On today’s show we’re talking about Inclusionary Zoning. This is a new term that you might not have heard before.

Inclusionary zoning is code for building affordable housing.

Many North American cities, including Vancouver, New York, San Francisco, and Boston have implemented inclusionary zoning. In fact there have been hundreds of inclusionary zoning initiatives around the world.

The City of Toronto has just implemented their inclusionary zoning rules and adopted the principles in their official plan.

According to the city, only 2% of the housing built in Toronto in the past 5 years has been affordable. That metric is not at all surprising given the cost of construction. As someone who underwrites these projects on a regular basis, there is no way to create new affordable housing without a builder losing money.

Unfortunately, this is one of those initiatives that simply erects another barrier to development. The net result will be even fewer new units constructed which will ultimately reduce the supply without addressing the demand side of the equation.

This is a selective tax on developers. It basically says, you rich developers are making too much money. So we’re going to tax you by forcing you to include affordable units.

But the problem with this thinking is that government can’t force developers to undertake a project. If the project doesn’t meet the financial metrics, then they’ll go develop somewhere else where the numbers make sense.

There is nothing forcing a developer to build in a specific location. If Toronto doesn’t make sense, a large developer like Minto will go build in West Palm Beach. It’s not like they haven’t built in West Palm before. City councils are constrained by municipal boundaries. Developers are not.

This seems like an initiative that is designed to get votes and win political points. Politicians want to be seen as doing something, anything even if the net result is zero.


Host: Victor Menasce

email: podcast@victorjm.com