A false dilemma about Section 37 deals

I’ve been urging that we manage public-private partnerships differently, and that we use Section 37 agreements to better effect.  I should be more careful what I wish for.

Affordable housing is already possible under Section 37 of the Provincial Planning Act.  Only a small portion of the developers contributions have been used for this purpose.The City of Toronto is now exploring the possibility of creating more affordable housing by diverting Section 37 resources from other needs.  If we don’t reserve space for community centres, libraries, parks, road and streetscape improvements, transit, and cultural amenities in these oversized buildings, how many more units of housing can we afford to squeeze into buildings that are already bigger than our by-laws allow?  That’s the critical question posed by the RFP posted on the Citybids website last week.

Residential high rise developers obviously prefer to avoid complex negotiations with City planners, local Councillors, and affected communities.  They don’t want to guess at what they’ll have to build in return for the additional height and density their projects have been granted.  Nor do they want to be held accountable to others for the pace and quality of construction.  The inconsistency and uncertainty of the current practice creates problems for them at every stage of projects.  They’d rather build apartments.

It’s a bottom line issue for them.  Their core business is developing blocks of apartments.  The more efficiently they can pack units onto a site, the better their margins.  Unlike the specialized needs of non-residential tenants, like libraries and rec centres, standardized apartments pose no engineering or architectural challenges for them.  Their tried and true costing and pricing formulas are straightforward.  For these builder bees, it’s like adding more cells to a honeycomb.

They know how to protect their margins and satisfy their financiers too.  Survival depends on it.  By restricting affordable units to less desirable parts of the building, and by downgrading fixtures and finishes, it’s possible to bring the cost of construction down.   This is harder to do with purpose-built, non-residential space, such as a library or an art gallery.

Clearly it would be a big win for the industry to restrict Section 37 obligations in this way.  It would be a big loss for the City.  Section 37 deals allow the City to make space for the “soft” services that conventional development charges don’t address.  When you stack more people on a patch of land, the need for services goes up.  Without the ability to preserve space in those taller, denser developments, this creates problems for everyone except the developers.

Consistent with Provincial statute, development charges are mainly used to cover “hard” services such as water, sewage, and roads.  These charges are intended to help augment the infrastructure needed to accommodate bigger, more populous buildings.  Unsurprisingly, there’s no money left over for discretionary things like health, education, green space, or culture.

In contrast, Section 37 provides for many of the things needed to make life liveable in and around these new towers.  Just as importantly, it provides municipal governments with an alternative to being overruled by the Ontario Municipal Board.  Without Section 37, even more developers would override local by-laws by appealing to the OMB.  At the very least, it helps municipalities capture some of the money and energy developers would have expended on OMB hearings, and put it to better use.

It’s easy to see what would happen if we changed course and used all our Section 37 opportunities to add more housing.  Remember, Section 37 only applies to projects that already exceed the City’s height and density limits, so the proposition is to add even more housing to the extra already granted.  That’s extra extra building height and density.   As a result, we’d have more affordable housing units and a more profitable development industry.   However we’d have more acute need of services in these denser communities, and we’d have less capacity (space and money) to provide them.

It’s hard to see how this is good for Toronto.  If the City can’t use Section 37 to reserve space for daycares, libraries, community centres, and parks, the money will have to come from taxpayers.  As time goes on, the cost of leasing and purchasing prime real estate will rise in areas where service needs are most acute.  Clearly this was not the intent of the Province when it gave the City power to trade building height and density for community benefits.

On an even more elementary level, it’s time to ask how affordable housing can be considered a community benefit.  Access to adequate housing is considered a necessity by most of the civilized world (see article 25 of the Universal Declaration of Human Rights).  It’s not something a City can opt out of or rely on industry to provide through a density bonusing scheme like Section 37.  It certainly shouldn’t require the sacrifice of civic space and services to achieve this fundamental objective.

It raises doubt about what we understand a community to be.  A community isn’t simply a warehouse of bodies at rest.  If this is the sense of community that government and industry have in mind when they contemplate swapping living space for community benefits, then the dedication of Section 37 to affordable housing starts to make some sense.  Most Torontonians expect something better.

It also calls the idea of affordability into question.  On the micro level, can a low income family afford to live in a community where the demand for services exceeds the supply, and where their needs can’t be met in reasonable proximity to their homes?  On the macro level, can the City of Toronto, which is economically enriched by cultural industries, afford to relinquish the community and cultural facilities needed to seed the next cohort of artists and entrepreneurs?

Does any sane person really believe that housing alone is a substitute for the health, education, and social development that are advanced by community centres, libraries, and cultural facilities?  Are we prepared to concede that we can’t figure out how to make living space truly liveable?  Is it just too complicated for City planners, real estate developers, and our Provincial overlords to figure out?

Perhaps the RFP explains how it’s possible to speculate about dedicating Section 37 to housing, without concern for the consequences.   It gives the impression that assets and resources derived from use of Section 37 are like found money, which can be put to one purpose as easily as to another, without risk or harm.  In an explanation titled, “Section 37,” it provides this impossibly naïve statement:

“Community benefits are provided by a developer at no cost to the City.”  (RFP 9119-15-7142, page 6 of 46)

It is a delusion to think that Section 37 benefits come at no cost to the City.  Indeed, Section 37 of the Planning Act is worded as a transaction or an exchange in which something is given and something is taken.

“The council of a local municipality may, in a by-law passed under section 34, authorise increases in the height and density of development otherwise permitted by the by-law that will be permitted in return for the provision of such facilities, services or matters as are set out in the by-law.” (Planning Act, 1990. s. 37(1))

This quid pro quo for concessions adds millions of dollars to a project’s value, and costs the City millions of dollars in hard and soft services.  It also has a cost for every citizen who will live in the crowded shadows of these buildings.  Generations will experience the impact in terms of congestion, competition for services, noise, and stress.  City Planning seeks to manage and mitigate these effects, but make no mistake; every sing Section 37 agreement represents an exception to the City’s by-laws, undermining the practice of municipal planning in general.  In the long run, we’ll all pay for that too.

So there is nothing free about Section 37 benefits.   Citizens and their governments pay in full for whatever benefits the developers contribute.

This sense of un-reality would be laughable if it didn’t have such dire consequences.  City planning and policy isn’t like a SIM game, and real estate isn’t like playing Monopoly.  You can’t restart the game when things get out of hand, or flip the board when it dawns on you that all the real estate and all the money is in someone else’s hands.

In reality, everything we choose to do with our land and money comes at the expense of something we choose not to do.  The consequences are deep and lasting.  To make good choices about Section 37 benefits, we must start by being clear about what those choices are.

Someone at City Hall, in agreement with someone in the development industry, believes that we can be tricked into choosing between affordable housing and the soft services that make that housing liveable, as if there is no possibility or obligation to do provide both.

The lobbyists must be sniggering outside the Mayor’s office, where policy questions of this magnitude need to be aired.  By some linguistic sleight of hand, they’ve persuaded someone that you can relieve the effects of heightened residential density by making it denser, and that the resulting displacement of services is a “benefit,” “contributed” at no cost to the community.

It is to laugh.  Or weep.  Depends on your state of mind.

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