Markham is reneging on a deal with the federal government to institute city-wide upzoning, risking millions in funding and delivering another blow to Ottawa’s oft-criticized housing accelerator fund.

Frank Scarpitti, the city’s mayor, announced earlier this month that he would use his strong-mayor powers to cancel a planned move to permit four-units-as-a-right zoning, a key condition in its deal with the federal government to access nearly $59 million in funding.

Toronto made a similar walk down from promised housing reforms last year. The city had pledged to institute six-units-as-a-right zoning across its borders, but Mayor Olivia Chow opted for a compromise bylaw that limited its application to wards in central Toronto and Scarborough.

Initially, Federal Housing Minister Gregor Robertson gave Toronto six months to change course. But when that deadline passed without any progress, he docked $10 million from the city’s $471 million HAF allotment.

That’s less than the $30 million former housing minister Nathaniel Erskine-Smith threatened to withhold from the city back in early 2025.

At the time, critics suggested the Liberals were wavering on the HAF program, and Robertson would be far less demanding in ensuring enforcement of the agreements.

Then-housing minister Sean Fraser pulled out of the HAF agreement with Oakville in 2024 after the city failed to pass promised zoning changes. He also abruptly cancelled deals with some Metro Vancouver municipalities after a development charge increase was approved.

READ MORE: Money for nothing? Feds’ failure to condemn Toronto’s breach of housing deal ‘concerning,’ say critics

Bryce McRae, a former stakeholder relations director for Conservative Leader Pierre Poilievre, said Markham’s move shows the limitation of the government’s “carrot” approach to dealing with the municipalities.

Under HAF, the government provided additional funding for municipalities that agree to their terms. It has no impact on eligibility for the score of other federal programs.

That means municipalities walking back zoning reforms won’t jeopardize necessary infrastructure funding.

McRae said municipalities are feeling “emboldened” by the experience in Toronto, and know that even if they risk being penalized, they will still be able to take in some HAF cash they wouldn’t otherwise have without having to wear politically contentious zoning changes.

This takes on an added layer of importance with Ontario and B.C. — the home of the country’s priciest housing markets — holding municipal elections this year.

“The challenge now is the municipalities are now taking that carrot and we’re now in a situation where they’re kind of calling the government’s bluff, ” said McRae, now a senior consultant with Summa Strategies.

“Is the government going to pull that money completely, or are they going to they might see it as half measures or just certain amounts of funding that they can claw back? It remains to be seen what kind of precedent they’re going to set.”

McRae said the Conservatives’ proposal to tie infrastructure funding to housing starts would have better incentivized municipalities because they couldn’t afford to lose out on this crucial financial support. It also would allow the municipalities to determine for themselves what zoning changes are necessary to hit their targets.

Housing expert Mike Moffatt also warned that letting Markham off easy would encourage more municipalities to scale back promised reforms.

“Part of what convinced the mayor of Markham to make this move is the penalties on the City of Toronto were relatively minor,” he said.

“So, I do think we are already seeing the impact of HAF not being enforced very strictly, and if the federal government doesn’t put that serious or any penalty on Markham, I think we’re going to see more of this.”

The mayor of Markham’s staff said he was unavailable for an interview.

Moffatt, the founding director of the PLACE Centre at Smart Prosperity Institute, said he didn’t believe failing to upzone to four-units-as-of-right would seriously slow new housing construction in Markham. This is because the largely suburban Toronto city was developed long after the Second World War and doesn’t have many smaller, single-family homes that would make ideal targets for fourplexes.

Still, he said failing to act would be a “symbolic” move that risked encouraging other municipalities better suited for fourplexes to abandon reforms.

It could happen soon, as well. The City of Calgary hosted a public hearing on Monday on a proposal to unwind city-wide upzoning that was approved in 2024.

Council backed starting the repeal process in a landslide 14-2 vote, and Calgary Mayor Jeromy Farkas campaigned in last year’s election on eliminating the rezoning bylaw.

Calgary was persuaded to make the zoning changes to access money under the HAF program, and city staff warned that full repeal of the bylaw could mean the city is non-compliant with the agreement.

When reached for comment, Robertson’s office deferred comment to the Canada Mortgage and Housing Corporation, which operates HAF.

In a statement, the Crown corporation said that it “municipalities are expected to fulfill their commitments” and warned that if those “commitments are not met or are reversed, HAF funding is at risk.

The CMHC said it would “continue to work with the city of Markham and the city of Calgary directly on their progress ahead of any decision on HAF funding.”

Conservative housing critic Scott Aitchison said these experiences highlight the fundamental flaw with the HAF — it complicated an already costly and unwieldy approval process by bringing in an Ottawa-knows-best approach.

“It’s adding more bureaucracy, which is fundamentally at its core, the problem in the housing situation,” he said in an interview, warning that it could be repeated in the federal government’s new Build Canada Homes agency.

“It’s classic. It’s the Liberal government overly complicating things to try to direct how the world should work.”

Aitchison said the housing crisis is caused by two major factors: costly fees — namely developer charges — and labyrinthine zoning rules.

Developer charges are used to ensure new housing projects cover the cost of their associated infrastructure needs. Municipal zoning laws lay out where certain housing types are permitted.

But with housing costs soaring, Aitchison said municipalities can’t “force all new development to pay for anything related to that new development,” and Ottawa needs to set targets for approvals to ensure zoning rules aren’t slowing down construction.

That’s why he said the Conservatives are proposing eliminating the GST on all new homes under $1.3 million and helping municipalities offset the cost of new development with a fund that would tie infrastructure funding to housing approvals.

“As a federal government, we expect you to improve the speed dramatically… the process to approve new housing, and dramatically reduce the cost and burden of government on that new housing,” Aitchison said.

Moffatt said the HAF program — which has been wound down — wasn’t as effective as it could have been because the government decided to reach individual “bespoke” deals with municipalities, instead of calling for across-the-board zoning reforms.

He expressed optimism about a new $51-billion infrastructure fund announced in last fall’s budget. The money would help provinces and municipalities cover the cost of housing-enabling infrastructure such as wastewater treatment facilities without having to resort to taxing new home construction.

Part of this funding from Ottawa would flow to other orders of government via negotiated agreements and would be contingent on cutting developer charges.

If the feds had decided to reach deals with the provinces for HAF funding, Moffatt said money would have flown quicker and taxpayers would have gotten “more bang for our buck.”

Ottawa City Councillor Tim Tierney said municipalities are still seeking clarity from the federal government on the infrastructure program, but noted the provincial agreements would only cover one stream of funding.

Tierney, the first vice-president with the Federation of Canadian Municipalities, said the community stream replaces the old Gas Tax fund and would provide direct funding to municipalities.

He said the former Trudeau government was quick to offer funding to cities for housing, but didn’t come to the table with money for the necessary infrastructure.

Tierney said the Carney government “gets that” cities need funding to build wastewater treatment plants, sewer mains and other infrastructure to support housing growth.

Aitchison said he was initially optimistic that Carney understood what was needed to tackle the housing crisis after the Liberal leader proposed slashing  developer charges by half in last year’s campaign.

But he said the government has been slow to act and was skeptical another fund would help speed up construction.

“He talked about something pretty definitive, like getting development charges cut in half. I thought, ‘Oh, he gets it.’ And here we are. They’re still talking about this infrastructure fund, but there’s nothing to it,” he said.

“I still don’t understand what the parameters are. Is it going to be another one of these top down we know best how to plan cities kind of approach that says you need fourplexes-as-of-right everywhere? Or is it going to be a plan that says, ‘Oh, look at you, you’re making great progress. We’re going to support you with that project?’ I don’t know.”