A rendering of a proposed City of Vancouver rental development.Supplied
The city of Vancouver has been a pioneer in novel housing initiatives for a couple of decades, as it grappled with a housing crunch that hit in B.C. far ahead of the rest of the country.
It legalized basement suites outright in 2002, laneway homes in 2009 and fourplexes on all single-detached-house lots in 2023, as well as incentivizing developers to build rentals starting in 2008 and bringing in an empty-homes tax in 2017.
Now, it’s breaking new ground again by saying it is going to become its own developer and landlord for thousands of apartments rented out at market rates to households making no more than $194,000, starting with a pilot that will see 4,300 apartments built on five city sites over 10 years.
It’s not doing it to solve the housing crisis or to provide subsidized and lower-cost homes, which the city’s bureaucrats in charge say is being taken care of by other robust programs.
It is doing it, say politicians and staff, to make money, money that will be used later to keep taxes under control and, ideally, put back into affordable housing, community services or needed infrastructure elsewhere. And it’s something that is uniquely possible in Vancouver because of its Property Endowment Fund, a massive asset with 700 properties worth $5.7-billion that the city has accumulated since it was set up in 1975.
The budget task force set up by Vancouver Mayor Ken Sim noted that the fund is only generating about $10-million a year in dividends because the city hasn’t been using its assets as effectively as it could – an analysis that led to the new experiment in building rental housing.
More than 1,100 units are in the first two towers planned for a prime downtown site at Pacific and Hornby.Supplied
But that initiative has provoked a flurry of commentary and a considerable amount of negative feedback, from private developers, brokers and academics, many of whom have said that it’s bizarre for a government to use its land and resources for a level of housing that the private market is already capable of supplying.
And they also wonder whether the city is going to have an unfair advantage because it doesn’t have to provide the below-market housing or other community amenities that private developers do.
“How is the private sector supposed to compete?” said Hani Lammam, executive vice-president at Cressey Development Group. “With our projects, 20 per cent has to be nonmarket. We have to buy land and carry it for three or four years. And the risk for us is, they will do whatever it takes to get it leased up, which we can’t do because we have real costs.”
Some are also concerned about the city flooding the market with such a massive first project, more than 1,100 units in the first two towers planned for a prime downtown site at Pacific and Hornby, at a time when developers are watching the rental market soften even while construction and financing costs stay high.
And Mark Goodman, a principal with the apartment-brokerage company Goodman Commercial Inc., said the city that “should be in the business of governing is now getting into business to compete with the private sector.”
A building-cost analyst at his firm, Ian Brackett, has calculated that the city will only clear about $5- to $6-million annually in the early years, with most of the estimated $46-million a year in rents going to paying the mortgage on the approximately $700-million in construction costs, along with the usual operating costs. (A 1-per-cent tax increase or decrease in Vancouver is estimated to require a $10-million change in the budget.)
But the two senior city-hall managers in charge of the new program say that is short-term thinking.
Standing in front of a white board in a sixth-floor meeting room, Brad Foster, the new director of the newly created Vancouver Housing Development Office, shows how the revenues from the rental projects will increase over the years, drawing a hockey-stick-like line that is flat for a long stretch and then suddenly swings up high.
“The annual dividends are going to start to accelerate very fast. We want to point the assets in the right direction and establish a very significant housing stock for the city,” said Mr. Foster. The city has declined to provide the financial analysis that it commissioned to project the costs and revenues.
“This is a long play,” added deputy city manager Armin Amrolia. “And we are taking these sites out of the Property Endowment Fund, which is income-producing, so we are not cannibalizing our nonmarket portfolio.”
(They also insist that these new ventures will neither flood the market, with the five projects accounting for only about 10 per cent of everything likely to be built in the next decade, nor take money away from subsidized-housing development. Vancouver currently has 13,000 homes in his subsidized-housing portfolio, with 18 new projects under construction this year on city sites.)
And, although some developers are publicly critical of the city’s move, Mr. Foster said others are getting in touch with city hall to talk about how they can participate.
He said his group hasn’t decided which of the three possible options it will choose for its five projects when it comes to working with local developers. It could do a land lease for 99 years, something that First Nations and the University of B.C. are doing with some of their development projects.
It could do a joint venture, with a partner developer bringing in some equity, as some pension funds and housing REITS have done locally. Or it could do self-development, although Mr. Foster said that is likely only a possibility with smaller sites in the future, not the five large ones in the current pilot.
He said that, although some are saying the city would be better off by just selling or long-term leasing the land on their first site for a cool $200-million, that actually brings in the lowest returns to the city of the three options.
One of the ironies of the current tizzy about the city’s project is that it is not, in fact, the first time the city has developed market-rate rental housing or acted as a landlord for same.
The City of Vancouver is breaking new ground again by saying it is going to become its own developer and landlord for thousands of apartments rented out at market rates to households making no more than $194,000.Supplied
According to the city’s housing department, it owns 41 residential market-rental properties with 219 apartments in them throughout Vancouver. One of those is a new building in south central Vancouver that the city bought last year for $38-million as part of its move to making money being a landlord.
And one of those sites is at the Mount Pleasant community centre and library.
Back in the early 2000s, city staff were getting increasingly alarmed over the lack of new purpose-built rental housing. Developers who had built rental in the 1960s and ‘70s had switched over completely to condos, once the province created a legal structure for them, and rental-apartment building came to almost a complete halt.
So senior managers convinced the city to build 98 apartments on top of the planned community centre and library. They’re still there, currently full up and getting $2,350 a month in rent for any one-bedroom that does come available.
There were few complaints at the time, because developers were making small fortunes building condos and didn’t see the Mount Pleasant project as any kind of competition.
According to Mr. Foster’s projections, that building should be generating a considerable profit for the city since it opened in 2009. But the city won’t release the financial information on that operation either, in spite of the fact that it could potentially make their case about the future benefits to taxpayers.
That all happened in a different financial environment, of course. Notably, the city moved more toward a policy of trying to incentivize developers to build new market rentals after that, which worked because those efforts started during the world financial crisis in 2008 and gave Vancouver developers a new option for continuing to build housing in spite of the dire conditions.
Since then, the city has offered many other incentives to foster private development of market-rate rentals, which put B.C. ahead of other provinces on that front for many years. It’s a form that many developers turned to especially in the last three years, when the condo market weakened as COVID, vacancy taxes, foreign investor bans and penalties, and high construction costs took their toll.
Now, everyone will be watching to see how the city’s new strategy, very different from the one it’s had in recent decades, works out.
The idea of non-developers going into development is a concept that has played differently in various parts of the region. The University of B.C. became a huge developer when it got the right from the province in the 1980s to do that and has generated a couple of billion dollars for its endowment fund as a result.
The City of Surrey contemplated developing some buildings on its own a decade ago, as it was trying to kick-start its new city centre, but eventually decided to leave things to the private market.
Mr. Foster and Ms. Amrolia aren’t surprised they are facing some headwinds of opposition because it is an unusual concept. But they’re very convinced it’s worth pursuing.
“We’re trying to be innovative,” said Mr. Foster, “so we’re preparing to be misunderstood.”