Inclusionary zoning – mandating an affordable housing component in all new developments – has been proposed as one approach to affordable housing issues in Toronto and elsewhere. In a recent address to the Land & Development Conference in Toronto, CBRE Canada executive vice chairman Paul Morassutti said the devil is in the details.
“I’m a supporter of inclusionary zoning, and I think we need more of it, but supply is not the root cause and inclusionary zoning is not a complete solution,” Morassutti said. “The disparity between those who can afford to buy or rent in Toronto and those who can’t is going to keep growing as we shift to a knowledge-based, tech-driven economy. As affordability worsens, policymakers need to consider the impact that policies like inclusionary zoning will have on development pro-formas and land values. Amid ever-increasing construction costs and development charges, inclusionary zoning could make affordable housing even less attainable.”
To demonstrate the impact of inclusionary zoning on land values and overall development viability, Morassutti talked about the recent sale of a government-owned site at 26 Grenville St. and 27 Grosvenor St., acquired by Choice Properties REIT and Greenwin Inc. The property was sold with the condition that it be redeveloped for rental housing and include more than 200 affordable units, or 30 per cent of the total units, at 80 per cent of CMHC average market rents. The site ended up selling for $53 per sq. ft. buildable. Had it sold unencumbered, with no affordable housing requirement, Morassutti said the property could have achieved closer to $250 per sq. ft. buildable.
Land values are extremely sensitive to changes in the pricing of the residential units and adding an affordable component, at below market rents, has a dramatic effect, he said.
“Incentives will be required to make the development of affordable housing in Toronto
viable,” Morassutti said. “Otherwise, the risk is that you dissuade development rather than incentivizing it. This will only intensify the affordability problem, and then we risk becoming Manhattan, where cops, firefighters, nurses, teachers, can’t afford to live in the city. I don’t think any of us want that.”