Inclusionary Zoning is No Silver Bullet for Toronto’s Acute Housing Affordability Problem

New policies and charges create more challenges for developers already grappling with rising costs, potentially worsening affordability

Toronto – May 29, 2019 – Despite some cooling of the Toronto housing market, the city continues to grapple with an affordability problem and there are no easy fixes. Inclusionary zoning – mandating an affordable housing component in all new developments – has been proposed as one approach to address a multifaceted challenge. But the devil is in the details here, CBRE Canada Vice Chairman Paul Morassutti told the Land & Development Conference in Toronto today.

“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 pointed to the 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 estimated the property could have achieved closer to $250 per sq. ft. buildable.

How could the land value drop so precipitously? Because 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. “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.”

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com. In Canada, CBRE Limited employs 2,275 people in 22 locations from coast to coast. Please visit our website at www.cbre.ca.