New market rental housing does not have to be a zero-sum game issue, but this is where we are in Vancouver after successive council decisions and debates.
Based on their collective actions, it is almost as if council is trying to resolve housing affordability by simply building less housing.
But this is all grounded in misguided beliefs and a failure to accept the economic realities of the costs and risks — as well as the laws of supply and demand economics — associated with building market rental housing in our market-based economy and society.
Some councillors have been far worse than others on this matter and their level of understanding.
As basic of a concept this may be, and since this does not seem to be obvious to certain councillors, if we want private developers to build rental housing, we need to fully accept that they are not going to pursue this type of residential development on their own accord unless they are able to make a profit out of their investment.
If this is unattainable, developers are either going to hold out on developing their property or the only residential they will build is market ownership units.
For developers, there is also the opportunity cost to consider of having their investment tied up for years over even decades with a rental housing project, plus the associated management costs and hassles, instead of being able to walk away with their entire return from a condominium project and using the lump-sum profits to invest in other money-making activities, such as more developments.
No business and/or property owner is going to go head first into building any development knowing fully they are going to lose money.
As much as we would like them to be, businesses are not charities.
Legacy policies by the previous city council resulted in some initial success with new market rental housing supply; for the first time in decades, Vancouver was seeing a surge in new rental units, with Canada Mortgage and Housing Corporation data indicating the number of purpose-built rental stock in Vancouver in 2018 alone increased by 1,364 units, accounting for a significant portion of the 3,690 units added to the city since 1990. But this is a measly increase of only 7.3% over nearly three decades.
Policies such as Rental 100 and Moderate Income Rental Housing Pilot Program (MIRHPP) were designed to provide developers with incentives to build rental housing — to steer them away from quickly cashing in on more condominiums.
The data solidly proves that much of the rental housing affordability problem is a supply problem: with a regional rental vacancy rate hovering at just 1%, residents are competing for scarce housing resources, and the effect from a lack of supply has led to sky-high rental costs.
This is a vicious circle that begins with addressing supply.
But some councillors have said they want projects with the “right supply” — as in, they want developers to build more affordable, cheaper rental homes.
No amount of wishful thinking is going to make developers consider building more affordable output conditions if you do not change their input conditions. As well, over time, newer rental units age into older stock, and become part of the more affordable options in the rental housing pool.
An independent study conducted for the Greater Vancouver Board of Trade’s 2018 Housing Forum found that government taxes and fees account for 26.22% or $220,256 of the total $840,000 cost of a typical new apartment unit on the Cambie Corridor.
There have also been long permit time waits (and the resulting opportunity cost of delays), and in some scenarios there are multi-million dollar community amenity contribution considerations, with the municipal government increasingly downloading the cost of neighbourhood improvement projects to developers.
Rejected designs that are sent back for revisions or even complete redesigns can add hundreds of thousands or millions of dollars in costs, particularly for larger proposals.
And then there is also Vancouver’s increasing building standard scope that essentially demands utopian architectural designs. The city’s recent green approaches to building design to help address climate change should be lauded, but we also need to be fully cognizant that going green also generally means a higher cost of construction.
On top of all this, the cost of construction materials, equipment, and labour has seen significant increases over the last two years.
All of these costs, including any added costs, are then passed down to homeowners or, in this case, renters.
At the same time, in face of the angst of neighbourhood activists, certain activist councillors, and city staff, developers face highly restrictive policies that greatly inhibit more density and height to help redistribute these construction costs across more units.
Greater density and height will also help offset the exorbitant cost of land acquisitions — one of the largest costs of pursuing any development.
To sum it up, we want it all, but we are also unwilling to compromise and focus on achieving our housing goals based on realities and what can actually be accomplished.
Most recently, Vancouver city council rejected a 21-unit townhouse proposal in the Shaughnessy neighbourhood, with some councillors believing the property owner would come back with a modified proposal based on council’s wishful recommendations.
Instead, the property owner flatly rejected the idea of going through the process again, and said they will redevelop their existing mansion property into a new 12,000-sq-ft mansion under current zoning.
Great work, Vancouver city council.