The City of Vancouver is the largest single landowner in the city, with more than 700 properties in its portfolio.DARRYL DYCK/The Canadian Press
Vancouver’s ambitious plan to develop thousands of market-rate apartments on city land could eventually bring in enough money to cover almost half of the municipal operating budget, Mayor Ken Sim’s chief of staff says.
That’s the long-term goal, said Trevor Ford, who enthusiastically described the plan as the equivalent of what Vienna, Singapore or the University of British Columbia have done by developing their own land. Vancouver’s current operating budget is $2.34-billion.
The city plans to build 4,300 market-rate apartments as a pilot project on five pieces of city land, becoming a major landlord of for-profit rentals to households earning up to $194,000, and then expand that program significantly with new sites in the coming years.
“In 40 years, it has the potential to cover hundreds of millions of dollars of the city’s operating budget. That is the estimate,” Mr. Ford said.
The city is the largest single landowner in Vancouver, with more than 700 properties in its portfolio. About 230 of them are home to 13,000 social-housing apartments.
Vancouver’s initiative, announced in February, is a highly unusual one for a North American city and in sharp contrast to previous efforts here, which have focused almost exclusively on providing subsidized housing.
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One of the biggest housing initiatives from former Vancouver mayor Gregor Robertson, announced in 2018, was for seven buildings on city sites that will all eventually operate as social housing, with a significant number of below-market units.
The city has been warned by developers, others in the real estate industry and housing advocates about getting involved in market-rental properties and acting as landlord for renters who are relatively well off.
Meanwhile, an assessment last October of the Vancouver Housing Development Office’s “portfolio strategy,” by Colliers Strategy & Consulting, notes that the city will have to be careful about how fast it rolls out such a large number of non-subsidized apartments into the market.
The assessment says the city will also need to be wary about what kind of deal it should negotiate with private builders to co-develop some of the projects, and whether it can get the federal financing that could significantly reduce total construction costs.
The report, obtained through a freedom of information request by The Globe and Mail, notes that demand for rental apartments has slowed down.
Construction cranes tower above the Senakw Indigenous-led housing development being built in Vancouver last month.DARRYL DYCK/The Canadian Press
What is known as the absorption rate, the report says, is likely to be affected by the future supply coming from the Squamish Nation-owned Senakw project currently being built just across False Creek from the downtown peninsula. (Absorption is the term used in the industry for the number of apartments in a new building that are rented out in a month.)
That Indigenous development is projected to consist of 11 buildings, 6,100 apartments and 9,000 residents, according to current plans. The first three buildings are due to start renting later this year and in 2026.
One of the city’s prime sites in its proposed apartment-building experiment, at Pacific Boulevard and Hornby Street across the water from Senakw, is currently planned to have 1,100 units.
The other sites in the pilot proposal are at the Granville Loops, also downtown, Main and Terminal, 2400 Kingsway, which is currently home to a historic motel, and Marpole. The apartments are pegged to be rented to households earning between $94,000 and $194,000 a year.
The city’s FOI office blacked out all the numbers related to how much it will cost the city to build on the five sites, how much it expects to get in annual revenue from the units, what kind of debt the city would have to take on under different development scenarios, and all other financials related to construction.
The only public number is repeated references to the city’s expectation of selling the developed properties after 35 years.
As a result of the current rental picture in Vancouver, the report suggested that the most attractive site at the moment would be the one at Main and Terminal, which Colliers suggested should be a joint venture with a private developer.
Developers “were most interested in the Main & Terminal site considering its location close to an existing SkyTrain station, and distance from Senakw, which reduces the risk of rental oversupply in the same micro-market,” it said.
The site is currently a little-used parking lot across Quebec Street from Science World and next to a McDonald’s that is slated for private-sector redevelopment.
Many developers and others in the real estate industry have been critical of the city’s proposal, saying government should leave it to the private sector to do what it does best.
Other critics have said the city’s plan does nothing for affordable housing for people in lower-income groups and that the sites should have a significant proportion of below-market rentals to be a true benefit.
Green Party councillor Pete Fry expressed concern when the initiative was announced earlier this year.
“While other North American cities are typically leveraging their land for affordable and non-market housing, we seem to be moving in the opposite direction, by playing the market to make money,” he told the Vancouver Sun.
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The Colliers report noted that, although the city plans to limit rents somewhat in order to make their new apartments available and attractive to middle-income households, it can’t get financing from the federal Canada Mortgage and Housing Corporation unless it provides a certain proportion of apartments at below-market rents.
The report makes it clear that the city is counting on getting low-interest loans from CMHC as a way of reducing the overall development cost.
In part of the report focusing on assessing various risks, it noted that the pilot projects are very large-scale developments coming into a challenging market.
The report suggested that the city assume no more than 40 absorptions a month and that it phase its large developments so that there aren’t too many units coming onto the market at once.
“Current absorption assumptions range from 29 to 102 units per month. The downtown projects are also facing a large amount of rental supply coming to the market at the Senakw development.”
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Even 40 a month seems ambitious in comparison with what local developers are saying about the rental market. Hani Lammam at Cressey Development suggested, when the city’s proposal first became public, that 25 to 30 a month is the going rate.
The city’s current policy would exempt the five sites from paying the kinds of community-amenity contributions that private developers pay when they are granted large increases in density for projects.
That money typically goes into community benefits, such as parks, heritage restoration, cultural spaces, daycares and more. But with these developments, it’s the housing and the rent revenue that will be the public amenity.
The city’s policy “acknowledges that the ongoing revenue streams generated by the rental projects are the public benefit from development,” the report says.
“The revenue streams created by the projects will be available to invest in addressing the growing infrastructure deficit, supporting the renewal and upgrade of community amenities or contributing towards affordable housing.”