Inclusionary zoning (IZ) in Montreal: can it work?

In April 2021, after modifying its initial proposal, Montreal introduced an inclusionary zoning bylaw, the Règlement pour une métropole mixte.

This week, the CBC reported that not a single developer has opted to build affordable or social housing under the bylaw – all have opted for financial contribution, which, across the 7100 units permitted since 2021, has raised a paltry $24.5 million (enough to build maybe 100 units, depending on land costs and unit size)

This is not surprising: contributions, even in the most expensive – central – sector of the city, are about 70$ per m2 for a 9000m2 project, i.e. $4900 for a 70m2 condo that, in central Montreal, may sell for $550 000 or more.

Why would a developer run the risk and hassle of providing 20% of affordable units when they can avoid it by paying less than 1% of the final value towards social and affordable housing?

The problems with Montreal’s bylaw

Considerable research has been undertaken on inclusionary zoning¹ especially in the US context. Montreal is not the only city where developers opt to pay instead of providing social and affordable housing. Like in Montreal, in many cities these payments are small relative to the final value of the properties being built.

But why do policies like Montreal’s often fail to deliver? A number of possible reasons emerge from the literature.

• successful bylaws typically provide incentives for the developers, such as up-zoning (i.e. being allowed to build a larger building if affordable housing is included), or accelerated permits (e.g. permits delivered in, say, 6 months instead of 2 years, reducing risk and uncertainty). These incentives are typically negociated, but are framed by the bylaw.
• successful bylaws are typically implemented under jurisdiction-wide affordable housing policies. Connecticut, for example, *requires* each municipality to adopt an affordable housing plan. In particular “courts may override local zoning denials of affordable housing proposals in towns where less than 10% of the housing stock is affordable”. This means that municipalities which enforce inclusionary zoning are not at a disadvantage relative to municipalities that don’t: ALL municipalities must implement measures to ensure at least 10% of their housing is affordable. In contrast, developers can avoid Montreal’s inclusionary zoning requirements by building in suburban municipalities.
• inclusionary zoning will tend to be more successful in buoyant and stable markets: risk is lower and extra development costs can be absorbed by rising prices. Montreal’s housing market since April 2021 has been fairly buoyant, but with considerable uncertainty due to COVID, rising interest rates, rising building costs, recessionary pressures, etc… Thus conditions have not been ideal for implementing such a policy.

Research on inclusionary zoning shows that, overall, it does not adversely affect area-wide housing markets, but neither does it always generate affordable housing.

The devil is in the detail: exactly what is asked of developers? What incentives are developers offered? What is the wider housing policy context? What is happening in the wider market and economy? Simply implementing an inclusionary policy is not sufficient.

Should Montreal retire its inclusionary zoning policy?

There is no reason for Montreal to retire its policy, but it needs to be rethought and modified.

Three ways forward

First, its objectives should be clarified. Originally, inclusionary zoning was intended to ensure social mixity in neighbourhoods. It was not intended to make developers provide affordable housing ‘for free’: this is why the incentive structure is important. Under Montreal’s policy developers are expected to subsidize affordable housing. This represents a shift away from encouraging social mixity and towards requiring developers to provide affordable housing.

Second, and related to the first point, there should be meaningful incentives for developers. These should be structured so that the provision of affordable housing is essentially cost- and risk- neutral for developers. Thus, carefully calibrated up-zoning, tax rebates, or expedited permitting (for example) should be possible under the bylaw: developers could then negociate with the city in such a way that affordable housing is built AND that developers do not shoulder extra costs and risk (which, if present, will be passed on to market-price purchasers – if, that is, developers choose to procede).

Third, affordable and social housing policy cannot be delivered piecemeal, city by city. Inclusionary zoning can only function as a (small) component of a wider provincial (and federal) housing policy which provides substantial finance for social housing (i.e. housing provided on a means-tested basis to very low income earmers) and support for affordable housing (i.e. affordable by middle-class households, currently priced-out of decent housing in many areas).

…. why should there be housing policy anyway?

And, finally, it is worth recalling why housing policy is necessary in the first place: as a purportedly civilized and humane society Canada has decided, in line with the universal declaration of human rights, that housing is a human right: all members of society have a right to housing of adequate standard.

Ideally, our income distribution would be such that everyone could afford to rent or purchase such housing. Unfortunately, wide income disparities mean not only that markets cannot provide adequate housing for everyone (some people simply can’t afford the building costs, let alone inflated land prices), but also mean that markets overprovide for investors and higher income earners (where the money is).

Short of redressing income inequalities and correcting all biases in housing markets (desirable, but unlikely!), our governments can protect Canadians’ right to adequate housing by investing taxes in substantial and durable housing policy.

References:

Mukhija, V., Regus, L., Slovin, S., Das, A., 2010, CAN INCLUSIONARY ZONING BE AN EFFECTIVE AND EFFICIENT HOUSING POLICY? EVIDENCE FROM LOS ANGELES AND ORANGE COUNTIES, Journal of Urban Affairs, 32.2, 229-252

Mukhija, V., Das, A., Regus, L. & Slovin, S., 2015, The Tradeoffs of Inclusionary Zoning: What Do We Know and What Do We Need to Know?, Planning Practice and Research, 30:2, 222-235

Ramakrishnan, K., Treskon, M. and Greene, S., 2019, Inclusionary Zoning: What Does the Research Tell Us about the Effectiveness of Local Action? Urban Institute

Wang, R. & Balachandran, S., 2023, Inclusionary housing in the United States: dynamics of local policy and outcomes in diverse markets, Housing Studies, 38:6, 1068-1087

and: https://inclusionaryhousing.org/map/

NOTE: This text is the same as my previous blog post. However, a technical error occured on that post: the footnotes ceased to work, references were deleted, and the post has become uneditable. THIS text is the final version: it contains all references and minor edits. The previous version is still on the blog because I placed the link in a social media post and cannot now alter that link.