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A housing development on Vancouver’s east side that would have included dozens of units for people with mental illness was cancelled on Tuesday, with the developer and a non-profit agency walking away after the city demanded millions of dollars in additional cash contributions.

The 12-storey project would have seen Boffo Properties build market condos on top of 30 units of social housing, and a new drop-in centre for the Kettle Society, an organization that supports mentally ill tenants in buildings around the city.

The collapse of the deal comes as the city launches an ambitious new affordable-housing plan. This is the latest project to face delays or outright cancellation in the face of so-called community-amenity contributions that the city demands in exchange for rezoning.

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“This is so upsetting,” Kettle Society executive director Nancy Keough said on Tuesday morning. “It just seems like such a major loss when all the parts were there.”

The Kettle Society and developer Daniel Boffo had been working on the joint project since 2011, when they came up with the idea of a building at the corner of Commercial Drive and Venables Street. The project would create a new centre for the aging Kettle building, housing units for the society’s members, and additional market condos.

The plan was that Kettle would contribute the land its building was on, while Mr. Boffo would buy two other lots, one owned by the city, on the triangular block. The developer said its agreement to build and turn over the social housing and drop-in space to the Kettle Society amounted to $39-million in contributions.

Buffo Properties said the city has now asked for between $6-million and $16-million in additional contributions.

The end of the deal follows cancellations of other private rental projects elsewhere in the city last fall. In those cases, a handful of property owners pulled out after the city’s real estate services department, headed by Bill Aujla, demanded high levels of community-amenity contributions as part of their rezonings.

In one of those cases, city manager Sadhu Johnston intervened to ensure the project went ahead.

The Kettle project generated intense debate in the usually left-wing Grandview-Woodland neighbourhood. Some residents protested the development with “No Tower” mottos, while others strongly supported it as a compromise to get much-needed affordable housing.

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The news that the project was being cancelled was greeted with dismay and shock by many housing advocates. Kettle Society has about 5,000 people a year using its current drop-in centre, and it has a years-long waiting list for the more than 400 apartments in buildings around the city where it assists mentally ill tenants.

Mr. Johnston said on Tuesday that the project got derailed late in the game because the developer didn’t put in a formal application until 2017. He insisted that the city was only asking for its fair share of the profits on behalf of taxpayers.

“It is our job to defend the public good,” Mr. Johnston said.

But Mr. Boffo, who is an experienced developer in Vancouver, said there’s usually some indication from the city on what it will be asking for in community-amenity contributions long before a formal application.

Mr. Johnston said there is still a possibility that Kettle and the city could come up with a new proposal using the city land that now sits empty next to the current site.

However, Ms. Keough wasn’t optimistic it would be revived.

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“I don’t have any hope for this project,” she said.

City councillors also heard at length on Tuesday morning about a significant new housing initiative that staff had developed, which calls for the creation of 12,000 social or supported housing units in the next 10 years, as well as 60,000 other homes, many of them intended to be affordable to households with less than $80,000 a year annually.

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