A newly released report by City of Vancouver staff builds on the conclusion that incentives are critical to the creation of new purpose-built rental housing supply.
The findings and recommendations to city council come after much scrutiny this past year over the incentives provided to developers, with critics asserting incentives are not necessary nor equitable, arguing the rental rates are not at below-market affordable levels, while supporters argue it is a key driver for encouraging developers to build rentals instead of more condominiums.
This divide along ideological lines has been very apparent in city council decisions on rental proposals, particularly applications under the Rental 100 Secured Market Rental Housing and the Moderate Income Rental Housing Pilot Project (MIRHPP).
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But the forthcoming recommendations align with an independent report commissioned by the city that found developer incentives to build rental housing are working. The pace of approvals, at a rate that is well below the city’s 10-year goals for market rentals, is narrowing the vacancy rate to about 1% and pushing rental rates upwards.
Here are some major changes city council is set to consider:
1. Pre-zoning to allow six-storey mixed-use rental projects in commercial areas, and residential rental zoning
Commercial areas would be pre-zoned to allow for six-storey mixed-use rental buildings, which generally means commercial space within the lower level and residential rental space in the upper levels.
A sizeable proportion of the city’s new rental housing over the past decade has been built on commercial zoning, with 22 purpose-built rental housing developments and 1,165 purpose-built rental units approved under the Short-Term Incentives For Rental and Rental 100 programs. This in fact accounts for 18% of all new rental buildings and 14% of rental units approved over the last 10 years.
Between 2009 and 2018, a quarter of residential development projects in commercial zoning districts has been market rental development, with the vast remainder being strata development.
“These development trends in C-2 areas are generally consistent with the findings from Phase 1 economic testing, which found significantly higher profit margins for strata development in C-2, even with the city’s rental incentives including added height, density, Development Cost Levy (DCL) waivers, parking reductions, etc.,” reads a city staff report.
“These findings illustrate the overall economic viability challenges in developing purpose-built rental housing in Vancouver, even with market rents.”
2. New rental buildings in transitionary areas off arterial roads
Modifying the existing Affordable Housing Choices Interim Rezoning Policy (AHC IRP), more rental rezonings will be allowed within 150 metres off an arterial road, instead of the previous regulation of 100 metres. The project spacing requirement of no more than two projects within 10 blocks along an arterial street will be abolished.
Residential zones within 400-metres from parks, schools, and shopping can also be considered.
Depending on location, market rental projects of up to four or five storeys will be considered, but projects up to six storeys must dedicate at least 20% of the floor area for below-market rents. Additionally, community amenity contributions apply for these six-storey options with a below-market component.
“The AHC IRP was intended as a pilot to enable real examples of housing types to be tested for potential wider application. The policy was also designed to demonstrate the transition zone concept by enabling ground-oriented housing types to provide a transition between higher density areas along arterial streets and lower density residential areas,” reads the report.
3. Moderate Income Rental Housing Pilot Project extension
The MIRHPP stream for applications will be extended through January 1, 2021 to better enable developers to reach the city’s 20 project limit.
To date, the municipal government has received 10 rezoning applications falling under MIRHPP.
Further analysis in Spring 2020 will provide options and proposed directions to adjust rents over time to address “impacts on program goals and project viability, including longterm increases in renter incomes and project operational costs.”
“A report on the status and results of the MIRHPP in 2021 including information regarding affordability levels achieved, financial viability of projects and level of incentives required, and implementation, compliance, and long-term building operation.”
4. Permitting mass timber rental buildings up to 12 storeys
Aligning with changes to the BC building code and next year’s proposed changes to Canada’s building code, 12-storey mass timber buildings could be more widely considered and encouraged for rental housing.
“The provincial government announced today new changes to the BC building code that will allow the construction of taller wood buildings of 12 storeys — up from the current allowance of six,” reads the report.
“Currently, challenges exist to widespread mass timber construction in Vancouver, including costs, building codes, and lack of industry awareness and expertise. Mass timber construction could provide opportunities for taller wood-frame rental buildings, while codes currently only allow wood-frame construction up to six-storeys. Otherwise, taller buildings generally are required to construct in concrete, resulting in increased building costs and carbon emissions.”
5. Development Cost Levy changes
Some adjustments will be made to the various DCL waivers.
The Utilities DCL waiver, meant to be temporary, will be removed on September 30, 2020 on for-profit affordable housing, as the city needs more revenue to upgrade utilities infrastructure, which will decrease the risk of urban flooding and sewer backups from new developments.
Projects under MIRHPP will be able to qualify for the DCL waiver for the entire residential portion of the building from new eligibility criteria.
Overall, existing Citywide DCL waivers will be maintained as a key incentive to catalyze new rental housing.
“New rental development typically generates profit margins that are lower than the minimum returns expected to obtain construction financing and proceed with a new project,” reads the report.
“The return on costs is also typically lower than the profit margins that can be achieved through strata development under existing zoning. The DCL waiver is offered to new secured rental projects to help overcome the ‘viability gap’ and generate a return on costs that better competes with strata development.”
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