To: From: Resource Staff: City of Kingston Report to Council Report Number 18-070 Mayor and Members of Council Date of Meeting: Subject: Executive Summary: Lanie Hurdle, Commissioner, Community Services Paige Agnew, Director, Planning, Building & Licensing Services Sheldon Laidman, Director, Housing & Social Services Development Charges Rebate Program In the latter months of the 2017, the Province made a commitment to rebate up to $125 million in development charges over five years for priority purpose-built rental developments in municipalities with low vacancy rates or high tenant populations, where affordable rentals are hard to find. The program is one of 16 key initiatives outlined in Ontario s Fair Housing Plan. Several Ontario municipalities, including Kingston, are invited to submit an Expression of Interest to be considered for this Development Charges Rebate Program by March 2, 2018. Although the program does not require any contribution from municipalities, it is recommended that municipalities should have some incentives as well to support purpose-built market rental developments. The funding for the Development Charges Rebate Program will be allocated over a 4 year period (2018-2021) and does provide for an administration allocation to cover administration costs. As per Council s direction on January 23 rd, staff pulled together a framework for administering such a program, which is required as part of the City s Expression of Interest (EOI). The EOI must include a resolution of Council supporting the various elements of the program, which are reflected in the Recommendation section of this report. Municipalities are encouraged to identify and list additional incentives that they can offer in addition to the Provincial rebates to incent the development of affordable, rental housing in their communities. Evaluation criteria have been established, which would be used to vet the appropriateness and suitability of rental housing projects. These include a consideration of rental price, unit size, number of accessible units proposed, the proximity to transit routes and projects which positively contribute to the City s Climate Action Plan and Greenhouse Gas (GHG) reduction Council Meeting 2018-08 83
Page 2 of 11 goals through passive energy and/or net zero building. Historical building permit data from the last ten years was analyzed to determine the average number of units going to construction in an average year. Staff are suggesting that through the EOI, the City request an annual funding (2018-20121) allocation from the Ministry for 1 million dollars to offer as development charge rebates for projects meeting the program criteria, which represents about 35% of all annual multi residential unit starts. Recommendation: That Council designates the Housing & Social Services Department, who is Service Manager for housing programs in the City of Kingston, as the Development Charges Rebate Program Administrator; and That Council directs the Service Manager to submit an Expression of Interest to the Ministry of Housing for the Development Charges Rebate Program; and That Council authorizes the Mayor and Clerk to enter into a Transfer Payment Agreement with the Ministry of Housing on the municipality s behalf; and That Council endorse the Development Charges Rebate Program implementation framework outlined in Report Number 18-070 and direct staff to develop a Development Charges Rebate Program implementation procedure for the administration of the program should the City be awarded a program allocation by the Province; and That Council authorize the Commissioner of Community Services or his/her delegate to review and approve the Development Charges Rebate project commitments and report to Council annually on program uptake and funding contributions; and That Council authorize the Commissioner of Community Services or his/her delegate to review and approve all documents and agreements, including the implementation procedure, related to the Development Charges Rebate Program which are in a form satisfactory to the Director of Legal Services; and That Council authorize the Mayor and Clerk to execute all documents and agreements, related to the Development Charges Rebate Program, as approved by the Commissioner of Community Services or his/her delegate; and That Council endorse the waiving of municipal land use planning fees for multi residential rental projects when twenty-five percent (25%) or more of the units are considered affordable in accordance with the affordability policies of the Official Plan. Council Meeting 2018-08 84
Page 3 of 11 Authorizing Signatures: Lanie Hurdle, Commissioner, Community Services Gerard Hunt, Chief Administrative Officer Consultation with the following Members of the Corporate Management Team: Desirée Kennedy, Chief Financial Officer & City Treasurer Denis Leger, Commissioner, Corporate & Emergency Services Not required Mark Van Buren, Acting Commissioner, Transportation & Infrastructure Services Not required Council Meeting 2018-08 85
Options/Discussion: Page 4 of 11 In April 2017, the Province announced the Fair Housing Plan which included 16 actions intended to address housing affordability, increase housing supply, provide increased protections for renters and buyers, and support housing market stability. One of the actions included the establishment of a Development Charges Rebate Program targeting the increased supply of purpose built rental housing across the Province. The provincially funded program is available to municipalities through an EOI process. The program will provide development charge rebates with the intent of reducing construction costs supporting the construction of new building rental. There are no ongoing affordability requirements of the program; however, municipalities are permitted to establish local program criteria that encourage affordability. The program is available in communities that have a vacancy rate below 3% and a high tenant population (i.e. 20% or more of households living in rental housing); the City of Kingston meets both of these criteria. The provincially funded program will provide up to a total of $125 million across the Province over five years starting in the 2018-2019 fiscal year. Following the submission of the EOI in early March, the Province will announce notional allocations in spring 2018 for the first three years. There are no requirements for municipalities to contribute to the program; however, municipalities are encouraged to provide municipal incentives, where possible, to projects that receive a provincially funded development charge rebate. Provincial Development Charges Rebate Program Guidelines The Ministry of Housing has provided municipalities with program guidelines that are to be considered in the preparation of an EOI and program delivery. The program guidelines include the following general program criteria: Only purpose-built rental housing is eligible for development charge rebate funding (i.e. ownership dwellings, including multi-unit condominiums are ineligible); Funded projects must align with other provincial priorities and support additional public benefit (i.e. provision of rental housing in communities with a low vacancy rate, unit sizes targeted to the community need, senior supportive, accessibility value beyond Building Code minimums, transit supportive, etc.); Units receiving development charge rebates must remain rental for a minimum 20 year period; There are no long-term affordability requirements beyond the threshold for starting rents and subject to the rent increase guideline of the Residential Tenancies Act, 2006; Only non-luxury units can be funded, municipalities have the ability to establish the level of funding as a percentage of the local average market rent (AMR) as published by the Canada Mortgage and Housing Corporation (CMHC); Developers must enter into a contribution agreement with the municipality for the purpose of establishing program objectives and obligations and securing the 20 year rental housing period; Municipalities cannot use the funding to replace an existing housing program including any program that provides incentives for below-market rental housing; Council Meeting 2018-08 86
Page 5 of 11 Successful municipalities must submit a take-up plan in the first quarter of each fiscal year outlining the rental housing developments that have been determined eligible by the program administrator and indicate the timing for the rebates on a quarterly basis; and If a municipality is unable to use the full program allocation in a fiscal year the Ministry will reallocate uncommitted funding to another municipality. The following types of developments are not eligible to receive provincial rebate funding: Single and semi-detached homes, duplexes, triplexes and retirement homes; Units receiving capital funding under other provincial/federal programs (i.e. Investment in Affordable Housing (IAH), Social Infrastructure Fund (SIF), etc.); Luxury rental units with rents exceeding 175% of the AMR or a lower level as determined by the municipality; and Units receiving a payment deferral or exemption of development charges. Under the program guidelines, municipalities have the ability to establish local program guidelines with respect to the following: The built form of rental housing developments (i.e. multi-unit apartment buildings, town houses, etc.); Preferred unit sizes based on local need (i.e. bachelor, one-bedroom, two-bedroom, etc.); The level of development charge rebate available to eligible rental units (i.e. full or partial rebate); and The timing of the rebate (i.e. at what point in the development process would the rebate be made available to the developer). Purpose/Need The City s population, housing and employment growth model shows that the City is projected to grow by 18,180 new people by 2036. It is expected that 9,130 new residential units will be required to accommodate the projected population growth. One of the goals of the City of Kingston Official Plan is to respond to the housing needs of the City s citizens by retaining and augmenting a broad range of housing at all levels of affordability within a safe, convenient and stable setting, organized primarily into neighbourhoods. In January 2018, Council approved Report Number 18-043 which discussed the contributing factors to the most recent vacancy rate reporting which demonstrated a drop from 2.6% in 2016 to 0.7% in 2017, being the lowest in Ontario. A healthy vacancy rate for rental housing is around 3%. The report recommended staff pursue funding under the provincial Development Charges Rebate Program through the development of an EOI and report back in February with details of the submission. Development Charges Rebate Program Implementation Framework This section provides an overview of the proposed implementation framework that will be further detailed in an operational procedure should the City be awarded program funding by the Province. The level of development charge rebate funding will be determined on a project Council Meeting 2018-08 87
Page 6 of 11 specific basis with the level of funding evaluated against set criteria. Staff are recommending the following five (5) parameters be included in the evaluation framework which will determine program eligibility and the level of development charge rebate available to a project: 1) rental price, 2) unit size, 3) accessibility, 4) express transit service availability, and 5) contribution toward the City s GHG reduction goals. The following sub-sections include details regarding the application of the evaluation criteria to determine the amount of development charge rebate funding available to a project. 1. Rental Price The provincial program is designed to support the development of non-luxury rental housing; there are no ongoing affordable housing requirements. Based on consideration of local market rents, staff is recommending eligible units starting rents be no more than 125% of the AMR. Currently, the AMR for a one-bedroom unit (inclusive of utilities) is $975 per month. Accordingly, the 125% AMR eligibility threshold would set the maximum eligible rent for a one-bedroom unit at $1,220 per month in 2018. The provincial guidelines allow municipalities to establish thresholds to encourage local housing priorities such as housing affordability. The implementation framework proposes to provide a greater level of development charge rebate to units that offer lower monthly rents relative to market averages. The following rebate thresholds are provided as an example of how the eventual policy could be structured with further refinement expected: Rent Thresholds Rebate Thresholds Actual 2018 Rent Level* (One-Bedroom Unit Example) 100% AMR or less 100% rebate available Less and $975 100% to 115% AMR 75% rebate available $976 to $1,120 115% to 125% AMR 50% rebate available $1,121 to $1,220 Above 125% AMR No rebate available $1,221 and above Note: * Development charge rebates would be evaluated relative to the AMR in the year funded units are occupied. 2. Unit Size The program guidelines encourage municipalities to use rebate funding to support local needs for rental housing including determining preferred unit sizes. Based on consideration of the demand on the social housing waitlist and average wait times and local experience, bachelor, one-bedroom, two-bedroom and three-bedroom units will be eligible. Units with four-bedrooms or more will be ineligible due to the narrow focus of this housing format as experienced within the housing market (i.e. targeting of large student households). In addition, staff recommend a cap on the total number of units that one project may be eligible for is 50 units. The first 25 units would receive 100% of the development charges and the next 25 units would receive 50% of the development charges provided through the program. The recommended cap is to ensure that no single project would compromise the ability to provide funds to future projects. Council Meeting 2018-08 88
Page 7 of 11 Unit Size Bachelor Unit One-Bedroom Unit Two-Bedroom Unit Three-Bedroom Unit Four-Bedrooms and over Rebate Program Eligibility Eligible Eligible Eligible Eligible Ineligible 3. Accessibility The Building Code prescribes no less than 15% of all suites in a new multi-unit residential building must meet prescribed accessibility requirements. Staff have observed that developers typically do not provide accessibility levels beyond the Building Code s minimum requirements. From staffs management of the social housing waitlist, the Housing First program and considering aging demographic trends, there is a need for additional accessible housing units in the community. The proposed Development Charges Rebate Program will encourage the development of a greater supply of accessible units. For each additional accessible unit provided beyond the Building Code s minimum requirements it is expected a full development charge rebate will be available for the unit, provided the rent does not exceed 125% of the AMR. 4. Express Transit Service Proximity The program guidelines require funded projects to align with other provincial priorities including encouraging transit supportive development. The City s Official Plan also encourages multi-unit housing to support transit services and walkability. Eligible projects developed within walkable proximity of an existing or planned express transit stop will be offered a greater level of rebate according to the following thresholds; however, in no circumstance shall a funded unit s rent be above 125% AMR: Express Transit Stop Proximity Less than 400 metres Rebate Program Available 75% rebate available 400 metres to 600 metres 50% rebate available 5. Contribution to City s Climate Action Plan/GHG Emission Goals Projects that create units with rent that does not exceed 125% of the AMR and can demonstrate a positive contribution toward the City s GHG emission reduction may be considered for a greater percentage of rebate if they a) achieve certification under the Passive House Standard or b) commit to construction of a Net Zero residential building using a net zero builder qualified through the Canadian Home Builder s Association. In both cases, this standard of building exceeds the current requirements of the Ontario Building Code. Council Meeting 2018-08 89
Page 8 of 11 GHG Emission Reduction Net Zero Building Passive House Standard Rebate Program Available 100% rebate available 75% rebate available General Program Guidelines Projects would be evaluated on an individual basis relative to the public benefit assessed through the evaluation criteria. Evaluation of a project would proceed at the individual unit level. A proponent could offer a package consisting of a mix of units at different rental price points to obtain desired rebates. In no circumstance would a rebate exceed 100% of the development charges calculated for a single unit and rebates cannot be transferred between units or projects. The applicant must apply for a building permit within one year of planning approvals and upon written confirmation that development charges have been paid, the following payment schedule is proposed: 50% of calculated rebate after issuance of Building Permit and completion of building foundation; and 50% of calculated rebate upon occupancy of all funded units. Municipal Incentives The program guidelines do not require, but encourage municipalities to provide incentives to projects receiving provincial development charges rebate funding under the program. Staff have determined the existing levels of voluntary affordable housing investment (i.e. municipal housing contributions beyond what is required by legislation) provided by the municipality is substantial and complements the provincial program to support new housing supply at a variety of affordability levels. The EOI will outline the following voluntary municipal housing programs already in existence: The property tax rate for new multi-residential properties has been established equivalent to the residential class for single-residential - this is now a requirement of the province but has been implemented in Kingston since 2001; Development Charges and Impost Fees have been waived for the development of new second residential units; Parkland dedication for new development includes a waiver for units offering below market affordable rental rates; The City has established a municipally funded Capital Investment in Affordable Housing Program at $1 million per year which provides capital funding assistance to private and not-for-profit developers of affordable housing; The City has established a municipally funded Affordable Housing Land Acquisition and Disposition Program which purchases land at market value and disposes of the land at 75% of the acquisition costs with the outstanding 25% to be accounted for as affordable housing within the development of the site the net municipal contribution is $250,000 per year; and Council Meeting 2018-08 90
Page 9 of 11 Development Charge credits are provided for any existing building area that is demolished or converted as part of the redevelopment of a property. Program Uptake To estimate potential program uptake, staff considered the development history for multi-unit residential construction. In 2017, building permits were issued for 406 multi-unit dwellings, the majority of which were rental housing. The May 2017 Pending and Committed Housing Report indicated there are 1,099 multi-unit dwellings associated with registered plans of subdivision, draft approved plans of subdivisions or an approved site plan. The report also indicated there are 2,729 multi-unit dwellings associated with ongoing planning applications that have not yet received approval. The ten year average for multi-unit construction is 242 units per year. Based on the current total development charge fee of $9,343 for a bachelor and one-bedroom unit and $13,463 for a twobedroom unit or larger, staff is requesting $1,000,000 per year for five years which is the equivalent to a full development charge rebate for 32 bachelor or one-bedroom units and 52 two and three-bedroom units assuming 30% bachelor and one-bedroom units and 70% twobedroom or three-bedroom units. These numbers are provided as estimates and actual program uptake and unit split will vary. The following table outlines the program uptake estimate: Unit Size % Units Per Year Units Per Year Total Development Charge Per Unit Estimated Annual Development Charge Collected Estimated Program Funding Per Year Funded Units (Full Rebate) Bachelor and One- Bedroom 30% 72 $9,343 $672,696 $300,000 32 Two and Three Bedroom 70% 170 $13,463 $2,288,710 $700,000 52 Total N/A 242 N/A $2,961,406 $1,000,000 84 According to the estimated numbers, a $1,000,000 program allocation from the province would provide a full development charge rebate for 35% (i.e. 84 of 242 units) of multi-unit starts annually. Proposed New Municipal Incentive In addition to existing housing incentives, staff is proposing a new affordable rental housing planning fee relief program. The proposed program would provide waivers for planning fees associated with affordable housing projects which, for the purposes of the program, would include projects where at least 25% of the total units are affordable as defined by the Official Plan. The fee waiver would be assessed through the development approvals process and rebated to the developer at the time of occupancy and the submission of an Initial Occupancy Report confirming a minimum of 25% of the units rents are affordable. The implementation of the program is not expected to have a significant impact on departmental budgeting given the fact that few new construction projects are able to offer rents at the average market rent level. It Council Meeting 2018-08 91
Page 10 of 11 is expected this waiver will mainly apply to non-profit housing development where affordability is an objective of the project. Next Steps Staff will prepare and submit an EOI to the province by March 2, 2018, consistent with the directions outlined within this report. If the City is successful in receiving a notional allocation, an EOI will be developed inviting developers to submit a proposal to receive development charges rebate funding. EOI submissions will be evaluated against the evaluation framework outlined in this report. Staff will report back to Council annually on program update and funding. Existing Policy/By-Law: City of Kingston Official Plan Development Charges By-Law Capital Investment in Affordable Housing Program Affordable Housing Land Acquisition and Disposition Program Notice Provisions: Not applicable Accessibility Considerations: Not applicable Financial Considerations: Funding for the Development Charges Rebate Program would be funded in full by the province. Staff are suggesting an additional municipal incentive of waiving planning application fees for projects that have 25% or more of the units achieve the definition of affordable as per the City s Official Plan. Contacts: Lanie Hurdle, Commissioner, Community Services 613-546-4291 extension 1231 Paige Agnew, Director, Planning, Building & Licensing Services 613-546-4291 extension 3252 Sheldon Laidman, Director, Housing & Social Services 613-546-2695 extension 4957 Other City of Kingston Staff Consulted: Lisa Capener-Hunt, Manager, Building Services & CBO, Planning, Building & Licensing Services Council Meeting 2018-08 92
Page 11 of 11 John Henderson, Housing Programs Administrator, Housing & Social Services Others External Individuals Consulted: Not applicable Exhibits Attached: Not applicable Council Meeting 2018-08 93