On Tuesday (July 14), Vancouver city council will resume a public hearing into a controversial 28-storey tower proposed along West Broadway.
IBI Group has filed a rezoning application on behalf of Jameson Development Corporation to include 258 "secured rental units" for people on moderate incomes on the upper floors of the project.
If approved, it would be built on the former Denny's Restaurant site at the corner of Birch Street and West Broadway.
The secured-rental accommodation—for households with incomes from $30,000 to $80,000—accounts for 22 percent of the area.
In 2018, council approved an application for a 16-storey building on the site.
The city's general manager of planning, urban design, and sustainability, Gil Kelley, told council in a July 9 memo that there is no additional land lift for the developer if 12 extra storeys were added under the Moderate Rental Housing Pilot Program.
"The costs to secure 22% of the residential floor space at below-market rates equates to the value of the additional stories," Kelley wrote. "By way of comparison, if the project was permitted to achieve 28-storeys at 100% market rental rates, the additional storeys would have generated a CAC [community amenity contribution] of approximately $9M. Therefore, the costs to secure 58 MIRH (moderate income rental housing) units over 60 years at this location is $9M."
The city's Vancouver Development Cost Levy By-Law No. 9755 states that a for-profit housing project can obtain a development-cost levy waiver if average rents remain below:
* $1,242 per month for a studio unit;
* $1,561 for a one-bedroom unit;
* $1,972 for a two-bedroom unit;
* and $2,338 for a three-bedroom unit.
The proposal for the tower on the former Denny's Restaurant site has come under fire from some residents in the area who worry that it will contribute to higher land costs, driving up the price of rental housing.
In addition, it's been characterized as a sweetheart deal by former Canada Mortgage and Housing Corp. acting treasurer Sean Cassidy and developer and architect Michael Geller, another former CMHC staffer who also oversaw the planning and development of SFU's UniverCity community on Burnaby Mountain.
A year ago, Coriolis Consulting Corp., which was retained by the city, submitted a memo offering preliminary findings into its research on the "effectiveness of existing incentives available to new rental developments and to test potential changes to rental policies".
"Sufficient profit is required in order to obtain project financing and address the costs and risks associated with new development," Blair Erb of Coriolis wrote. "Typically a minimum profit margin of about 15% is required by multifamily residential developers to obtain construction financing and proceed with a new project.
"However, in specific circumstances, some developers may elect to proceed at a lower margin," Erb continued. "For example: in order to mitigate capital gains taxes, long term owners of a property may elect to redevelop at a lower margin rather than sell; developers interested in creating a portfolio of rental properties may accept a lower margin if suitable existing rental properties cannot be purchased; and developers who originally planned a strata project may elect to proceed with a rental project if they are concerned about short term market risks."
The memo states that Coriolis expects that "rent control at unit takeover"—often referred to as vacancy control—would "make market rental development financially unattractive, likely resulting in a large decline in new rental housing supply over time".
In response to the criticism at the public hearing on Friday (July 10), the director of Liveable City Planning, Michael Mortensen, put out a couple of tweets to educate his followers about the cost of constructing purpose-built rental units in Vancouver.
The 2017 CMHC report referenced by Mortensen showed that in Vancouver without land costs, it would cost $274 per square foot for a basic project of 50 units; $379 per square foot for a medium project of 100 units; and $432 per square foot for a high-end project of 150 units.
The unit cost would be $164,500 for a basic project, $227,500 for a medium project, and $259,000 for a high-end project, without land costs.
"Even with land costs assumed at zero, most markets and project types still exhibited a negative 10-year return," CMHC stated at the time. "The key exception was that 10-year returns looked reasonably favourable for the basic projects in Vancouver and Toronto."