City report finds developer incentives to build rental housing are working

Jul 25 2019, 2:19 am

It is clear the City of Vancouver needs to continue and do more of what it is already doing to catalyze the construction of new rental homes in the market.

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The findings of an in-depth independent study by CitySpaces Consulting and Coriolis Consulting, commissioned by the municipal government, were released today and it concluded that the city’s rental housing programs over the past decade have been successful in creating new rental homes.

After three decades of little activity in rental housing construction, Vancouver saw a resurgence in such developments as a result of the new municipal policies and incentives, with about 8,700 new rental units approved since 2009.

Vancouver rental housing

Vancouver rental housing construction timeline. (CitySpaces Consulting / City of Vancouver)

Incentives to private developers have made rental housing projects financially viable and a feasible alternative to building more market ownership units.

The city maintains that developers must attain a sufficient profit in order to obtain construction financing and address the costs and risks associated with the project.

Vancouver rental housing

Financial feasibility of rental housing in Vancouver. (CitySpaces Consulting / City of Vancouver)

“Rental incentives are essential. Incentives are needed to level the playing field between market rental development and condominium development,” reads the report.

“Financial analysis completed as part of the Rental Incentive Program Review by Coriolis Consulting demonstrates that condominium development will continue to out-compete rental use, unless substantial incentives are offered to bridge the gap. With relatively low profit margins and a highly competitive land development context, the incentives are needed to encourage new rental construction.”

Here is a breakdown of the successful performance of various policies designed to generate new rental housing over the past decade:

Performance of the City of Vancouver's Short-Term Incentives For Rental Program (STIR), Rental 100 Secured Market Rental Housing Policy, Affordable Housing Choices Interim Rezoning Policy (AHC), and Community Plans. (CitySpaces Consulting / City of Vancouver)

Performance of the City of Vancouver’s Short-Term Incentives For Rental Program (STIR), Rental 100 Secured Market Rental Housing Policy, Affordable Housing Choices Interim Rezoning Policy (AHC), and Community Plans. (CitySpaces Consulting / City of Vancouver)

However, these incentives have been far from sufficient to meet the municipal government’s goal of catalyzing 20,000 new purpose-built market rental homes over 10 years. The city is currently experiencing a shortfall of over 1,000 units per year over the last two years — the first two years of the decade-long timeline — and this has greatly contributed to the low vacancy rates hovering below 1%.

“Rental housing continues to be in short supply. There continues to be a significant shortfall of rental supply throughout the region, created by decades of very limited new construction,” states the report.

“While the City of Vancouver and other municipalities in the region have turned the trend away from a net loss of rental units towards a net gain of new starts, the cumulative shortfall remains considerable… Additional supply is needed to respond to demand and to provide renters with housing choice.”

Vancouver rental housing

Varying housing types supporting various income levels. (CitySpaces Consulting / City of Vancouver)

Additional market rental supply will lead to greater availability in rental housing, resulting in reduced pressure on the units of older stock of rental housing, which have also experienced major rent increases in recent years due to the overall shortage.

“It is important to recognize that the newly created units play a critical role in alleviating pressure on the rental stock as a whole, and that this need not result in lower rents for those particular units in order to contribute to housing choice and affordability,” continues the report.

Researchers have made a number of recommendations to the municipal government to better achieve its rental housing targets, including enabling new rental housing in all neighbourhoods — such as low-density areas — instead of only concentrating market rental development in select neighbourhoods and along arterial streets. A mix of structure types and densities, like townhouses and small apartment buildings, are also “important considerations moving forward.”

Vancouver rental housing

Vancouver renter population. (CitySpaces Consulting / City of Vancouver)

City of Vancouver approved rental housing projects from 2009 to 2018. (City of Vancouver)

City of Vancouver approved rental housing projects from 2009 to 2018. (City of Vancouver)

New rental housing must not be limited to projects that are 100% rental-only projects for the residential component, as “identifying ways to expand the program to a greater variety of projects may lead to further increases in total supply.”

There should also be a simplification and streamlining of incentive programs to eliminate inconsistencies and confusion across policies and programs, as well as a reduction in processing timelines that “are so significant that they are a deterrent to potential applicants interested in rental construction.”

These are the median processing times for rental housing applications under various incentive programs:

Vancouver rental housing

Vancouver rental housing approval timelines. (CitySpaces Consulting / City of Vancouver)

The report acknowledges the need for affordable rental housing, but it concludes that this can only be accomplished with further incentives or government subsidies. More importantly, affordable rental housing is not a replacement for market rental housing, nor does the public sector have the capacity to be a market housing replacement.

“The current programs and policies are necessary to facilitate new market rental housing, but they are not adequate at delivering the targeted number of new market rental units or at supporting below market rents,”

“To achieve lower rents, direct government subsidies are the most effective. Given the limited ability on the part of the city to provide operational subsidies, partnerships with provincial and federal governments will be needed to provide greater levels of affordability.”

Additionally, the report notes there needs to be improved communication and education to the public on the trade-offs, financial constraints, and risks associated for developers with rental housing development.

Vancouver rental housing

City of Vancouver 10-year housing targets, 2017. (City of Vancouver)

Phase II of the municipal government’s review of its rental housing programs will explore ways to simplify and clarify policies and incentives, reduce processing times, identify ways to address “neighbourhood fit,” and examine the early results of the Moderate Income Rental Housing Pilot Program.

Public and stakeholder consultation is slated this fall, which may lead to a final policy for city council’s approval in November and the implementation of the changes early in 2020.

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Kenneth ChanKenneth Chan

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