There are many significant challenges facing housing affordability in the City of Vancouver. Two of the primary challenges are directly linked to the private market’s inability to build new rental housing. The lack of land available for new rental construction, and the difficulties achieving density sufficient to warrant its construction on most sites are constantly cited by the development community as barriers to new supply.

The City’s existing policies that have sought to incentivize new rental construction include Rental 100. While Rental 100 and its predecessor STIR have been successful in generating almost 4,000 unit approvals (only a few hundred have been built so far), the policy is not without controversy given that it allows what would otherwise be considered spot rezonings were they market condo projects. The City’s recent decision to set limits on rents for new rental projects as a means of promoting “affordability” will only impede the viability of those projects seeking approval under Rental 100.

What about the existing apartment zones?

65% of the City of Vancouver’s land base is dedicated to the lowest form of housing density: single family housing. The remaining 35% is divided among an ever-shrinking base of commercial, industrial, institutional and multi-family. Apartment vacancy rates have hovered below 1% for most of the last decade. In a market where homeownership is increasingly out of reach, it’s time to focus on building more rental where it is already approved, where services and amenities already exist, and most importantly, where renters want to be…RM zones.

With almost 3,000 apartment properties in the City of Vancouver, the vast majority are 3 or 4-storey walkups that were built in the 1950’s and 1960’s. Back then, the City Vancouver’s population was only climbing above 300,000 for the first time and relatively speaking, opportunities to buy land and build an apartment building were relatively plentiful.

Today, these apartments and the zoning that was put in place to permit them, are no longer responsive to the challenges facing today’s housing market.

Let’s focus on specific zones for a moment. The various multi-family zoning types that are scattered throughout the City are tailored primarily toward fairly low density walkup apartment properties. These zones include RM-3, RM-3A, RM-4, RM-4N. These zones generally allow for 1.45 FSR density, basically double that of single family, or about half that of a typical condo development. While these zones and the attendant setbacks, heights and parking were appropriate when they were built, are they appropriate in 2015?

So where are these zones located? They are primarily in established apartment areas such as Kitsilano, Kerrisdale, Marpole, Fairview, Mount Pleasant and Grandview Woodlands. For the purposes of this analysis we have intentionally excluded the already dense West End which is primarily higher density RM-5 zoning.

The City of Vancouver has been loathe to tinker existing apartment zones for many years, particularly as a result of a worrisome trend to convert rental apartments to condos in the 1990’s and early 2000’s, a trend which effectively ceased following the City’s indefinite moratorium on condo conversions for any property containing six units or more (the “rate of change” policy). Certainly these efforts to protect the existing rental stock have protected thousands of tenants that are currently paying far below market rents in central locations.

Currently, City of Vancouver policies prevent building owners or developers from tearing down or doing widespread renovations to existing apartment stock. Condo conversions are understandably deemed to run contrary to the City’s efforts on housing affordability, and so-called “renovictions” are highly publicized in the media as flaunting with tenants’ basic rights.

What is lost in the conversation however, is that the vast majority of buildings in these zones are very old, inefficient lowrise, low-density apartment buildings that no longer meet the needs of the current population.

Some facts regarding the RM-3, RM-3A, RM-4 & RM-4N zones:

• Total number of Apartment Properties*:          2,011
• Total land occupied:                                            22,684,219 SF, or 521 acres

 *RM-3 and RM-4 zones only, assessed value >$1M

According to CMHC’s 2014 rental market report, there are currently 35,113 private rental apartment units (excluding condos) that are located outside of the Downtown and West End. In a City starved of land and choking on housing affordability, it still shocks me that there are more single family lots (47,000) then there are apartments.

Many of these apartments have been owned for many decades by owners that are unwilling to sell due to capital gains. Likewise they have typically not spent money to upgrade or improve their buildings due to the inability (in most cases) to raise rents substantially to justify the capital cost.

The building forms of the mid-twentieth century are not always relevant any longer. In many cases these buildings have generous setbacks, no balconies, more than one parking stall per unit.

Potential Solution? Densify Existing Rental Apartment Zones For Rental Only

A cursory analysis of the above-mentioned RM-3 and RM-4 zones suggests that with even a moderate density increase to 2.25 FSR (or a 4-5 storey building form), would yield the following:

>18,147,000 SF of new density, or about 24,000 rental apartment units (six times more than what the City has generated since 2008 through STIR and Rental 100)

> If only 1% of the apartment stock (20 buildings) file applications per year, that is 240 units per year of additional rental housing, or an increase in the stock of about 1%

Implementation of such a drastic planning policy would obviously create a number of potential issues. Some other thoughts for consideration:

> Protection of existing tenants: The only way densification can work is if existing renters and apartment neighbourhoods support the policies that will be required to facilitate it. Existing tenants in affected buildings could be offered unchanged rents in the new or renovated buildings with an option for a buy-out to be offered if the tenant moves on. This could be regulated by the City.

> Rent Maximums: Ensure that only new tenants can be charged market rents, existing tenants that wish to stay are allowed to do so at their previous rent level. In many cases, the additional density will more than offset these rents.

> Continue to Prohibit Mixed Condo/Rental: As was learned by STIR (which allowed rental as a public incentive), mixing market condos and rentals creates many challenges

> Temporary Capital Gains Waiver: one of the largest impediments to any apartment building owner in selling their buildings is their capital gains exposure. If the Federal Government is serious about assisting Vancouver’s worsening housing affordability problems, why not provide this kind of incentive to apartment owners by relaxing capital gains if a building owner increases their rental density? Will some wealthy landlords benefit? Of course. But the real benefactor will be the tenants of the City of Vancouver with an increased supply where it is needed. in the absence of direct federal tax credits or direct investment from senior levels of government, opportunities for new rental will continue to decline.

Without sufficient incentives or areas to build, new rental apartment construction will continue to be a challenge and invariably housing affordability will suffer. The above is only for discussion purposes and is not presented to be the solution, but hopefully a piece of the conversation…

The City of Vancouver has released an administrative report that provides information on Community Amenity Contributions (CACs) and Density Bonusing for 2014. These types of reports highlight some interesting market information. Of note, 2014 generated more than the previous two years combined, primarily as a result of the Oakridge Centre rezoning approval.

Here are few highlights:

• In 2014, there were 50 approvals of additional density resulting in a net increase in floor area of 6,500,000 SF and total public benefit in the amount of $234 Million.
• The rezoning of Oakridge Centre in May 2014 represents 60% of the density and CACs generated
• 80% of the public benefits are provided as on-site contributions, and 20% were cash in-lieu
• 95% of additional density approvals aligned with recently approved community plans
• The heritage density bank has been drawn down to 800,000 SF, a 50% decrease since the creation of new heritage transfer density was put on hold in 2009
• There were 14 approvals for secured market rental housing in 2014, or 1,073 apartment units

For those interested, the report provides a full list of all rezoning applications approved by Council in 2014 that generated additional density and public benefits.

Just ask any developer; it’s becoming increasingly difficult to find sites to build condos or mixed-use developments in the City of Vancouver. Despite the buzz in the media about developers running City Hall, an burgeoning supply of single family land assemblies, and spot rezonings occurring all over the place, the vast majority of rezoning and development activity outside of Downtown Vancouver is presently confined to areas such as the Cambie Corridor and Southeast False Creek (“SEFC”), both of which are near transit and underwent lengthy master planning phases in the past 5-10 years to add moderate density; typically averaging 3.0 FSR or less. 15 of the 40 currently proposed rezoning applications in the City of Vancouver fall within these two areas alone. Furthermore, of the other 16 proposed rezoning applications that are located outside Downtown/Chinatown, none are for condo developments; none! The applications are all for market rental, social housing or institutional uses. Of course, this does not jive with the public perception that Vision Vancouver has granted spot rezonings for condo towers all over town, a view which does have some merit given pre-planning phase approvals for such developments as PCI’s Marine Gateway and Westbank’s Granville and 70th developments in the past few years. Nevertheless, more recent direction shows that the City has definitively pulled on the reins of both area plan policy work and speculative rezoning applications.

Outside of the Downtown, Cambie Corridor and SEFC areas, developers are facing scant opportunities to find land in a City that is becoming entrenched as a predominantly wealthy single family enclave with over 65% of land still dedicated to this lowest form of housing density that existed nearly 100 years ago. While City of Vancouver planning staff have made an attempt under Brian Jackson’s oversight to pursue gentle densification of various neighbourhoods in forms such as stacked townhouses and fee-simple rowhouses; it has been largely met with resistance by neighbourhood groups who, in many cases, oppose even the most benign forms of density that threaten the single-family neighbourhood ideal. Likewise, affordable housing activists have argued that $800K townhouses are not a solution, even in large areas where $2M houses are the only option for home-ownership. The end result is that positive planning processes such as that which commenced for Grandview-Woodlands in 2013 turn into endless community consultation and opportunities for redevelopment are deferred for several years.

In a time where rezoning and the public approval process in general is an increasingly contentious and politically sensitive endeavor, developers are fleeing to land where there is the least risk. And where is that? Pre-zoned land. Certain zoning types have become the primary target for many developers and investors over the past 5 years or so; including:

• C-2 (mixed-use zoning on various arterials outside downtown)
• C-3A (mixed-use zoning primarily in the Broadway/Mt. Pleasant areas)
• RM-8 & RM-9 (new townhouse and 4-storey zones respectively. Marpole only so far)

Here is a quick look at sales of C-2 zoned properties in the City of Vancouver to show the effect of the aforementioned increase in demand for pre-zoned land.

For those unfamiliar with C-2 zoning, it is a commercial mixed-use zoning scattered throughout the City’s arterial streets (excluding Downtown). The C-2 zone allows a total density of 2.5 FSR and a total height of 4-storeys. What makes it one of the more sought after zones by developers is that it allows residential above the ground floor, and is found in wealthy established areas such as Dunbar and Kerrisdale, as well as emerging areas like Fraser Street and Kingsway. Existing commercial properties on any sites large enough to accommodate underground parking, and that do not have long-term leases in place are being snapped up all over the City.

The sales show the difference in values between East Vancouver and the above-mentioned areas of the Westside, which of course support higher condo values and retail lease rates relative to East Van. More apparent however, is the increase in values city-wide. While previously averaging around $125 per buildable SF as recently as 2010, the average has now shot past $200 per SF, with recent trades in Kerrisdale well over $300 per buildable SF, and Main Street trades now being reported as high as $250 per BSF. $300 per BSF is a figure which is only supportable in an exclusive and already wealthy area that can justify condo sales approaching $1,000 per SF. The lack of available sites in these areas helps to create the exclusivity that supports the underlying sales, as opposed to areas like Cambie and SEFC where the areas have been, and still are, being inundated with new condo inventory. Speculation may also be a factor where investors are simply buying existing C-2 zoned income properties and holding them, but this has been less prevalent and is not included in the sales charted above.

The above price trend holds true for the C-3A zone, as well as other zones which allow the developer to proceed with only a development permit and avoid the lengthy rezoning process.

Land values for C-2 zoned properties and in other pre-zoned areas will continue to be in high demand for developers as long as the opportunities for rezoning remain limited as they are now, and as long as the City of Vancouver – both City Hall and it’s citizens, continue to support a future in which the majority of the City’s land area continues to be dedicated to a low-density, exclusive and unaffordable housing type – the single family home. Similar to single family lots, they aren’t really expanding these zones, and as they are redeveloped the supply diminishes while the demand grows stronger.