appear to seriously limit its potential productivity.

1. The policy will apply only to sites of a relatively large size of 5 ha or more.  No justification has been reported for setting this particular threshold.  It will limit the application of the policy; as there are probably no more than a dozen such sites in Toronto.
2. The housing obligation can be imposed only on the additional development rights approved beyond the existing permitted density and height limits.  As a consequence, the policy will be productive only on those sites receiving an approval for a change of use, or a very significant increase in the permitted density.
3. Referring to affordable housing as the “first priority community benefit” indicates that it will continue to compete with the other permitted community benefits.  Because these other benefits have been favoured by local councillors as well as developers, very little affordable housing has been generated to date through s37.  Giving it first priority falls short of guaranteeing that the full 20% quota will be fulfilled before any other community benefits are considered.
4. When providing for affordable housing, the developers have the choice of two on-site options:  constructing the affordable units or dedicating a development parcel.  (The other options are only available to the developer at the discretion of the city.)   Whenever given such a choice, developers almost invariably give land.  While this no doubt is a useful contribution, it anticipates that government funding will be available for its development.  It also means that affordable ownership is unlikely to be built by the private developers.
5. The income ceilings established for the different unit sizes are based on market rental data.  These income ceilings are inappropriate for affordable ownership housing, which operates under different market conditions.  At best, these ceilings will encourage developers to provide small affordable ownership units (which the city does not particularly want) and discourage affordable family units (which it does).

Overall, the large site policy (consistent with other policies in the OP) supports a conventional and narrow mix of affordable housing – namely, social housing and affordable rental housing – both reliant on some form of government funding for construction.   It does not support a broader and more complete mix of housing that would come out of leveraging the regulatory and approval process to produce affordable ownership housing.

RD/15Jan10

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Background

This strategy – called a ‘strategy for inclusion of affordable housing in new residential projects’ – was adopted by the city in August 2005.

This strategy applies in the city of Montreal, the largest jurisdiction in the Montreal metropolitan area.  Since the de-merger in 2006, the city contains a population of 1.6 million in its 19 constituent boroughs.  The wider metropolitan area contains a total of 3.6 mil and 82 local governments.

The strategy is designed to operate within this two-tier government framework.  The city government has jurisdiction over most city-wide functions, including social housing funding and development, but it must work through the boroughs, which have control of local planning and development approval.

The goal of the strategy is to provide housing for a mix of different income brackets in all new large housing developments.  This is to be achieved particularly by facilitating the development of social housing, and stimulating the production of affordable housing for first-time homeowners.

The formulation of the strategy started in 2003, and engaged wide spectrum of stakeholders active in housing.   It was a response to a number of pressures:  the rising house prices in the city together with the growing demand for affordable housing, the depleting supply of city-owned land for affordable housing, and the uncertain future availability of social housing funding.  These prompted a search for ways of involving private ector in providing affordable housing, and of securing sites for social housing on privately-owned lands.

A 2002 report by Professor Dansereau was also instrumental in identifying the social, economic and environmental benefits of encouraging ‘mixite social’ (social and economic diversity).  This report was important in establishing wide public and political support for this concept, and then by extension, for the inclusionary housing strategy.

The mayor of Montreal was a key supporter of the strategy.  He called for working toward ‘une ville inclusiv’ as a way for providing a better quality of life for all Montrealers.

The city’s 2004 Master Plan established an important benchmark.  It contained the city’s formal commitment to making 30% of all new units affordable, half in social housing and half by the private sector through government incentives.

Provisions

The strategy establishes a guideline that all new large residential developments provide a minimum of 30% of the new units as affordable housing.  This guideline is further broken down into two parts:

• 15% in social housing; and
• 15% in affordable rental or affordable ownership.

This inclusionary set-aside is framed as a guideline rather than a requirement because its implementation is dependent on the boroughs.  Therefore, the strategy recognizes it could vary in response to the local conditions.

The strategy applies to developments of 200 and more units.  Research found that developments of this size were capable of viably accommodating a mix of housing.  More particularly, given the 15% target, it provides for 30 units of social housing, which was considered to be generally the smallest desirable project for this type of housing.

The obligation to provide affordable housing is imposed specifically in large developments that require one of the following:

• major changes to the approved master plan or zoning provisions, such as a change of use to residential, or an increase in the permitted density or height; or
• public investment in basic infrastructure or environmental improvements.

The strategy affects lands owned, not only private owners, but also local governments and public agencies.  The public owners are expected to participate even when their lands do not need additional approvals or public investment, and furthermore, they are expected to provide affordable housing in excess of the guideline.

The affordable housing obligation can be met through new construction, or renovation of existing non-residential structures.

Target

The affordable housing provided under the strategy is intended for households earning less than 120% of the regional median income.  This income threshold is used primarily for determining the top price or rent of the affordable ownership and affordable rental units.  The income threshold is not used to control the income eligibility of the households buying or renting these units.

The strategy is also portrayed as serving these two particular income groups:

• households with low incomes (generally those earning below $35,000 per year) that have difficulty in finding apartments in the city with affordable rents; and
• households with moderate incomes(earning roughly $35,000 to $50,000) that aspire to become homeowners but cannot find homes in the city with affordable prices.

Authority

The existing legislated powers in the province do not allow the city to require all residential development to include affordable housing as in a full mandatory program.

This was a major issue during the consultative process for the strategy.  Housing advocates pushed for the stronger mandatory approach, but the city foresaw that there would be major delays and difficulties in obtaining the necessary changes to the city’s charter and the provincial legislation.

So, the city opted for a more limited approach that will still be effective, but could be implemented more quickly within its current powers and resources.  The city also committed to monitor the effectiveness of the strategy, and then depending on the results, to revisit its decision about pursuing mandatory powers.

This strategy is described by city officials and documents as voluntary, but this is true only in a very narrow sense.  The strategy is voluntary only because the city cannot impose it directly, but rather must work through the development control powers of the individual boroughs.   When the boroughs are on side, their ability to deny development approval makes the affordable housing obligation effectively mandatory for the selected developments to which it applies.

Participants

The success of this strategy depends very much on the participation and co-operation of many players.  These include the elected officials and staff in the city’s individual boroughs, SHDM, the public agencies and government bodies, the private and non-profit developers as well as the technical resource groups.

The boroughs have multiple important roles.  In the first place, they are called upon to implement the guidelines by establishing their own specific targets based their needs and potential, and then to impose these targets in the local planning and development approval process.   They are also expected to identify and provide regulatory concessions in support of the affordable housing, and to ensure that affordable housing is included whenever large municipally-owned sites are sold for housing development.

SHDM (Société d’habitation et de développment de Montréal) is a non-profit organization that manages, develops and supports affordable housing for the city.  It is described as “a privileged partner” of the city in implementing its policies, and often serves as an intermediary in projects involving the city and the public and private sectors.  It also is now responsible for managing the provincial funding programs within the city, and as such provides the funding all social housing developments.

Its own development activities are focused on housing for households not eligible for social housing but also not able to afford market housing.  In that capacity, it builds and provides privately-owned affordable as well as community-owned rental housing.  Through its program Accés Condos, it provides financial assistance for affordable ownership housing.

A key role is played by the technical resource groups.  These are independent non-profit organizations that over the years have developed considerable expertise in managing the development of non-profit housing projects.  In the strategy, they work as agents for the municipal governments in planning of these projects, integrating the various pieces, and integrating all of the private, non-profit and public interests.

Assistance

The strategy relies on subsidies, incentives and other assistance from various government sources.  There is no consistent formula; these all vary somewhat in each development according to what is available and suitable.

Development Assistance

Funding has been available through various provincial programs through SHQ   The cost of these programs is shared by the federal, provincial and city governments

The development of social and co-operative housing (logements sociaux et communtaire) is funded by two programs – Accés Logis and Affordable Housing Quebec – social.

The development of affordable rental and ownership housing (logements privés subventionnés) is funded by Affordable Housing Quebec – privé and Programme Rénovation Québec (PRQ).  The latter is used by non-profit entities to renovate existing non-residential buildings and convert them to residential.

Other Incentives & Supports

The city and individual boroughs are expected to assist by selling their lands at below-market value to the non-profit developers.

The boroughs also are called upon to use their regulatory and planning tools to support affordable housing.  These can include offering regulatory concessions, promoting or allowing lower-cost types of units, and using cost-saving standards or other measures.   One borough offers a fast-tracked approval process.

The city also pays for infrastructure improvement costs and decontamination costs where necessary.

The developers are expected to provide land for the social housing at a reduced price.   In the case of the affordable ownership units that they construct, they are able to build units of smaller size and lower amenity as a way of cutting costs.

Homebuyer Assistance

Financial assistance for homebuyers is available from two separate programs.   The homebuyers, when eligible, are able to make use of both of these programs:

• Under its Home Ownership Program started in late 2003, the city provides a grant for first-time buyers to purchase a new home in the city.  First-time buyers are defined as buyers that have not owned a home in the last five years.

The grants are provided at two levels:

• For households without children, $6,500 is available for a house costing up to $180,000.
• For households with at least one child less than 18, $10,500 up to $235,000.

The program is intended to help moderate-income households earning up to 120% of regional median income, but there are no income limits placed on the purchasers.  The only control is that the buyers must repay the assistance if they do not occupy the property as their principal residence for the first three years.

The funding is jointly provided by SHQ and the city under the cost-shared PRQ.

• Under Accés Condos, SHDM offers downpayment assistance equivalent to 10% of the purchase price for buyers of its condo units.

This assistance is protected by a mortgage deed held by SHDM and registered on title of the property.  The assistance must be repaid only when the unit is sold or rented.  It also can be voluntarily repaid at any time.  In both cases, the initial assistance must be fully refunded, and an additional amount determined by the increase in the property value over the corresponding time.

Achievements

A partial snapshot of the results of the strategy can be obtained from information available at two different times.

Development Picture in mid-2007

As of September 2007, there were 10 approved developments with construction starting or anticipated in 2006-2008.  A breakdown of the housing output was available for 8 of these developments.

The sites ranged in size from 250 to 1650 units in size.  They accommodated (or will accommodate) more than 5150 units, including 1253 (24%) as social housing and 1874 (36%) as affordable ownership units.

As a measure of the scale of this activity, the total units in these developments represented more than 26% of the total completions in the city for 2006-2008, and the social and affordable units alone nearly16%.

Out of these, 6 sites were privately owned, 3 by the city and 1 combining lands from both.  There were no sites from public agencies.

All the developments contain social housing, and all but one (a privately-owned site) affordable ownership housing.

SHDM was involved as a developer in 4 of the 10, and a technical resource group as a project co-ordinator in 8.

Three of these developments are in the borough of Sud-Quest, and another three in  Mercier-Hochelaga-Maisonneuve.   Sud-Quest is known for taking a particularly rigorous approach in applying the strategy, due in large part to pressure from local housing groups.

At this time, there were in the pipeline another 15 large developments subject to the strategy.  These could contain a total of about 26,500 units.

Development Picture in late 2009

As of the end of 2009, the record for the developments under the strategy is as follows:

• 21 inclusionary developments conforming to the strategy have been approved. (Out of these, two were smaller than 200 units, but still provided affordable housing.)
• 17 inclusionary developments are in the approval process.
• 16 other housing developments have been approved or in the approval process that have or will not provide inclusionary housing.  These fall into these categories:
  • developments not triggering the affordable housing obligation because they did not require a major change to the master plan or zoning;
  • developments providing housing for seniors or students; and
  • developments providing furnished hotel suites.

Approximately 2/3s of these developments have needed a major change to the permitted planning or zoning provisions.

The guidelines are being met in nearly all of these developments.  On the lands provided by the city and public agencies, the guidelines typically are being substantially exceeded.  On some of the more peripheral sites, the social housing component might be lowered.

Two downtown sites will be giving cash-in-lieu of affordable housing.  This is a relatively new option that has not been entirely formalized.  It is a consequence of the high land values on these sites, as well the unresolved difficulty of providing social housing in projects consisting of a single tower.

All of the developments contain a social housing component.  There has been funding to support the social housing, and furthermore, to build the housing in a timely way along with the market housing.   This has been made possible by the fairly predictable funding, and the city’s ability to adjust the funding allocations in response to emerging circumstances.

In addition to the market housing, the developments typically also include affordable ownership housing in of two types:

1. subsidized (logements privés subventionnés) built either by SHDM through LAQ -prive funding or by a non-profit entity through PRQ funding; and
2. non-subsidized (logements privés non subventionnes) built by the private developers or a sponsored non-profit without any government funding.

While the developers have built some of the non-subsidized affordable units, most are being built by a local non-profit entity using land or buildings provided at a below-market cost by the developers.   Often these units are also made more affordable by reducing their size and amenities.

These two types of affordable ownership housing are distinguished principally by how they are produced, and not by their price.  In both cases, they are expected to set a selling price targeting households earning 120% or under the median income.

The financial assistance provided to the homebuyers does not figure into this distinction.  The city assistance can be used in types of affordable ownership housing, while the SDHM assistance can be used only in their buildings.

Although there are no controls protecting the on-going price of the affordable ownership units, the city’s monitoring to date has found that the resale prices have not been significantly out of line with those for other units, and there has been no apparent evidence of flipping the units.

Although it is included as one of the potential options, the strategy so far has not generated any rental housing outside of the social housing.  The prevailing rents in the city still remain too low, despite the recent increases, for new rental construction to be built at a viable rent.

Challenges

The strategy continues to develop and evolve.   The city is looking at how to address these issues:

• securing the buy-in by all boroughs and government bodies;
• stimulating the provision of affordable housing suitable for families – or, more specifically, units containing at least 3 bedrooms;
• providing social housing in high-rise condo towers where a separate site is not possible; and
• controlling the resale of the affordable ownership units, and protecting their long-term affordability.

Observations

Montreal’s strategy clearly has been successful in meeting its own goals.   The number of units, and particularly their percentage of the total housing production on these sites, is impressive.

Strategy as a model

The strategy represents an instructive model for other Canadian big cities.  It shows what can be done to effectively support inclusionary housing in the absence of the authority to impose mandatory provisions on all residential developments.

The strategy can be seen, not as implementing an entirely new approach, but rather as harnessing the city’s available powers, tools, incentives, and other resources in a more co-ordinated and focused way to provide affordable housing, and specifically within integrated mixed-income developments.

Among the significant, and transferable, features of this strategy are these:

• Using the leverage provided by development approval process to ensure that major projects needing special approvals support the provision of affordable housing;
• Applying the affordable housing obligation on developments of a size capable of accommodating a mix of housing, and particularly a site for a viable social housing.
• Applying the affordable housing obligation to lands owned, not only privately, but also to lands owned by governments and public agencies whenever released for residential development;
• Administering the available funding in a way that ensures that the social housing is built at the same time as the market housing in an integrated mixed-income project; and
• Including affordable ownership housing in the mix of housing provided on every site.

It is notable that this strategy, unlike most Canadian programs, is not fixated on providing solely social or rental housing.  In this strategy, affordable ownership is recognized as a legitimate and needed form of affordable housing that merits government support.

The success of the strategy benefits from conditions that might not be found everywhere, including the following:

• the continuing and somewhat predictable funding for social housing as well as affordable ownership;
• the established and sophisticated support infrastructure provided by the technical resource groups; and
• the firm and wide support, starting with the mayor and extending to the public, for pursuing the concept of ‘social mixite’.

Comparison with inclusionary zoning

The strategy is not an inclusionary zoning program as practised in the US.   Although both are directed at providing mixed-income developments, the two have fundamentally different objectives, and use different approaches in reaching those objectives.

The two approaches are not incompatible.   Montreal’s strategy could be comfortably nested within an inclusionary zoning program, and this would considerably enhance the productivity of the strategy.

There are these notable differences between Montreal’s strategy and typical inclusionary zoning programs:

1. The strategy is applied principally to developments of 200 or more units that require additional development approval for changes to the permitted use, density, height or other controls.
   Inclusionary zoning programs typically affect a much wider range of developments, including those proceeding as-of-right and without needing special approvals.  While some do exclude small developments, the cut-off is typically at 10 to 50 units.
2. The strategy principally leverages private developers to provide development sites at a reduced cost for affordable housing.  The construction of that housing is then dependent upon government funding.
   Inclusionary zoning leverages the private developers to build and provide the affordable housing at a reduced price.  The programs do not rely upon government funding for the construction that housing.
3. The strategy produces “low-end-of-market” affordable ownership housing – that is, housing that is marginally more affordable, but still within capability of the developers to produce, through some reduction in the attributed land price and in the size and amenities of the units.
   Inclusionary zoning produces “below-market” affordable ownership housing – that is, housing substantially below the price for the same market housing.
4. The strategy produces affordable housing on sites separate from the market units.
   Inclusionary zoning typically produces affordable housing that is inter-mixed within the market units
5. The strategy does not control the affordability of the affordable ownership units.  This has not been necessary because the price reduction and financial assistance have been relatively marginal.
   Inclusionary zoning protects the affordability of the units by controlling the resale price and purchaser’s eligibility.  This is made necessary by the substantial price reduction achieved by these programs.

It could be argued that the strategy is more effective in one important way:  unlike inclusionary zoning, it supports the provision of social housing serving those with low incomes.  While it is true that most inclusionary zoning programs do not incorporate social housing, the mechanism is capable of doing so.  There is one example that does very nearly what Montreal does.  That program in Davis CA requires developments of more than 75 units to set-aside a site at no cost for the development of social or special needs housing.

It is notable that neither the strategy nor inclusionary zoning has been capable of stimulating the provision of affordable rental housing in markets where there is no private developer interest in providing it.

RD/22Dec09

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Introduction

The Chicago Community Land Trust (CCLT) is a quasi-independent non-profit corporation operating city-wide across Chicago.  It was created in 2006 to protect the affordability of affordable ownership homes being providing by for-profit or non-profit developers through various programs in the city.

It currently controls affordable ownership units generated by Chicago Partnerships for Affordable Neighborhoods (CPAN), New Homes for Chicago, and now also the Affordable Requirements Ordinance (ARO) since 2007.

The organization was established with the expressed purpose to ensure that these units remain permanently affordable.   Formerly, the city’s affordable ownership units were subject only to secondary recapture mortgages, and many of these were forgiven over time.  Consequently, the homes were only affordable to the first buyer.  Even when the value of the reduced price was recaptured, the city found that in an appreciating housing market the money recovered was insufficient to provide replacement housing at the same income level.

Establishing a new city-wide organization for this purpose was seen as a way of providing uniform legal documents with a consistent resale formula across the city, ensuring fairness and consistency in the allocation of the units, eliminating administrative duplication, and reducing the potential for fraud through better monitoring and stronger controls.

Despite the name, the CCLT is not a community land trust as generally defined in the US.  While it shares many of the same goals – including permanently affordability – it does follow all of the hallmark practices of these organizations in the US.   They typically operate independently of government, include homeowners in their board, and use leases to maintain ownership of the land while selling the units built on it.

Organization

The organization is currently funded and supported by the city through its Department of Community Development (DCD).  This department pays the staff salaries, and provides office accommodation and support staff.   In time, the organization expects to be self-financing from the fees that it will charge.

The organization was initially supported by start-up funds from a major foundation.  These funds have run-out and it is looking for another similar temporary source.

The organization as a board of directors appointed by the mayor and approved by City Council.  The directors are drawn from various community, business and professional groups, including private and non-profit developers, service providers, universities and foundations, financial institutions and law firms, city departments and others.  In time, when its housing portfolio has increased, one third of the board will be drawn from the owners of CCLT units.

The organization now has two full-time staff, an executive director and outreach director.  This staff is expected to grow as the number of units under its control increases.

Portfolio

CCLT currently administers 38 ownership units.  Only 4 of these have come from the recently-established ARO. (The latter number is not surprising because inclusionary programs take time to be productive, and also because production is being affected the current economic downturn.)

There are well over another 1000 existing affordable ownership units in the city generated by other programs.  Unless CCLT is able to buy these units as they are resold, these units will continue under their existing agreements and outside of the permanently affordable restrictions of CCLT.

The intention is that all of the new units generated by ARO and the other programs will be placed under the control of CCLT, but there might be exceptions.  The local aldermen in Chicago on occasion strike their own deals.  So, there is the possibility that some of the ARO units will fall outside of CCLT’s control because they are subject only to the 30-year recapture mortgages used in the past.

Also, the CCLT has established a policy that it will accept only affordable units selling at a price at least $25,000 lower than the market price.  The concern is that affordable units with a smaller price deferential would not be marketable due to the legal encumbrances imposed on them to protect affordability.

Controls

The CCLT was established with the express mandate to establish resale controls and procedures for ensuring the long-term affordability of the ownership units placed under its administration.  The provisions were to be designed to balance the competing goals of long-term affordability and providing a fair return on the homeowner’s investment.

Legal Agreements

CCLT is using a covenant in the form of deed restriction recorded against the property title as the legal mechanism to control the affordability of the units.  This agreement will control affordability for 99 years.  It is also renewable whenever the unit is sold within that period.

Consideration was given to using a ground lease for single family units and the restrictive covenant only on multi-unit structures, but the decision was made to use only the covenant for various reasons:

1. one document would be easier to administer than two;
2. a ground lease could not be used on multi-unit structures;
3. the use of covenants was well-established and understood in the city; and
4. it would be more cost-efficient to administer.

Targeted Incomes

In general, CCLT will target households earning 100% or less of area median income, but under its resale price formula it will allow a price rise up to a cap set at 120% of area median income (see below).

Eligibility Criteria

In addition to meeting the income limits, CCLT requires prospective buyers to participate in pre-purchase homeownership counselling provided by one of various non-profit agencies, and also attend its own education program to deal with the covenant and other matters specific to the organization.

It applies no other criteria to ARO buyers, although some programs have asset and first-time-buyer limits.

The buyers must qualify for a mortgage loan from a private lender.

Sales Procedures

All new CCLT homes are currently being marketed and sold through the developers.  The units are posted on a website operated by another city agency that lists all of the affordable ownership and rental units available in the city.  They also rely on staff at the DCD to assess the income qualifications of the buyers.

CCLT expects to develop and operate a waiting list of eligible buyers.  It also will be developing procedural rules for the sales.   These are expected to depend upon a “first-come/first-served” approach, but modified by a points system to give priority to certain buyers.  It also could also use lotteries when justified by demand.

Resale Price

For the duration of the agreement, the owners are able sell their homes only either back to CCLT or to another income-qualified buyer.  In either case, they can be sold only for a price up to the maximum permitted resale price.

The maximum permitted resale price is allowed to rise up to a price not exceeding what would be affordable to household earning 120% of local median income.  The permitted resale price is allowed to rise so that the homeowners are able to receive a percentage of the increase in the market value of the unit.

The percentage is based on the difference between the initial fair market value of the home as determined by appraisal and the affordable purchase price that the homeowner pays. The percentage also varies according to the difference between the two figures as shown in the following:

• 25% for a difference of less than $50,000;
• 20% for $50,000 to $100,000;
• 15% for $100,000 to $150,000; and
• 12% for over $150,000.

Resale Process

When the homeowners decide to sell, they must first notify the CCLT, which will then order an appraisal of the home.  The cost of the appraisal is paid out of the sale proceeds.

CCLT holds a first option to purchase the home.  Whenever CCLT exercises this option – rather than actually buying the unit – it expects to use the 4-month closing period to transfer the ownership to an eligible buyer from its waiting list.  In lieu of real estate fees, it will charge the seller a fee based upon 3% of the sales price.

If CCLT does not exercise its option, the homeowner is responsible for marketing and finding an income-qualified buyer.  In time, CCLT expects to assist in these sales by providing the names its waiting list.

A copy of the sale contract and income qualifications of the new buyer must be submitted to the CCLT for approval prior to finalizing the sale.

Other Key Requirements

The owners are required to pay a covenant fee, currently $25/month, to cover the cost of managing the program and providing services and referrals.

The owners must use the home as their principal residence and occupy it for at least nine months out of the year.  They may not lease the land or sublease the home.

When a spouse, domestic partner or a dependent of the owner inherit a unit, they can continue to live there as long as they wish, provided they abide by the terms of the restrictive covenant.  Others heirs are able to stay in the home when they are income-qualified, but otherwise must sell according to the resale terms.

The owners must obtain approval from CCLT before making any improvements that require a building permit or increase the livable square footage of the home.

The owners must also obtain the approval of CCLT before refinancing the purchase. 

Activities

The early activities of CCLT have focused on the following:

• developing the deed restriction and resale formula to be used in the preserving affordability of the units;
• developing and operating its pre-purchase education program;
• recruiting and educating a pool of mortgage lenders willing to offer mortgages for their buyers;
• recruiting and educating a pool of lawyers to assist their buyers.  (The buyers are not required to use these lawyers, who charge their full rates.);
• securing outside funding to help low-income buyers with their legal fees; and
• obtaining a commitment from the local county assessor’s office to base the property tax on the controlled sales price and not the market price.

The organization describes the following as its major on-going responsibilities:

• helping the developers in marketing the affordable units;
• providing community outreach and education for developers, aldermen, community organizations and other interested parties;
• organizing and operating pre-purchase CCLT education courses;
• securing additional service providers (lenders, attorneys and others) for the CCLT buyers;
• monitoring the closing of the sales;
• providing post-purchase homeowner support
  • to prevent default and foreclosure,
  • to provide oversight and assistance for refinancing and resale,
  • to monitor the property taxes and assist in property tax appeals, and
  • to troubleshoot any other emerging problems;
• monitoring properties to confirm owner-occupancy, payment of property taxes and that homes are free of unauthorized liens; and
• evaluating and updating its policies and restrictions.

RD/10Oct09

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