I had a call with a developer in Paris earlier this week and it was interesting to hear him talk about the new home market over there. It sounded a lot like Toronto. Higher interest rates cooled demand. Individual investors largely disappeared. And now developers are having to rethink their strategies and floor plans (including suite sizes).

But in his view, this isn't necessarily a bad thing. It now means that you actually have to be a reasonably good developer in order to have a chance at succeeding. You have to design thoughtful floor plans and build great housing. It's a return to fundamentals, and I would argue that the same thing is happening here in Toronto.

My other noteworthy takeaway was around social housing. All new developments in the Île-de-France region are subject to inclusionary zoning. I believe the requirement is 30% of the suites. These suites are then purchased by social housing operators, and it is one of the ways that new supply is created in the market.

We talk a lot about IZ on this blog, but what's interesting about this approach is that it becomes a forward sale for the developer. Meaning, it helps to de-risk projects. Before doing anything, you know you've sold 30% of your inventory, and somehow the numbers all work. European social housing math is baffling to me.

I am now wondering if this creates some kind of incentive to keep development costs in check. Because if social housing operators are expected to buy 30% of all new homes, then they too are going to want them to be as cost effective as possible. I'm speculating though; I don't know that this is the case.

If you're a developer or real estate person in Paris, please get in touch. I'd love to learn more about your market and trade notes.

Vancouver just put forward a bold proposal to encourage more social, or non-market housing, across the city. As drafted, new social housing projects up to 6 storeys would be permitted as-of-right in "villages" and social housing between 15-18 storeys would be permitted as-of-right in "neighborhood centers." This is a big deal. I mean, look at the above map. Between these two area designations, big chunks of the city would receive these new permissions. For more information on the proposal, check out this short video.

Montreal has a bylaw that came into effect on April 1, 2021 and that requires developers to contribute to the city's supply of social, affordable, and family housing. (All three of these have their own definition.)

Developers can meet this requirement in a number of different ways:

• They can build the social, affordable, and/or family housing

• They can contribute land or a building

• Or they can pay cash-in-lieu

Usually, I think of inclusionary zoning as being the first of these three bullet points: a hard requirement to build a certain amount of non-market housing. That is not an absolute requirement here, and so I see this policy as being IZ lite.

Since the bylaw came into force, there have been approximately 150 new projects by private developers in Montreal, according to this CBC article. That has resulted in about 7,100 new market-rate homes. At the same time, it has resulted in exactly zero non-market homes.

From what I can tell from the article, every single developer has opted for option three: pay the cash-in-lieu instead of actually building the housing. Supposedly this has produced about $24.5 million in new fees, which sounds like a lot. But if you divide it by 7,100 homes, it isn't all that much: just under $3,500 for each new home.

So what is clear is that this is the least expensive option. That's why everybody is choosing it. If the fee was significantly higher and it was cheaper to just build the social/affordable/family housing, then every developer would just do that. This is how development pro formas work.

But at the end of the day, we are still taxing new housing and new home consumers for the purpose of trying to create a smidgen of more affordable housing. And this has never sat well with me, especially considering that there are plenty of other things that we could be doing to make new housing more affordable for everyone.