5.5K 
How much impact do municipal, provincial, and federal policies have on urban development?
Urban planning is often thought of as a local issue. But in recent years, with housing price increases accelerating, the effects of provincial and federal policies on housing have been getting increased attention.
While most of the conversation has revolved around measuring the effects of housing policy on housing prices only, this does not provide a complete picture of the situation. Specifically, a big part of what determines housing prices is the construction of new homes, which is a years-long process. While some analyses look at building permit data, even this is too late in the process.
Especially for large projects including towers and subdivisions, new housing development begins with the development application: usually seeking rezoning, it is essentially a negotiation process whereby the developer and city planners try to figure out how tall, dense, and how many land uses a new development will accommodate, if more than simply residential or simply commercial. This can take several years before the first building permit is issued.
Thus, to truly understand the effects of housing policy on construction, more analysis needs to be done at the pre-construction level. Yet virtually no one is doing this work.
No-one other than UrbanToronto, that is. We use the data available on UTPro, UrbanToronto’s premium data service, to regularly report on development applications in the Toronto area. Usually, our reporting is focused on trends in applications over time.
In this report, we will do some analysis looking at the effects of various policies on development applications. The ultimate lesson is that incentives matter: policies that increase costs result in less housing proposed, while policies that lower costs increase housing proposals.
Municipal Policies
In Ontario, most urban planning is determined at the municipal level. This includes well-known planning tools from development applications to building permits, but also lesser-known tools like parking minimums and development charges. We will look at each of these in turn.
Let's begin with parking minimums. The City of Toronto removed minimum car parking requirements for new applications beginning in December, 2021, where the proposal is well-served by transit. In the areas best served by transit, the City not only removed the motor vehicle parking minimums, but in fact even imposed more strict parking-space-per-dwelling maximums. The differences between the new rules and old rules are highlighted below:
While urbanists have been arguing to remove parking minimums to reduce the pressure on road space that private vehicles represent, much of the pressure to remove the minimums came from developers themselves, who argued that it had become difficult to sell the number of (usually) underground parking spaces that the City required at large towers, especially in areas well-served by public transit. In fact, prior to the minimums being removed, developers routinely asked for and were usually granted amendments to the zoning by-law to provide less parking than the by-law required.
Just because there is no longer a requirement in much of Toronto to build parking with new structures, that does not mean that most developers are now constructing zero parking spaces. While large, purely commercial or mixed-use projects will have more parking spaces proposed, and smaller projects will naturally have fewer parking spaces, looking at the total number of vehicular parking spaces proposed in a given period is problematic, as it could be that in one time period more larger projects are being proposed than another. When we plot the average number of car parking spaces per dwelling unit, there was in fact a slight jump up after the minimums were removed.
In addition, the variability in the number of parking spots per dwelling unit increased as well: while there have been a lot of projects that are proposing fewer than the previously-required minimum, there are still projects proposing higher parking ratios anyway. This makes sense, since without strong regulatory minimums or maximums, developers are free to experiment with the number of parking spaces they propose, based on how many they believe they can sell.
The City of Toronto continues to mandate minimum bike parking requirements. There are two components here: visitor bike parking, and resident bike parking.
However, as part of the same bylaw that removed vehicular parking minimums, they also included a bylaw to allow payment-in-lieu of visitor bike parking. Therefore, it would be interesting to see what will happen to the relative proportion of bike and car parking being proposed: were the car parking minimums really a constraint on developers, or will they continue to propose the same amount of car parking? Will developers pay their way out of providing more bicycle parking as well, which would roughly maintain the proportion of car-to-bike parking?
From the graph, we can clearly see that as soon as developers were unshackled from providing (hard-to-sell) car parking, they started proposing significantly more bicycle parking. Before the removal of the minimum, bicycle parking made up roughly only 40% of total parking units. Less than two years later, and bicycle parking is approaching nearly 80% of parking units.
Legal minimums in excess of market demand represent a subtle cost developers face. A more overt one is building permits. There are many kinds of permits needed to construct a new building: demolition, plumbing, mechanical, and many more. For tall buildings, a particularly important one is the shoring permit. (Shoring is the process of supporting the walls of an excavation site, to prevent them from collapsing.)
This is because one of the many fees that developers must pay to the City, in addition to the building permit fees, are Development Charges (DCs), which are meant to fund the increase in infrastructure required by the new people who will be living and working there. Developers must pay DCs when they begin construction, which for tall buildings essentially means when they begin shoring.
In 2023, there were some headlines about a major looming increase in DCs for Toronto developers. Beginning for projects that begin construction on May 1st, developers will be on the hook to pay tens of thousands of dollars more per unit—which quickly adds up to millions of dollars for a tall tower with hundreds of units.
A naive analyst would expect that such an increase would result in much fewer units being constructed. However, it's important to recall that this change was in part a response to other changes from the provincial government's More Homes Built Faster Act (Bill 23) in 2022. The purpose of that legislation was to decrease costs overall for developers. Part of this included exemptions for certain developments from paying any DCs at all, while other changes reduced other taxes and fees that developers would pay throughout the lifetime of the construction.
It should thus be no surprise that the overall effect of raising DCs—even in such a dramatic manner—did not result in any drastic changes among developers. We do not see the same magnitude of developers rushing to get in applications prior to the effects of the new charges. Figure 4 below shows a small dip, but the total number of applications is so low anyway that it is hard to establish whether it is statistically significant.
Figure 4 above may may a little tricky to interpret. Each line represents a simple linear trend for shoring permit applications to the city of Toronto, from 2017 to 2023 (excluding 2020 as an outlier). For each year, a trend was calculated for January to May, and a separate trend for applications submitted from May to December. For years other than 2023, May is just another month. A developer may or may not choose to apply for a shoring permit based on a variety of factors (for example, having finalized approvals from the City and securing financing). Hence, some years, the difference between the
There are other areas where we do see developers reacting significantly to the raising of fees.
Years before the first shovel ever hits the ground, developers must pay the application fee when submitting the initial rezoning. Zoning determines where, what, and how tall new developments get to be. While every inch of the city is already zoned, rezoning is the process in which developers can apply for changes to or exemptions from the zoning bylaw.
In the City of Toronto, zoning tends to be so restrictive that virtually every tall new project requires a rezoning application. Despite the cries of many critics that “condos” or tall buildings generally are going up “everywhere”, by mapping the locations of new rezoning applications we can see clear clusters emerging in certain areas of Toronto: the downtown core, midtown, all along Yonge Street, Eglinton West, and the shores of New Toronto.
Submitting a development application is an expensive affair, both in time and money. In addition to the carrying costs while waiting for approvals, as well as the expenses undertaken to provide the various engineering, architectural, environmental, and other reports required by the City, developers must also pay fees when submitting a development application. These can cost hundreds of thousands of dollars. Most importantly, these fees ratchet up every year on January 1st.
When we look application dates for new developments, we see more applications in the final months leading up to January, but in 2022, there is an anomaly: instead of the increase of applications happening in the fourth quarter of the year, they spiked in September. This is because the City had passed the controversial “inclusionary zoning” bylaw, which mandated a large proportion of units in large developments to be affordable to low- and moderate-income households.
In effect this became an increase in cost on all large developments. Moreover, there was some confusion about when the rules would come into effect: some developers believed it would be effective immediately upon passing Council in December of 2021, which led to an increase in applications in the weeks leading up to the vote.
It soon became clear that the new rule would only affect applications submitted after September 18th, 2022. Unsurprisingly, there was another rush of applications leading up to that date, followed by an uncharacteristic lull in October---usually one of the busier times of the year.
Provincial Policies
The next month, however, something unexpected happened: the provincial government introduced Bill 23, the More Homes Built Faster Act. Among other changes, this replaced Toronto’s very broad inclusionary zoning bylaw with a province-wide rule that was much narrower in application.
Specifically, only buildings within 800 metres of "major transit station areas" (MTSAs) would be subject to providing low- and moderate-income housing. And even then, the number of these units developers are required to provide is much lower than what the City had required. The legislation was passed on November 28th.
The immediate impact this had is that it resulted in a reversal of the trend precipitated by Toronto's local inclusionary zoning policy, by creating a bump in applications in December. Long term, however, there was an interesting development. By simplifying the rules around inclusionary zoning, after Bill 23 was passed, there was an increase in large applications around MTSAs, despite the affordable housing requirements.
Before the passage of Bill 23, proposals around MTSAs had remained relatively stable at around 30% of all applications since mid-2019, which coincided with another piece of Ontario legislation, the More Homes, More Choice Act (Bill 108). While it's still early to make a final judgment on the impact of this rule, these early trends make watching this space interesting to watch.
The other major piece of provincial legislation were the COVID State of Emergency orders. In particular, the stay-at-home orders necessitated an increase in remote work, and a decrease in office usage. While work from home has certainly become a global trend,
Federal Policies
Of course, one of the biggest sources of real estate-related policy news over the past two years has been interest rates. Set by the Bank of Canada, this is essentially a federal policy. Rising political pressure around inflation in 2021 led to the BoC to begin hiking rates from March 2022.
Since interest rates play a major role in determining the borrowing costs of developers, as interest rates have increased, we should expect to see some impact on development proposals.
And indeed we do. As interest rates went up, not only did the total number of units proposed per month decline (as seen in Figure 9), but the average size of a proposal decreased as well.
Figure 10 shows the residential gross floor area (GFA) per unit over time. The residential GFA is the total amount of interior space dedicated to residential uses aside from elevators, stairwells, and garbage shafts, amenity spaces, as well as underground parking. Essentially, it is the area of dwelling units plus the hallways and lobby area. Since hallway widths are determined by the Building Code, they do not vary much between projects. Therefore, reductions in the residential GFA per unit thus implies that either units or lobbies are getting smaller. Finally, since the lobby makes up a relatively small percentage of the total GFA of a tall tower, major changes in the residential GFA per unit largely reflects changes in unit size.
Conclusion
By better understanding how policies can impact development, policymakers can better plan and prepare for the inevitable reactions to new regulations. There are short term and long term implications here. In the short term, planners can anticipate that new rules that will increase the cost of development will result in a rush of applications as the deadline approaches. This will thus result in more work, and longer backlogs, in the immediate weeks or months after the cutoff date. In the long term, increased regulatory and compliance costs will decrease the size and scope of new proposals, which over many years can add up to be become a big political issue. But planners aren’t the only ones who can benefit from these insights.
Developers can also benefit from this information. By knowing the specifics of what their competitors are doing, they can create more informed proposals to either “go with the flow”, or a proposal that will deliberately stand out from others. But by understanding how their competitors will react to new policies (whether they will accelerate new proposals, or postpone them), this can help developers better strategize their own application strategy. One major setback of the data-centered approach, however, is the lag between when a policy is first introduced, and when the application data becomes available to the public for research purposes.
These data are not without limitations, however. Most importantly, the development cycle is very long: for major projects, this can be as long as ten years or more. During this time, governments change, macroeconomic trends change, as do many other factors. Therefore, there can be a long lag between when housing policies change, and when the effects start to become noticeable to ordinary buyers and investors.
It is important to keep track of as much data as possible. While most real estate analysts focus on pricing data, development application data can be valuable to understanding future trends as well. This data shouldn’t only be accessible to policymakers or big investors, either: anyone with a stake in development should be able to think about these issues carefully.
This speaks to the importance of having built an intuition of expectations: not just about market demand, but also about the present and future impacts of various levels of government policy. Historical data helps to build that intuition.
* * *
EDITOR'S NOTE January 26th: Figure 2 has been replaced with an updated graphic, to correct a coding error in the original. The paragraph immediately below has been updated as well.
* * *
UrbanToronto's research service, UrbanToronto Pro, provides comprehensive data on construction projects in the Greater Toronto Area—from proposal through to completion. We also offer Instant Reports, downloadable snapshots based on location, and a daily subscription newsletter, New Development Insider, that tracks projects from initial application.
