Build CanadaToronto
www.buildcanada.com/toronto/memos/make-it-possible-to-build-in-toronto-as-of-right

Make it Possible to Build in Toronto As Of Right

Amar Varma

Amar Varma

August 10, 2026

All Toronto Memos

Make it Possible to Build in Toronto As Of Right

Amar Varma

Amar Varma

August 10, 2026

Key Messages
01

Toronto's four restrictive low-rise zone categories mean almost nothing new can be built without discretionary approval — 33,530 minor variance applications in a decade, roughly 92 per cent approved, but only after months of delay and thousands of dollars in cost per lot.

02

Every time Toronto has replaced discretion with a rule, building has followed: after garden suites (2022) and citywide multiplexes (2023), permits in Neighbourhoods added 1,282 net new homes in 2023, about 3.5 times the 2011–2021 average.

03

Bill 98 already requires the Official Plan to be rewritten. The City should use that mandate to consolidate its four restrictive zones into one permissive residential zone, delegate conforming approvals to staff, and adopt a Community Planning Permit System.

Rebate the municipal property tax on net-new purpose-built rental for each building’s first twenty years, with the cost shared three ways by Canada, Ontario and Toronto on the Partnership to Build template — and the City’s share bridged against the $2.84 billion in development-charge balances collected for growth projects not yet delivered.

Summary

Rental must be the primary new supply for housing in Toronto but the housing type faces serious challenges. According to RBC research, ownership costs currently consume close to two-thirds of a typical household’s income 6. At the same time CMHC reports rising costs and slower rent growth that are pushing the next rental project below viability 1. To combat this the government has taken some steps to reduce the tax burden on new rental builds. Ottawa removed the GST from new rental in 2023 and Ontario matched with its provincial portion 3. The last major layer holding back the economics for new units is the recurring municipal tax.

Toronto should rebate the municipal property tax on net-new purpose-built rental for each building’s first twenty years, on a published schedule that holds flat and then declines to full taxation — and split the cost with Canada and Ontario, the governments that collect the income tax and HST rental construction creates. The City’s share can be bridged against $2.84 billion in development-charge balance collected for projects not yet delivered 4, and the program takes force only when the funding agreements are signed.

The Recommendation

Toronto should rebate the municipal property tax on net-new purpose-built rental for each building’s first twenty years, on a published schedule that holds flat and then declines to full taxation and split the bill with the two governments that collect the taxes rental construction would help stimulate. This would be a one time-limited discount on the cost that weighs heaviest on a rental building’s operating economics, funded in defined shares by Canada, Ontario and the City.

Every new rental project pays income tax on every construction wage and every operating job, and sales tax through its supply chain revenue that flows to Ottawa and Queen’s Park and new housing in Canada’s largest city stimulates more economic growth in wages than other jurisdictions. The City collects none of it; its recurring take is the property tax which is one of the primary levers affecting the economics of creating those new rental projects. The government whose tax most burdens the creation of new rental units is the one least able to afford removing it, because property tax is the largest single source of the City’s revenue. Sharing the rebate three ways matches each government’s cost to the fiscal return it already collects from construction and allows for all three levels to achieve their housing objectives.

Property tax is a high leverage incentive to improve because it is a major operating expense. A dollar of annual rebate is a dollar of net operating income — and net operating income is what a building is valued and financed on. For example at a 5 percent capitalization rate, a dollar of recurring annual relief would support 20 dollars of appraised value, and at 4 percent, 25 dollars. This leverage would convert a modest public cost into significant financeable equity.

Steps have already been taken in this direction. In September 2023 the federal government removed the full five percent GST from new purpose-built rental; Ontario matched by rebating its eight percent provincial portion 3. Both senior governments paid to lower the cost of building rental housing in Toronto. The recurring municipal tax is the layer still standing but the logic that led to the first agreements would also indicate that it should be temporarily removed. The City has already conceded the principle — since 2025 it taxes eligible new rental at a 15 per cent municipal discount for the first 35 years 12 — but a discount that leaves 85 per cent of the bill standing will not materially change a pro forma. This rebate could remove the remaining 85 per cent.

The strongest external comparator ran the experiment in reverse. When New York’s 421-a property-tax exemption lapsed in June 2022, proposed multifamily filings fell 78 percent by the industry board’s count, leading the state to add a successor as part of its 2024 budget 10. This illustrates how sensitive the economics of rental construction are to property-tax treatment.

By implementing a rebate in conjunction with the other levels of government the City can remove a cost and let projects compete for private capital on their own merits. No new machinery is needed for this to work. Grants to owners are lawful within a Community Improvement Plan under section 28 of the Planning Act 8, an instrument the City has operated at scale through IMIT and still operates today through its successor, the EDGE program 9, and the Housing Secretariat already runs the rental-incentive apparatus 7. Eligibility would be confined to net-new rental units, and every project’s schedule for the declining rebate published.

The Problem

CMHC’s Spring 2026 report puts Toronto’s 2025 housing starts well below the ten-year average and last per capita among the seven large metropolitan areas: apartment starts of 18,986 against a 26,856 average, ground-oriented starts of 7,101 against 11,760 1. Condominium presales collapsed, stalling the ownership pipeline 1. The rental pipeline that must fill the gap remains thin against the need, and CMHC reports rising building costs, slower rent growth and longer lease-up periods raising viability thresholds for the projects that would extend it 1. A rental building earns its return over decades of operations, so a permanent annual cost — property tax first among them — weighs on the start decision in a way no one-time fee does.

The City has put significant time and money into building new rental units. The purpose-built rental incentives stream has unlocked more than 7,000 net new homes, and the City is asking the Province for $596 million to reach nearly 16,000 more that are ready to start 7; the Partnership’s Phase 2 rental incentive caps at 10,000 homes 2. In August 2026, Canada and the City added a further package — up to $2.7 billion in federal financing and $703.7 million from the City, for 5,600 rental homes 11. Each is real and funded but finite. A tax rebate, unlike these programs, is not an envelope: it scales with exactly the construction it exists to cause, and costs nothing when nothing is built.

There are also existing mechanisms to help bridge this mechanism. Toronto’s development-charge reserve funds closed 2024 at $2.84 billion — money collected from builders for growth infrastructure that has not yet been delivered 4. Those funds remain legally dedicated to capital under the Development Charges Act; but this recommendation could borrow their timing as bridge financing while intergovernmental payments arrive.

Toronto’s supply channels are running far below their own decade averages — and the shortfall is local, not national: Toronto’s per-capita starts were the lowest of the seven large metropolitan areas in 2025 1. The line that matters is the apartment line, because it holds both the collapsed condominium pipeline and the rental pipeline that must replace it. The three-way rebate is priced for this moment: it pays nothing unless a building goes up, and its cost lands on the three treasuries in proportion to what each stands to collect long-term from bringing back starts.

Implementation

Design the rebate and adopt it conditionally. City Council should direct the Executive Director, Housing Secretariat, with the Chief Financial Officer and Treasurer, the Chief Planner and Executive Director, City Planning, and the City Solicitor, to bring forward a rebate of the municipal property tax on net-new purpose-built rental — a twenty-year published schedule declining to full taxation, eligibility confined to net-new rental units, with grant authority routed through a citywide residential Community Improvement Plan under section 28 of the Planning Act 8 — reporting to the Planning and Housing Committee within two cycles of the new term, for decision by the Council elected October 26, 2026. The program takes force only upon execution of the funding agreements in point 2, and every approved project’s schedule is published.

Negotiate the three-way funding agreement. City Council should direct the City Manager and the Chief Financial Officer and Treasurer to seek a successor phase of the Canada–Ontario Partnership to Build under which Canada and Ontario each fund a defined share of the rebate — the June 2026 template extended from the one-time charge to the recurring one 2 — and formally request the Government of Ontario, and call upon the Government of Canada, to bring matching commitments forward when the legislature and Parliament sit this fall. Write the condition and the expiry into the agreement itself, and treat the loss of either partner’s share as a program sunset rather than a City liability.

Bridge the City’s share against growth reserves, and report. City Council direct the Chief Financial Officer and Treasurer to structure the cash flow so rebate payments are advanced against the City’s development-charge reserve balances — $2.84 billion at year-end 2024, held against growth projects not yet delivered 4 — and made whole as federal and provincial reimbursements flow, leaving the funds’ statutory purpose intact; and to report annually to the Executive Committee on uptake — applications, units started, rebates paid, partner shares recovered — with a five-year review that measures additionality: whether rebated projects out-build the counterfactual. If they do not, Council amends the program; it is a by-law, not an entitlement.

Financial impact. The rebate applies only to taxes that exist because a new building exists, so no current revenue is touched: the City’s share is forgone for a new assessment, and Canada and Ontario reimburse their shares by agreement. The timing gap between rebates paid and reimbursements received is bridged against balances and repaid in full. Administration is absorbed within the Housing Secretariat’s approved budget; the Chief Financial Officer and Treasurer would confirm the treatment.

Risks and objections. The primary objection is that this is a tax rebate flowing to landlords while renters struggle. The answer is that the rebate exists only if new rental homes exist, its cost is borne by no current taxpayer in any year, and the beneficiaries of a working rental pipeline are the renters who occupy it — the supply is the relief. Publishing every project’s schedule keeps the bargain inspectable.

Sources

Share

Other HOUSING Memos

Amar Varma

Finish the Sixplex Permission

Amar Varma

Adrian Rocca

Split the Property Tax Bill on New Rental To Bring New Units to Market

Adrian Rocca