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STIR program to continue with modifications to reduce the amount of public subsidy needed

May 21st, 2012 · 16 Comments

One of Vision Vancouver’s first acts in council was to convene a large group of developers, planners, architects, and housing advocates to come up with a program to create new rental projects in the city.

It was a good time for it, as the recession had hit and development companies were open to new proposals that could keep them going.

The Short Term Incentives for Rental program aimed to encourage developers to build rentals, which had to remain rental for 60 years or the life of the building, whichever was longer, by giving them breaks on parking, giving up the usual development-cost levies, and, in some cases, giving bonus density.

Some critics of the program don’t believe it, but there were some cheap rentals created through the program, mostly on cheaper east-side land where builders stuck to four-storey woodframe buildings. The program also created a huge amount of controversy on some prominent sites — the West End, Marine Gateway, Rize — because the density given as an incentive seemed to produce buildings out of scale with the neighbourhood.

Council voted this week to continue the program (as per my story here), but changed it so that the incentives now only apply to buildings that are rental only.

Some critics are still saying it will lead to the destruction of existing affordable housing or that they don’t understand why developers need the incentives. (That was a point that Councillor George Affleck kept making during the council debate.)

But it seems like this is exactly the kind of incentive that developers got during the 1960s and ’70s, which led to the creation of tens of thousands of four-storey walk-ups all over the Lower Mainland, which are now the precious cheapo housing of the region — so precious that Vancouver council and I believe a couple of others have declared them off limits for development unless a developer offers to build replacements.

Those incentives in the ’60s and ’70s were also criticized by some in their day, by the way, as wasteful giveaways to developers who were profiting by building high-end market rentals that weren’t really providing affordable housing.

And hard to argue that the incentives are not needed. You’d think if developers thought they could make a profit on building rentals, they would have done it long ago. But the city was seeing only about 150 units a year built until the STIR program came in. Then it jumped to what will average 500 a year.

Vancouver council limits developer incentives to rental-only construction

FRANCES BULA

VANCOUVER— From Wednesday’s Globe and Mail
Published
Last updated

Vancouver council is going to restrict incentives to developers who build rental housing in this high-cost city to curtail some subsidies that soared to as much as $70,000 per unit.

The Vision Vancouver-dominated council, which has been peppered with criticism over its rental-incentive program, decided Tuesday to limit it to developers who are building rental-only buildings. The program, which began two years ago, had been open to those trying to mix rental units with condos for sale in the same building.

So far under the program, almost 1,700 units have been proposed and are working their way through the system.

“More units were created in the projects that were 100-per-cent rental,” housing planner Dan Garrison told council Tuesday before the Vision councillors voted to approve the change.

More important, those units also needed far less public subsidy.

Developers of the rental-only buildings got a subsidy of just $4,900 a unit, partly because those units were in low-rise structures that are built of wood, rather than more-expensive concrete.

The units mixed into buildings with condos ended up requiring $23-million in city subsidies to create just 327 units, or $70,000 a unit.

That $23-million consisted of fees that developers normally have to pay to help cover the cost of new city services needed as their new buyers move in.

If the money hadn’t been used as a rental incentive, it would have gone into parks, daycares, community centres and other services for residents.

The program had many critics over the past two years. Local resident groups near some of the projects said they were created out of scale for the neighbourhoods and that developers were given too many freebies.

Resident groups and critics from the left also made the case that the program didn’t actually create any affordable housing. The units, none of which has come onto the market yet because they’re still under construction or awaiting approvals, will be renting at the high end of the range.

Critics from the right, like Non-Partisan Association Councillor George Affleck, asked why the city thinks it has to provide subsidies to have developers build rentals when 1,300 condos a year come onto the rental market, as investors buy them and rent them out.

But Mr. Garrison argued that, as those units age, they will become part of the pool of cheaper housing.

The staff report noted that one-bedroom units renting for $1,500 a month in the 1990s, when they were new, are renting for $1,000 a month now.

He said rental housing continues to be the only option for many people in Vancouver, where it takes an income of $90,000 to buy a one-bedroom condo, $160,000 for a two-bedroom.

The staff report also said the rental housing being built is 70-per-cent cheaper for renters than if they were paying a mortgage on similar-sized condos in the same neighbourhood.

And Mr. Garrison said investor-owned condos are unreliable as permanent stock, because investors may sell them off as real-estate prices rise.

Vancouver, along with other Canadian cities, saw thousands of apartments built in the 1960s and early 1970s when investors could get federal tax breaks meant to encourage rental-housing construction.

But when those tax breaks were ended, apartment building dropped, nowhere moreso than in Vancouver, where high land prices helped reduce apartment construction to almost nothing.

Prior to the city’s rental-incentive program, developers were building only about 150 units a year.

The city’s incentive program is projected to produce about 500 rental units a year.

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  • ThinkOutsideABox

    The Short Term Incentives for Rental program aimed to encourage developers to build rentals, which had to remain rental for 60 years or the life of the building, whichever was longer, by giving them… in some cases, giving bonus density.

    With 22 out of 26 STIR enquiries that sought a rezoning, I take it by writing “in some cases” giving of bonus density, you really meant instead “in most cases”.

    “…so precious that Vancouver council and I believe a couple of others have declared them off limits for development unless a developer offers to build replacements.”

    Precious? Rate of Change means a 1 to 1 replacement of units, not square footage. So a 320 square foot apartment is equal to the 700+ apartment it replaces following renoviction / demolition.

    Since woodframe is much cheaper to build than concrete, and the idea is to create housing that is affordable, why is concrete construction being incentivized? Only 30% of the applications were for woodframe construction.

    You say it’s hard to argue that incentives aren’t needed. I’d love to hear why ocean front Beach Towers infill STIR proposal with a look out onto English Bay needs the incentive giveaway.

  • Westender1

    I find this statement very odd in the staff report, and in the article above:

    “The staff report noted that one-bedroom units renting for $1,500 a month in the 1990s, when they were new, are renting for $1,000 a month now.”

    Can anyone think of where these units might be? Are these luxury rentals circa 1990 that now have blue tarps on them?

    I think most renters would agree that the idea of a $1,500 a month unit circa 1990’s that is now renting for $1,000 a month is hard to believe. The units that I know of that were renting for $1,500 a month in the mid-1990’s are now renting for $2,200, not $1,000.

  • Frances Bula

    @TOAB. So tell me about all the rentals being built in the city that didn’t need an incentive.

  • ThinkOutsideABox

    @ Frances, an untold number have been built – as condos. Are you suggesting that the benefits of purpose built housing over rental condos meet or exceed the costs to the public and community that some projects are exploiting to a very large degree?

    You didn’t answer, City staff consider the creation of apartments under STIR it a “public benefit”. How are luxury ocean side rental apartments a public benefit.

  • Frances Bula

    @TOAB. You didn’t answer me. Tell me about all the purpose-built dedicated rentals that are being built without incentives? As any renter can tell you, a rental that is an investor-owned strata can disappear at any moment. You’re about to hear this week about a 200-plus-unit building downtown of strata condos that were being rented and are about to be converted for sale.

    I do think there is a case to be made that investor-owned condos and basement suites can’t be relied on to provide ALL the future rental housing stock of the city. For one, it’s not enough. Secondly, it can be taken out of the market very easily.

    Re your case with Beach Towers. I’m not sure if you’re saying that only owners should be able to live on the waterfront or that the builders of that project will be able to charge enough rent on waterfront that they shouldn’t need an incentive, but is that example really the best one to use to argue against a whole program?

    Re your statement that rental replacements only need to be by the square foot, not by the unit: I didn’t know that and will ask about it.

  • Elizabeth Murphy

    Most of the existing purpose-built rentals that were built up to the 1970’s, were built because there was no such thing as strata. However, once the Strata Act was adopted developers mostly built strata since it was much more profitable. To mitigate this there was a tax incentive program offered for a while, but the majority of the existing rental stock was built prior to the Strata Act. This tax incentive program did not include density bonusing.

    The existing rental stock is the most affordable. If the intent of this new rental program is to improve affordability and increase the amount of purpose-built rentals, then it is critical that the existing stock is protected. The Rate of Change policies only are a replacement policy and do not actually ensure full replacement as it does not apply in all zones, nor does it result in replacement of teh same sized units as mentioned above.

    Rate of Change only applies in RM, FM and CD1 zones. It does not apply in RT, commercial or industrial zones. Where it does apply, the 1:1 replacement requirement means that large 3 bedroom units could be replaced with new bachelor units as small as 320 sq. ft. Replacement units of new construction will be more expensive than the existing older rental stock.

    Putting the existing rental stock under further development pressure will result in a net loss of affordability. It will also put heritage and character buildings under more development pressure, much of which is converted into multiple rental dwellings.

    There are many problems with the new Son of STIR program that have not been thought through and it was brought to Council without any public consultation.

  • ThinkOutsideABox

    You didn’t answer me. Tell me about all the purpose-built dedicated rentals that are being built without incentives? As any renter can tell you, a rental that is an investor-owned strata can disappear at any moment. You’re about to hear this week about a 200-plus-unit building downtown of strata condos that were being rented and are about to be converted for sale.

    As someone who has rented for 20 years in various forms of housing including purpose-built, basement suite and condos, including one where the owner did take possession, I am aware of the differences with all. But I didn’t feel any more benefit or sense of stability or long-term security living in any of the market rental purpose-built housing.

    About the number of purpose-built, Pacific Palisades has undergone a conversion with a major reno, and now appears as fresh purpose-built market rental apartments.

    That’s 234 brand new rental apartments in two towers at Robson/Alberni – or almost half what the city says it needs to add in market rental housing every year – without an incentive.

    I’m not sure if you’re saying that only owners should be able to live on the waterfront or that the builders of that project will be able to charge enough rent on waterfront that they shouldn’t need an incentive, but is that example really the best one to use to argue against a whole program?

    I wouldn’t suggest either or any of that. For starters, Beach Towers as it exists is a rental building; and STIR is an offset towards the cost of development, not an incentive to make up for lack of rents.

    The owner of a STIR market rental building will rent suites out for what the market will bear regardless of what savings were achieved in development. They’re not compelled to “pass along the savings” in the rent charged.

  • A Dave

    “The staff report noted that one-bedroom units renting for $1,500 a month in the 1990s, when they were new, are renting for $1,000 a month now.”

    I agree with Westender1 above. This is an outrageous assumption that cannot possibly have any basis in fact.

    Even SROs that are 100 years old have seen rate increases since the 1990s.

    And most 1960-70s era walk-ups rent for 50% more than what they did in the 1990s.

    If this is the crux of the “research” that is being used to justify this policy, then it’s no wonder Vision didn’t want any public scrutiny or discussion.

  • ThinkOutsideABox

    …I should also clarify the conversion at Pacific Palisades was from a hotel to market rental.

  • Westender1

    Some recent rentals that were built without incentives were those at Carmana Plaza – 1128 Alberni Street. The 243 rental units were built in 1998, but shortly following, the owner of the building (one of the partners in the STIR project at 1401 Comox Street) started operating 12 floors of the building as hotel rooms. Recently the owner applied to the City to legally convert these to hotel units and was denied by the Development Permit Board. But since that denial in January of 2011, there’s been no action from the City on property use enforcement. So it seems a rather variable approach is taken to protecting rentals in Vancouver.

    In general, I think the solution to building rentals should be to leverage the rezoning process and its increases in density, and adopt rental housing targets in community plan documents. Downtown South for example is designated almost entirely at 5.0 FSR. But recent developments have been approved at 10 and 11 FSR. Achieving these lucrative densities should come with some obligations to create purpose-built rental housing.

    Whatever system is established should be predictable for both neighbourhoods and for property purchasers. Adopting a program with policy provisions like “Consider modest increases in height and density” and “Consider additional density appropriate to context” is bound to result in the type of planning that one local development consultant has described as: “Let’s make a deal.”

  • Elizabeth Murphy

    Some form of inclusionary rental policy could work. However, if there is any density increase it should be modest and within the scale and character of the existing neighbourhood.

    Incentives for rentals should take different forms to suite the zone. Some zones should not have an incentive to demolish when it is a heritage zoning such as RT that is intended to use incentives to retain existing character buildings for multifamily conversions.

    There needs to be third party appeals to ensure checks and balances in the system. Currently staff are recommending 1401 Comox at a grossly over scale increase from existing zoning to 7.14 FSR from 1.5 FSR, with height increases to 22 storeys from 6 storeys. This is an example of what the City claims is a fit with the neighbourhood when it clearly is not.

    The way density bonusing is calculated now is a problem and not sustainable. There are many problems with the new Son of STIR. I have written a number of recent articles that cover this topic.

    Vancouver Courier – May 18, 2012
    http://www.vancourier.com/Reader+Soapbox+STIR+risen+Vancouver+rental+policy+approved/6646941/story.html

    Georgia Straight – May 15, 2012
    http://www.straight.com/article-685596/vancouver/elizabeth-murphy-son-stir-rising-vancouver-city-hall

    Vancouver Courier – May 11, 2012
    http://www.vancourier.com/Reader+Soapbox+STIR+rental+policy+proposed+Vancouver/6607833/story.html

  • Janet Fraser

    I found out about rental replacements in my neighbourhood at Concord Pacific’s first open house for Marine Gardens (at Marine & Cambie) earlier this month. Currently the site has 56 2-bedroom units (773 sq ft) and 14 3-bedroom units (1050 sq ft). City staff told me that this site is covered by the Cambie Corridor Plan (9.1.5, page 117): The Rental Housing Stock ODP and guidelines will continue to apply to existing CD-1 zoned sites (e.g. 445 SW Marine Drive [Marine Gardens]). Any rezonings of CD-1 zoned sites would be required to replace the existing units on a one-for-one basis with similar unit mix. As rental replacement is required under existing zoning, any financial pro forma evaluations will need to reflect the rental replacement requirement when establishing the value of the land under existing zoning for the purposes of identifying the land lift, or increase in land value, that may occur upon rezoning.

  • Fly_YVR

    There appears to be a notion that somehow without govt intervention there will be no rental units available. One might expect the market to be able to handle this, and yes rented condos area market response. Of interest between 2001 and 2006 (pre STIR and the period of great crisis) the number of renter households in the City of Vancouver fell 0.9%, while they fell by 3.6 percent in the Province as a whole and in Metro Vancouver. By implication Metro outside of the City of Vancouver would have seen the number of renter households fall by about 5% over this period. Seems to me that compared to the surrounding area the supply rental units in Vancouver seemed to hold up just fine. The backdrop on all of this is an aging population, which results on more owners and fewer renters anyhow

  • Elizabeth Murphy

    @ Janet Fraser #12

    The CD1 sites are covered by the Rate of Change policy, but the policy only requires 1:1 replacement with no match of unit size mix to existing. It is a shame that Marine Gardens is being redeveloped when the city needs more ground oriented family sized units.

  • Bill McCreery

    Here’s my review of the SECURED MARKET RENTAL HOUSING POLICY Report:

    p.2 — many of the Report’s comments are incorrect and deceiving – saying the City “created the POTENTIAL FOR 1,648 new units”; when on p. 4 it states: 699 units actually approved 2 ½ years later.

    They said at the beginning of the programme they were going to create 2,000 new rental units in the 2 year programme. This is smoke and mirrors. Developers in a number of spot rezonings were only to happy to reduce the number of STIR units – eg: Marine Gateway and RIZE.

    P 3 — these rental buildings are supposed to be “on an arterial, or high street or close to transit”. Look at their track record: 1401 Comox is not: “on an arterial, or high street” and is 3 blocks from transit.

    • the Report curiously leaves out these significant incentives: CAC waivers and property tax assessment forgiveness – both are major numbers. Why? Also, the benefit to the developer for the reduced parking at +/-$40.000/space is not included in the subsidy. Although it’s not costing City, it is a benefit to the developer.

    p.5, 1b. — the Report does not substantiate it’s claim that there are no land value increases for spot rezonings such as Comox: FSR went from 1.5 to 7.47 = +400% increase, and no increased land value??? Please. Randy Helton has confirmed that in fact the BC Assessments have increased substantially for STIR properties following spot rezoning. If this is the case the City has been seriously shortchanged. It would be helpful if City staff could make their detailed calculations public. Something is very wrong here.

    • the Report says mixed projects got an average of a ”$70,000 subsidy”, but that figure does not include the +/-$40,000/unit parking subsidy. The Bidwell subsidy is $131,881 when you include a $5,455,988 land lift increase. Comox is $88,505 with a $12,346,251 land lift. I have done viable proformas on these projects using those land costs. If City staff have other figures, I’d like to see them to confirm they are correct and I am not. I’m happy to be proven so.

    1c. Affordability: $1,100 for 390sf ($2.82/sf) at Bidwell and $1,300 announced for another project are not affordable. 550sf units at 1333 Hornby are renting for +/-$1,100 ($2.00/sf).

    p.6, 2a. There are no upper density increase limits stipulated. Past STIR experience indicates 200% to 400% increases as opposed to the accepted 10% to 15% increase for heritage density transfers.

    p.7, 3. Parking reductions – 1 space per 5 units = a reduction of 4 spaces @ $40,000 = $160,000/ 5 unit subsidy to the developer.

    APPENDIX A, P. 5 –- a 320 SF unit IS AN SRO, not a market rental suite, and the wording is once more vague as to what “replacement” really means.

    APPENDIX B, P.3:

    • CD-1, ODP – “HEIGHT and DENSITY as appropriate to location and context”, ie: Comox???
    • Industrial – “modest increases” — what’s the meaning?? CD1 = spot rezoning, so read: ‘DISREGARD THE FOLLOWING RESTRICTIONS’. This vague wording is a repeat of the RIZE fiasco.

    THE BOTTOM LINE:

    1) Why is City going alone. All 3 levels should be subsidizing rental housing if that is necessary. City cannot afford to bear 100% of this burden. But, the Mayor is happy to do so while he and his Mayors’ Caucus colleagues are telling senior governments they’re broke.

    2) How can this programme be introduced before the neighbourhood planning processes are completed? — see Appendix B — they’re trying to deal with this, but have left gaps to drive large truck through as per Comox, RIZE, etc.

    3) At even underestimated $70,000 per unit subsidy, the City could build, own and control the rents for 1 unit for every 4 they are subsidizing. This will keep rents lower in perpetuity.

    4) The only improvement in this new fiasco is the supposed reduced taxpayer subsidy, but if that is the case the City has already lost millions on the uncollected land lift for the STIR projects they have already or are in the process of approving. In addition, the new programme will continue this error costing taxpayers many tens of millions of dollars more

  • Tessa

    These are really long overdue changes to the program that I’m quite glad have been passed. You’re never going to get condo-style towers with cheap, affordable rental, and especially you’re never going to get mixed condo and rental buildings that are going to get the desired numbers of rental and the desired affordability goals. It’s simply not practical, and the types of bonuses being offered with way out of proportion with the benefit.

    What these changes mean is smaller bonuses for developers and more affordable housing in buildings that are 100 per cent rental and within the scale of their neighbourhoods, that is usually wood-frame and around four-storeys tall. This is the type of building that provided most of the affordable rental in the 60s and 70s and it’s the best style to continue along with that today.

    That said, staff really do need to check their facts when it comes to $1,500 units in 1990 renting for $1,000 today. That doesn’t exist.