Star Metro - Inclusionary Zoning in Canada: How Smart Policy Can Bridge the Affordable Housing Gap Without Killing Development

"Inclusionary zoning, done right, is a real policy lever. Done poorly, it simply kills projects - and a project that never gets built helps no one. The design of these policies matters enormously, and developers need to be at the table when cities are writing the rules."
- Ladan Hosseinzadeh Sadeghi, President & CEO, Sky Property Group Inc.

Inclusionary zoning (IZ) policies compel developers of large new residential buildings to set aside a share of units - typically between 5% and 25% - for households earning below area median income, usually at below-market rents or sale prices. Unlike affordable housing built entirely by non-profit or government entities, IZ integrates income-mixed housing directly into market-rate buildings, distributing affordable units across established neighbourhoods rather than concentrating them in standalone projects.

Ontario became the first Canadian province to formally enable inclusionary zoning through the More Homes for Everyone Act in 2022. Toronto followed with its IZ By-law, mandating 5% to 22% affordable units depending on the Official Plan area, with affordability targets set at 80% of Average Market Rent (AMR) for 25 years. Vancouver has operated a form of community amenity contributions (CACs) and affordable housing requirements for years, and Calgary is actively studying IZ frameworks. Federally, the Housing Accelerator Fund has encouraged municipalities to adopt IZ as part of their housing action plans.

The policy is expanding - but so is the controversy surrounding it.

The Developer's Dilemma: Math That Has to Work

Ladan Hosseinzadeh Sadeghi speaks candidly about the financial realities that inclusionary zoning creates for developers, particularly in a period of elevated construction costs and interest rates.

"Every affordable unit in an inclusionary building must be financially cross-subsidized by the market-rate units," she explains. "That cross-subsidy comes directly out of the pro forma. When land costs are high, construction costs are high, and financing costs are high - all of which describes Canada in 2025 and 2026 - that subsidy can tip a viable project into non-viability. We have already seen projects shelved or significantly redesigned in Toronto because the inclusionary requirements, as currently structured, cannot be absorbed."

The challenge is not theoretical. Industry analysis has shown that Toronto's current IZ framework, applied to medium-density projects in high-land-cost areas, can reduce overall residential supply by discouraging development applications. The Canadian Home Builders' Association and the Urban Development Institute have both flagged affordability requirements set too high - without corresponding density bonuses, reduced development charges, or expedited approvals - as a recipe for fewer units overall, not more.

The key variables in any IZ policy design are: the percentage of affordable units required, the depth of affordability (how far below market), the duration of affordability (25 years vs. in perpetuity), and whether density bonuses or other offsets are provided. Get those variables wrong, and the policy defeats itself.

There are examples, both within Canada and internationally, where inclusionary zoning has functioned effectively. Montgomery County, Maryland has maintained one of the longest-running IZ programs in North America since 1974 - producing over 16,000 affordable units while sustaining robust market development. The difference, analysts note, is calibration: Montgomery County's requirements were set at a level the market could absorb, with density incentives built in from the start.

In Canada, Vancouver's density bonus system - where developers receive permission to build more floor area in exchange for affordable housing contributions - has generated thousands of below-market units while maintaining development viability. The city-wide rezoning that accompanied those policies ensured that adding affordable units didn't simply mean building fewer total units.

Ladan Hosseinzadeh Sadeghi is a vocal advocate for including experienced developers in the co-design of housing policy, rather than positioning industry and government as adversaries.

"Sky Property Group has been active in the Greater Toronto Area for years," she says. "We understand what it takes to move a project from land assembly through approvals to construction to occupancy. That knowledge is invaluable when a municipality is trying to write an inclusionary zoning policy that actually works. If you don't understand development pro formas, financing structures, and construction timelines, you can write a policy that looks great on paper and produces nothing on the ground."

Ladan Hosseinzadeh Sadeghi is clear that inclusionary zoning cannot be the sole answer to Canada's housing crisis - but she is equally clear that dismissing it entirely would be a missed opportunity.

"We need every tool we can get," she says. "Inclusionary zoning, done thoughtfully, can generate thousands of units of affordable housing embedded within livable, mixed-income communities - without requiring the government to write a single additional cheque. That is worth fighting for. But we have to be honest about what the policy can and can't bear. The best version of this works. The careless version makes things worse."

Sky Property Group Inc. is a Toronto-based real estate development company specializing in land assembly and high-density residential development in the Greater Toronto Area. Under the leadership of President & CEO Ladan Hosseinzadeh Sadeghi, the company is committed to responsible urban development, housing supply expansion, and active engagement with Canadian real estate policy.

View the original press release on ACCESS Newswire

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