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Penthouse space in exchange for affordable housing

November 3rd, 2009 · 29 Comments

Vancouver’s new council desperately wants to create affordable rental and, to that end, it’s preparing to give developers extra density if they can come up with proposals for suites they’re prepared to rent out for at least 20 years and at rents in the neighbourhood of $2 a square foot.

But, as NPA Councillor Suzanne Anton points out in my Globe story today, that is creating competition for the things that density is usually used for: daycares, park space, cultural facilities and more. Her question: Is rental housing in the private market really a public benefit that should be supported by giving developers density?

Anton has been picking away at this topic for quite a while — even questioning the use of density for social housing dollars when her own council was in charge. It’s an interesting question, not just for Vancouver, but all the municipalities in the Lower Mainland, which are increasingly turning to density exchanges in order to get public amenities for their cities.

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  • This story raises a number of issues. To my mind the key questions are whether developers should receive a density bonus to build rental housing, and if so, what form the bonus should take.

    A second consideration is whether the resulting building form and design is acceptable.

    A third consideration is whether this is the best way to manage the approval of projects and the delivery of desired amenities.

    I truly believe that developers will not build housing today (that must remain rental housing in perpetuity) without a density bonus. The costs are generally too high, relative to the rents than can be charged, even if there is no land cost (expect in limited situations). For this reason, I agree with the proposed bonus to exclude the area of the rental housing from the density calculation. However, I do not think it should be necessary to offer a developer a further bonus in terms of the amount of condominium housing, just to get market rental units.

    Put simply, this is giving too much away. However, if the units are social housing, or to be rented at below market rents, or three/four bedroom family units, then additional bonuses might be necessary.

    In the case of SEFC, I am concerned about the resulting building forms. This area was conceived as a ‘mid-rise’ community…this usually means buildings of 6 to 9 storeys in height with perhaps one or two levels of penthouses.

    Rather than be taller ‘point blocks’, the buildings are ‘street walls’ in architectural jargon.

    While I am impressed with the general look of SEFC, I feel that the extra two floors that were added on top of the buildings to achieve some rental housing detract from the overall success of the development. In many cases, the buildings are too high, in relation to the width of the streets and height of adjacent buildings.

    I would therefore hope that if there is consideration being given to allow greater heights in a surrounding mid-rise area, the planning department will consult with outside urban design and architectural ‘experts’ to get a second opinion.

    In terms of who to contact, I would suggest the 10 or so professionals who sent a letter to the city a number of years ago urging that this be a mid-rise area (and yes, I was a signatory to the letter!)

    On the broader issue of whether the city should grant additional density in return for public amenities, I am torn. On one hand, it works.

    But on the other hand, it gives the city an incentive to improperly zone land in order to extract other benefits. I would rather see a system which pre-determines what is the appropriate form for buildings, along with a corresponding zoning, and a requirement for Development Cost Charges or Community Amenity Contributions, calculated on a square foot basis, to pay for the desired and necessary amenities.

    I don’t believe our ‘let’s make a deal’ approach to zoning has been fair to either the public or private sectors.

  • Joe Just Joe

    Umm $2/psf appears to be the normal range of rents these days, it can get as high as $3/psf in yaletown for small one bds but $2/psf is the market rate. Don’t see why any incentive is needed to secure that rate.
    The city/province would be better off just removing a stratas ability to limit rentals across the board.
    There is no shortage of units in that price range in Vancouver, take a look at craigslist. The issue is they do not show up on the offical vacancy figures due to how the CMHC calculates it’s figures. With the amount of stratified condos being rented out by owners and basements suites in this city it’s probably time CHMC worked on a new formula so that we had a truer understanding of vacancy and average rents.
    I’m usually pro-density , but I’m not in favour of this proposal. The area’s existing zoning allows a very acceptable heathly density as is, increasing it by a couple of floors isn’t going to provide anymore vibrancy or increase potential amenties. That proposed density increase should be transferred to the surrounding areas which could make use of it.

  • Blaffergassted

    I guess the green paint didn’t achieve its goal, eh?

  • Michael Phillips

    I’m very much in favour of a density-for-rental approach. Sure $2/psf might be the normal market rate of rent right now, but nonetheless at this rate the market is producing hardly any rental and so it’s a moot point. If you look at the ratio of rentable to ownership units under the CMHC, rental has been sliding in Vancouver for years and it needs to be stopped.

    We can’t just complain about the rent and then maintain policies that allow supply to artificially be constrained (small town zoning + only allowing reasonable urban densities if a major payment to the government is made) and then spend the bonus money (the cost of which is passed down into real -estate prices) on boosting demand with an abundance of amenities eclipsing that of other cities. Amenities are nice, but there’s a price. What do you get when you artificially constrain supply and then artificially boost demand? An affordability problem.

    So it’s nice to see that if we do have density bonusing, some of it is going into incenting rental which, in Vancouver, has to be considered a social good as much as daycare, parks etc. Vancouver’s livibility must first be measured by whether the public in general can afford to live here.

  • Duncan Cavens

    For me the biggest issue is the 20 year limitation- why not ask that the units be turned over to a non-profit operator? If the city is providing ‘free’ density (and by including them in larger projects, economies of scale on the professional fees portion of the proforma), you’d think they’d come out at around market rents today. If they were held by a non-profit, once the financing was paid off in 20-25 years, you’d have “free” housing that could be turned into non-profit housing.

    We really need to take a long term view for developing affordable housing. Building cities doesn’t happen overnight, and sadly, not much happens in a 3-year election cycle.

    I do agree with Michael Geller that we need to be careful with the implications of adding additional densities to different urban forms- while I would argue adding 2 floors to a 20 story residential tower doesn’t matter much, it makes a huge difference to low and medium rise developments. Badly handled densification encourages NIMBYism- such that people seem to think that Yaletown is our only option for densification. Or that horror at Kingsway and Nanaimo, which, if I recall correctly, was given its final form by density bonuses/deal-making.

  • Otis Krayola

    Duncan,

    The ‘horror’ at Kingsway and Nanaimo hasn’t been built yet. Unless you’re speaking of the old El Dorado Motel.

    I’ll bet you’re thinking of Kingsway and Knight – there’s a horror on that corner.

  • Duncan Cavens

    oops! yup, that’s what I meant. I try to blank my memory when driving by..

  • jesse

    Are we trying to solve a problem that doesn’t really exist? From all indications real rents are flat to falling in the Vancouver area. That hardly seems like a situation of a shortage. Flat real rents have been the norm for decades now.

    I do question that developers cannot make a profit building even if land is free. That seems weird, since real prices have more than doubled in the past decade. It doesn’t pass the smell test.

  • Michael Phillips

    Ugggh! I just wrote a really long post and it got deleted somehow and I have to go to bed its almost 1 am.

    Here’s the Twitter version:

    We r in shortage, vacancy <1% 4 3 yrs str8, vacancy% not $ is tru measure of shortage as we are at $ limit now

    http://www.cmhc-schl.gc.ca/en/corp/about/cahoob/data/data_004.cfm

  • Mary

    good quality posts here. one minor point: the notion that amenities like parks, childcare and cultural facilities “artificially boost demand” (Michael Phillips above) is wrong headed. one could quibble with how we achieve amenities that creat liveable neighbourhoods/cities, as Michael Geller does, but to say that they creat “artificial demand” is to denigrate liveability goals.

  • In my recent residential project significant number of units are rented: one owner of numerous titles may be either speculators or long-term investors, I do not know: it is fully occupied. Evidently the residents and neighbours are happy.

    Affordability has become intractable in Vancouver ever since the ethos of CMHC co-op self helps was discarded: invoking an insouciant response from officialdom wedded to the market.

    Yet, False Creek south was very successful example of affordable, market/social mix: the ambience of Alder Bay is quite beguiling.

    But that was another era, long gone! Uncompromising, indeed smug, ideology has usurped urban sensibilities.

    Our recent building was awarded: a gentle downtown intervention. Such are rare today!

    SEFC: we will not have to wait long to judge the ambient effects of streetscapes: at this stage ratio, height to street width, seem reasonable.

    My antenna twitches, however, when pretentious, poseur experts meddle.

    There isn’t much point in citing off shore successes: i.e Latin cities effuse charm and ambience. Curitiba, a good example.

    Sao Paulo’s Avenida 7 do Avril and Montevideo’s Avenida Sarandi too. Ratios of those two would curl the hair of our local self-appointed aficionados. Nevertheless those, ratios, while being perfectly workable and acceptable, are indeed satisfyingly, dramatically urban!

    Not to worry, they are far away: another culture.

    Other than ratios, the ambience of Olympic Village reflects, to say the least, sterile upon veritable sterility.

  • Westender

    Slightly off-topic as this new application is proposed to be “market” rental rather than affordable rental, but certainly (in my opinion) in the category of “giving away the farm” where density bonusing is concerned. I simply cannot believe that an increase in density from 1.5 to 7.5 (!) is reasonable as a tool to achieve market rental.

    http://vancouver.ca/commsvcs/planning/rezo
    ning/applications/1401comox/index.htm

    Fortunately there’s been a comprehensive community visioning process for the West End to review the existing RM zones and to allow residents to embrace these proposed changes…. oh, wait a minute there hasn’t been, has there? Something’s wrong here…

  • Westender

    Looks like the link didn’t work – here’s a better one:

    http://tinyurl.com/y9ofdnv

  • Michael Phillips

    Mary,

    What I mean by artificially boosting demand is that, for very many lower-income earners, Vancouver is being pushed too up-market, beyond our means. We might prefer to have $700 be standard one-bedroom rent with fewer ‘liveability’ amenities but zoning constraints and density bonusing cut supply and increase demand so we end up with $900 standard one-bedroom rent we can’t afford and a degree of amenities/liveability which is perhaps beyond what we need, our at least out of balance with our cost priorities.

    It is essentially involuntary purchasing, we are taxed indirectly through real estate prices which include passed on density bonusing requirements, so that city management can play maestro and make the city so nice we can’t afford it. But the upper crust of the international housing market then has all the more reason to move here and so we are essentially replacing ourselves by making things nicer than we can afford. We’re like the hapless tenant who takes it upon themselves to spruce up and decorate the property and yard they are renting and improve things so much that they end up getting evicted because now the property is worth more than they can pay.

    The increase in the global housing demand for living in our city that is caused by us as residents making involuntarily costly purchases of liveability provisions, whose costs are largely hidden in real estate prices, I am calling artificially boosting demand.

    It isn’t to denigrate liveability, but to establish that we simply have limits in how much liveability we can afford (and we are possibly reaching those limits) while we don’t perceive just how much our liveability standards cost us because the costs are hidden in real estate prices.

  • MB

    I’ve seen density bonuses work wonders in several Metro cities in relation to the funding of public amenities, and largely agree with Michael Geller, Duncan Cavens and Mary.

    It’s obvious, though that the process requires refinement and the development of site/area-specific criteria, especially when considering a 21st Century version of 19th Century urbanism outside of major town centres and — as Urbanisimo would say — sensibility.

  • Landlord

    $2/sq.ft. means $1400/month for a 700 sq.ft. apartment. How is that affordable? You would have to clear $3K/mo to make that 50% of income.

  • Westender

    Because the assumption is that people will live affordably in tiny units.

    From the City’s report on the STIR program:

    “Affordability can also be achieved through location and design features. For example, smaller units are less expensive, and as noted earlier, the Director of Planning has the discretion to permit units of 29.7 square metres (320 square feet)…”

    At 320 square feet, the rent would only be $640 /month.

    Whether one (two?!?) can lead a fulfilling life in a 320 square foot abode probably remains to be seen.

  • sm

    i lived in a 50’s apartment (owned coop) that did not have personal outdoor space (no balcony) but was huge, lots of windows, and conveniently located on Cambie. It was great. Only three storeys in height, a corridor that promoted interaction and no elevator so not for everyone. Individual single garage (used for storage) at lane which could be rented to someone else that did not have a garage but wanted one.

    Because of the banks hate for coop units (shared land equity) it was well under market value.

    I agree with M Phillips, not every feature is a needed amenity. I would rather have some comfortable personal space, than a party room and fitness centre.

  • Wally Epuc

    Pity Anton isn’t as upset about allowing added density to pay for a $400m stadium roof that will benefit .. who? as she is about allowing added density to improve affordability of rental housing for those who find a 320 sq ft apartment a necessity if not a luxury.

  • “Vancouver’s liv(a)bility must first be measured by whether the public in general can afford to live here.” Good point Michael Phillips.

    Evidently for good citizens, that is becoming a distant dream.

    “Affordability” was temporarily addressed, first during the ’40’s with “Liberty ship building” then with Federal programs that gave us FCS in the ’70’s.

    And prior to 1970, Ricardo’s theory of “comparative advantage”, BC, Vancouver’s was a burgeoning resource based economy.

    Early ’70’s mayor Art Phillips declared Vancouver an “executive” city with no policies to replace our comparative advantage with a sustainable job rich economy.

    Mayor Phillip Owen recognized this and proposed the FC flats to be a “hi-tech” zone . . . that never got off the ground.

    So as of today, Timber West on the Island is busily converting the productive tree farm licenses into subdivisions . . . the theory being, I suppose, if you cannot afford the big city go live in the bush: an economy based in desperation that cannot be sustained.

    In other word our traditional, labour-intensive, comparative advantage, resource base, has disappeared, willingly, evidently, to be replaced by expensive pent-houses, expensive views, affordable to an itinerant, off-shore contingent, we may never meet, never know or have as neighbours: distant sprawl and more cars for the hoi polloi.

    One bright day some one will come up with a bright idea for a job-rich sustainable, clean manufacturing base: but that is along way off for BC!

    For the foreseeable future, we are faced with a post-Olympic, gloominess that may last a while.

  • Tessa

    I’m always leery of making this criticism, but i think you spent a little bit too much time quoting Susan Anton and not quite enough time explainin how the law works, and what it means. When you say it’s vague I don’t understand why. Also, when you say $2 per square foot, I don’t have a clue what that means in the real world. How does that compare to average rents? If you asked me how many square feet my current apartment is, I couldn’t even tell you. And how many units could be made this way?

    I think rental is hugely important, especially considering it’s not getting built at reasonable rates at all right now, and that pushes up the prices of other rental units in the city as it becomes more scarce, hurting the entire city population. But it’s hard to see how effective this particular effort will be given the story.

    If you could answer my questions I would greatly appreciate it. Thanks.

  • “I don’t have a clue what that means in the real world.”

    In the “real world” Tessa “housing is IDEOLOGY, not policy.

  • Tessa, most studio or bachelor apartments in Vancouver are between 350 and 425 square feet. When one says $2 a foot, that means the rent is $2 per foot per month or $700 to $850 for a new studio suite. The average rent for a bachelor for the west end is in fact around $825 a month.

    Most one bedroom apartments range between 475 and 600 square feet and you can do the corresponding calculations. CMHC estimates that the average one bedroom rent in the West End is around $1050.

    Most two bedroom apartments range from 725 to 850 square feet. The average two bedroom rent is about $1600, or again, around $2 a foot.

    New high quality condominiums in good locations can rent for up to $2.50 a square foot.

    While $2 a foot seems quite high (even to me…I paid under $1 a foot when I last rented in the West End!) this rent is generally not enough to cover the cost of the ‘economic rent’ in a purpose built rental apartment building. Some previous posts have questioned this, but it is the reality. Right now, it costs about $225 to $250 a square foot to build a concrete building. All of the ‘soft costs’…architectural and engineering, permits, fees, levies, insurance and interest and financing fees can add 20% or more. And remember, you can’t rent every square foot you build…the ratio of leaseable area to built area is in the order of 86%.

    You then have to add in the maintenance, repair and operating expenses and taxes. Again, they vary but are often in the order of 25% to 33% of the rent charged.

    And so far, I haven’t mentioned land. Land values for condos in the West End are currently in the order of $130 per square foot. Yes, per square foot of building area. However, even if you don’t pay for the land…that is to say you get a density bonus….you cannot build a new building and charge $2 a foot and make any money when the building is finished. You will over time, but not in the first couple of years.

    And as a result, the banks do not want to lend you the money unless you pay them even higher placement fees and offer personal guarantees.

    Today’s lower interest rates are closing the gap between market rents and economic rents, but who can guarantee that they will remain. And when you look at 10 year rates, they are much higher than the rates you could get on a 1 year open mortgage.

    Now before someone writes to say that this is nonsense since people are buying condos for $400,000 and renting them out, remember these people are not covering their costs. They are buying these units because they are gambling that the value will increase before closing, or in the coming years. And they might. But these units don’t have a covenant on title guaranteeing that they must remain rental for 20 years, or forever. That makes a big difference.

    Finally, it is worth commenting on the vacancy rate. I have previously written that the vacancy rate is higher than the 0.5% which is often quoted by CMHC. That is because the CMHC statistics do not include condos that are rented out, or basement suites. Some have suggested that the vacancy rate in some areas may be approaching 5%. A ‘normal’ vacancy rate is considered to be around 3%. But even though the vacancy rate may be increasing, I think it is in the public interest to encourage the construction of some new purpose built, long term rental buildings through density bonuses, as long as the buildings fit in with their setting, and the bonus is not too generous.

    I hope this is helpful.

  • Westender

    Most helpful Mr. Geller- thank you for sharing your knowledge. And I hope some folks at 12th and Cambie are reading this posting – particularly this part of it:
    “I think it is in the public interest to encourage the construction of some new purpose built, long term rental buildings through density bonuses, as long as the buildings fit in with their setting, and the bonus is not too generous.”

  • Michael Geller: heads-up! Your figures articulate a modicum of truth sometimes, except your advice is of little use to Tessa, and I assume, her neighbours, who are struggling with unreasonably high rents.

    Westender heads up: “to encourage the construction of some new purpose built, long term rental buildings through density bonuses, . . .” You are merely reinforcing an, already familiar, status quo:

    The recent development surge provided a few ephemeral jobs: now disappeared, unlikely to return.

    However the real damage to the community caused by the financing of such development is, essentially, interest accruing debt that immediately leaves town: a burden developers, renters and mortgagees, alike, must endure.

    If local working capital has survived and remains in town there is an urgency to put it to good use immediately!

    We still have a strong, albeit ignored, resources base: it is in need of serious attention. May I suggest some possibilities?

    i. Value-added lumber and mineral manufacturing.

    ii. Resuscitate wild fish stocks.

    iii. Protected the movie industry from a capricious dollar.

    iv. Digital industry (i.e. Reboot) ditto.

    v. Marine industries ditto.

    And much more value added endeavors beyond the limits of my imagination.

    I am aware, Michael, of your long valuable contribution, albeit of another ethos: of dubious durability and detrimental to the long-term interests of this funny little town.

    Hopefully, though, a wise electorate, should you choose to run again, will ensure your happy retirement.

    Wishing you a long and insightful life . . . Ojala . . .

  • Westender

    I was hoping to highlight the latter part of Mr. Geller’s quote: “…as long as the buildings fit in with their setting, and the bonus is not too generous.”
    This important part of the equation seems to be receiving only cursory attention as of late.

  • Landlord

    Michael says $2/sq.ft. is high. 800 sq.ft. 2bdrm apartment costs $1600/month. If this is 50% of someone’s income they have to be clearing $3200/month (i.e.after taxes). That equates to a 43% marginal rate on a annual income of $72K. Fewer than 10% of the population have incomes in this range. That is a very small market, particularly in an economy that won’t be growing anytime soon.

  • Jon Petrie

    A suggestion for increasing the supply of rental housing in Vancouver:

    Ban the prohibition of rentals by strata councils and at the same time change the rental act so evictions in condo buildings are much easier.

    (Most stratas ban rentals and many strata owners who might be willing to rent have reasonable fears of dealing with the eviction process if a rental arrangement goes sour or they want the place back because of a change in plans.)

  • Westender

    “Ban the prohibition of rentals by strata councils… ”

    Unless the Provincial Government is going to include such restrictions in the Strata Act, this may only possible through registration of a Housing Agreement at the time of rezoning. For some reason, the City of Vancouver doesn’t seem to be doing this.