Bill 23 – Part 2: Increased Cost Certainty for Development-Related Charges
*Originally posted on November 1, 2022, updated on November 30, 2022.
On October 25, 2022, the Province introduced Bill 23, More Homes Built Faster, 2022, which received royal assent on November 28, 2022. As the Bill was referred to the Standing Committee on Heritage, Infrastructure and Cultural Policy (the “Committee”) on October 31, 2022 and subsequently amended, the below blog has been updated to reflect these amendments.
Bill 23 amended nine statutes and introduced a new statute regarding servicing infrastructure in York and Durham Regions. These changes will have significant impacts on the land development industry and on how growth is financed.
This post constitutes Part 2 of Davies Howe LLP’s Bill 23 series, which focuses on changes to the Province’s “Growth Funding Tools”, consisting of development charges, parkland dedication rates and community benefit charges.
Development Charges (“DCs”)
Bill 23 implements both immediate and ongoing changes aimed at reducing DCs. Notable amendments to the Development Charges Act (the “DCA”) include:
Limited Market Rental Housing Exemption
Bill 23 introduced a limited exemption for 1 new rental unit or 1% of the existing residential units (whichever is greater) in existing rental buildings containing four or more rental units. This exemption is not related to the unit being affordable, attainable or developed by a non-profit.
Additional Low-Rise Unit Exemption
Bill 23 enacted a series of exemptions for new units in existing and new single detached, semi-detached and rowhouses up to a maximum of three total units, which align with the zoning changes discussed in Part 1 of this blog-series, permitting up to three units on a residential lot within those same building types.
Affordable and Attainable Housing Exemption
On a date to be proclaimed by the Lieutenant Governor in Council, exemptions from DCs are provided for affordable housing where values will be below average, transactions are “arm’s length” and a specialized agreement is entered into. The Province has stated that it hopes this exemption will encourage the development of affordable residential units.
Attainable housing, which is expected to be defined through future regulation, will also be granted an exemption when a specialized agreement is entered into.
Non-Profit Housing and Inclusionary Zoning Exemption
Inclusionary zoning mandated residential units as well as non-profit housing developments undertaken by certain types of non-profit housing organizations are now exempt from DCs. For non-profit housing, the exemption is retroactive to a limited extent in that future installment payments under s. 26.1 of the DCA will be cancelled.
Discount for Purpose Built Rentals
A tiered discount has been enacted for DCs levied on “purpose-built rentals”, meaning a building or structure with four or more dwelling units all intended for use as residential rented premises. The larger the unit, the higher the discount, with a 15% discount for a 1-bedroom unit, 20% for a 2-bedroom unit and 25% for units with three or more bedrooms. This discount applies in addition to the applicable DC interest rate freeze.
Discount on DCs and Expiry of By-laws
DC rates in a By-law enacted as of January 1, 2022 will now be phased in over a 5-year period. In year one, the maximum DC that could be charged would be discounted at 20%. This discount would decrease by 5% each year until year 5, where the full rates would apply. This is retroactive in the sense that DCs already imposed on development by a DC by-law passed on or after January 1, 2022 will still receive this 20% discount provided that the DCs were not payable before November 28, 2022.
Longer By-law Review Interval
Before Bill 23, DC By-laws were reviewed by the imposing municipality every 5 years. Reviews are followed by new DC By-laws, which have led to steep DC increases in some jurisdictions in recent years. Now, this mandatory review period is 10 years. While municipalities are permitted to review DC by-laws on a more frequent basis, limiting reviews to once per 10 years allows municipalities to charge a non-discounted DC rate in years 5 through 10.
DC Interest Rate
Bill 23 established a maximum interest rate, based on an average of prime rates published by five large Canadian banks, plus 1.0% adjusted quarterly. This rate applies where DCs are paid by installment under s. 26.1 of the DCA and during the “freeze” period under s. 26.2.
DC-Eligible Capital Costs
Minor reductions in the capital costs are also now recoverable through DCs. Bill 23 eliminated “housing services” and certain study costs from the list of DC eligible services. Additional eliminations are possible through regulation.
Historic Level of Service from 10 to 15 years
Bill 23 changed the historical service level used to calculate capital costs eligible for recovery through DCs from the current 10 years to 15 years. This applies to the passage of all new DC by-laws, (with an exception for transit, which is currently excluded by the Province’s DC Regulation) and is expected to have a moderating effect on the maximum DC chargeable in a given service area.
Increased Transparency in Use of DC Funds
Bill 23 requires municipalities to allocate or spend a minimum of 60% of their DC reserve balance on “priority services” (which will include water, wastewater and roads) at the start of each year. Additional priority services may be prescribed in the Regulations.
To provide greater cost certainty and reduce expenses associated with development, Bill 23 also revised the parkland dedication requirements under the Planning Act including:
Discounts on Affordable and Attainable Residential Units
On a date to be proclaimed by the LG, a new formula will be used to reduce the maximum amount of land dedication required where affordable or attainable units are provided, such that the maximum amount of land that can be required is reduced by a factor of the proportion of new dwellings excluding affordable and attainable units and the total number of dwellings proposed (i.e. non-affordable or attainable residential units / total residential units).
If the alternative (unit based) parkland rate is applied, affordable and attainable units do not contribute towards the unit count.
Non-Profit Housing Exemption
Non-profit housing developments are now exempt from parkland contributions. Non-profit housing developments are proposed to be defined using the same definition as that introduced to the DCA through Bill 23.
Low-Rise Additional Unit Exemption
Consistent with the changes to official plan policy and zoning by-laws to permit additional units in existing single detached, semi-detached and rowhouses, parkland contributions are no longer required for new units in those same building types up to a maximum of three units.
Maximum Alternative Parkland Dedication
The maximum alternative dedication rate was reduced from a rate of 1 hectare per 300 dwelling units to 1 hectare per 600 net residential units. For cash-in-lieu, the rate was reduced from 1 hectare per 500 dwelling units to 1 hectare per 1000 net residential units. Notably, the definition of “dwelling units” was removed and “net residential units” will be determined by subtracting the existing residential units from the proposed residential units. This represents a 50% decrease from the current maximums.
Determining Parkland Dedication Rates
Through Bill 23, parkland dedication rates will now be set at the time a site plan or zoning by-law amendment application is made. These provisions are modeled on the existing DC freeze provisions. A freeze on the applicable rates would remain in effect for up to two years following approval of the application, until building permits are obtained. The freeze period rates will become unavailable if building permits are not obtained within the allotted two years.
In addition, only new units and developments are now subject to parkland dedication requirements.
Parkland Credits for Encumbered Land
On a date to be proclaimed by the LG, Bill 23 will amend the Planning Act to allow for “encumbered land” (i.e. land subject to an easement or having below grade infrastructure) and privately owned public spaces (“POPs”) to count towards parkland dedication requirements. Applicants will have increased control over the land they intend to convey parkland dedication.
Appeal Regarding Parkland Characteristics
Also on a date to be proclaimed by the LG, a new appeal will be introduced to allow proponents to appeal the refusal of a municipality to accept the conveyance of land as proposed by the proponent within 20 days of notice being given.
Requirements for Municipalities
Municipalities are now required to develop a parks plan prior to passing a new parkland dedication by-law in situations where the municipality plans to use the standard parkland dedication rate. The standard rate requires that the maximum land to be conveyed not exceed 2% for development or redevelopment for commercial or industrial purposes and 5% for all other types of development.
Municipalities are also be required to allocate or spend a minimum of 60% of their parkland reserve balance at the start of each year.
Community Benefits Charges (“CBCs”)
Bill 23’s amendments were introduced to provide increased clarity surrounding maximum CBC rates. Maximum rates are now based only on the value of new development, as opposed to total property values. To achieve this, a new formula was introduced that factors out the floor area of existing buildings and structures.
Similarly, on a day to be proclaimed by the LG, another new formula will become effective that factors out the floor area of “affordable residential units” or “attainable residential units” (as defined in accordance with the proposed regulation to be prescribed under DCA) from the valuation equation.
Inclusionary Zoning (“IZ”)
Amendments are proposed to Ontario Regulation 232/18: Inclusionary Zoning created under the Planning Act (the “Regulation”) that propose to establish an upper limit of 5% on the number of units that may be required to be set aside as affordable and a maximum affordability period of 25 years. Currently, the municipality has the discretion to set the limit as well as the period of affordability over which the affordable housing units would be required to remain affordable.
The Regulation is also proposed to prescribe the procedure to determine the lowest price or rent that can be required for IZ units, which is proposed to be 80% of the average resale purchase price of ownership units or 80% of the average market rent for rental units.
Affordable housing units in a development subject to IZ would also be subject to certain exemptions from DCs, parkland dedication requirements and CBCs.
For more information on Bill 23’s changes to Ontario’s planning regime, please visit Parts 1 to 6 of the blog-series.
If you wish to discuss how this implements your development or appeal rights, please do not hesitate to contact the team at Davies Howe LLP.