@Lyle Ugh. I despise zoning setback requirements. When my family travels with me around Toronto, we often call out: "another pyramid!"
Setbacks dramatically increase the cost of new housing. The building is more vulnerable to water and more expensive to heat, with all the corners. And the lower units end up with unsightly pillars inside the living space, which are needed to support the set-back upper units.
If someone wants a setback terrace, awesome. But it's bad policy to require it.