Two requests to Metro Vancouver Regional District
Two requests to Metro Vancouver Regional District
Lower DCCs on apartments, broader waiver for rental housing
[Update: the video from the board meeting has been posted. My presentation starts around 24:00.]
The Metro Vancouver Regional District board (41 elected officials from across the region) is having a meeting this Friday: agenda and board package. I’m hoping to make a five-minute presentation on agenda item 3.5: Costs of Providing Infrastructure and Services to Different Residential Densities Study.
How are your interests affected by the report? I’m an interested layperson (I don’t work in real estate or development). Like a lot of people in Metro Vancouver, I’m extremely concerned about the scarcity and cost of housing in the region. Younger people are being forced to leave because they can’t afford to stay, even with a household income of $100,000 or more. This is unsustainable: how is the healthcare system going to work when nurses can’t afford to live here?
Name of the report you’d like to speak to: Costs of Providing Infrastructure and Services to Different Residential Densities Study (agenda item 3.5).
Specific action you are asking the board to take: See below.
Summary of your presentation:
We have lots of jobs and not enough housing, with vacancy rates near zero. Prices and rents have to rise to unbearable levels to force people out.
There’s three bottlenecks to building more housing: the legal bottleneck (getting approval to build housing), the cost bottleneck (making projects economically viable), and actual construction. A project doesn’t make sense unless the value of the new building, minus the total cost of building it, is high enough. That’s basically how much the project can pay for land. It has to be significantly higher than the current value of the property with its existing building, or the landowner won’t have an incentive to sell, and nothing will happen.
I have two requests that I’d like the MVRD board to ask staff to consider, which would help with the economic viability of new housing (especially rental apartment buildings) by reducing costs.
(1) According to the report, per-unit servicing costs for apartments are 5-10X lower than for houses, while the planned DCCs for apartments are only 2X lower. Can the DCCs be lowered on new apartments and increased on new houses?
(2) In addition, rental housing operated by a not-for-profit developer can receive a DCC waiver or reduction. It’s common for such projects to have 30% below-market apartments cross-subsidized by 70% market apartments. Can this be extended to for-profit purpose-built rental projects which include 20% below-market apartments? A number of municipalities (including Vancouver, Burnaby, and Delta) have below-market housing programs that would align with the 20% threshold.
Slides
Hello, my name is Russil Wvong. Thank you for serving in office, and for overseeing the renewal and expansion of the water and sewer infrastructure that we all depend on.
I’m here as an interested layperson. I don’t work in real estate or development. But like a lot of people, I’m extremely concerned about housing being so scarce and expensive across the whole region.
People don’t move around randomly, they move where the jobs are. Metro Vancouver has a lot of jobs, and not enough housing, with vacancy rates near zero. So prices and rents must rise to unbearable levels to force people to leave, especially younger people. That’s the reason that prices and rents are completely decoupled from local incomes, making us poorer and worse off.
To be a little more precise, the estimate is that prices and rents have to rise about 2% in order to force 1% of people to leave. Equivalently, if we had 1% more housing than we actually do, prices and rents would be about 2% lower. With more housing, the people who would move here are people who can’t afford to live here now, but who could just barely afford to live here if prices and rents were just a little bit lower.
You sometimes hear people say that housing in Vancouver has always been expensive. But this graph from RBC, going back to 1986, shows that it really is getting much worse. Covid lit a fire under the housing market: people working remotely need more space at home, and that’s not going to reverse itself.
For younger people, this is a terrible situation. For older people who moved here and bought a place more than 20 years ago, they’re insulated from high housing costs, but it’s still pretty bad. When younger people can’t afford to live here, hospitals are going to have a hard time hiring nurses, for example, and the healthcare system will be under intolerable strain.
I’m actually optimistic that we can fix this problem. We have people who want to live and work here. We have other people who want to build housing for them. There’s three bottlenecks to building more housing: the legal bottleneck, the cost bottleneck (or economic viability), and the actual construction.
Reducing costs is really important. Even when something is legal, if costs are too high it won’t get built. A project doesn’t make sense unless the value of the new building, minus all the costs of building it, is high enough. That’s basically how much the project can pay for land. It’s volatile, it goes up and down a lot. It has to be significantly higher than the current value of the property with its existing building, or the landowner won’t have an incentive to sell, and nothing will happen.
This graph shows an analysis by Coriolis, from May 2022, of a six-storey rental project in Vancouver. With rents at that time, the value of the new building would be about $860 per square foot, the total height on the right. The “hard costs” for labour and materials are about half of that, shown in red. All other costs, including development charges and GST, are shown in turquoise. Subtracting those costs, you get $230 per buildable square foot that the project can pay for land. The value of the land with its existing buildings is $180 per square foot, shown in blue. So that leaves $50 per buildable square foot in “land lift” that motivates the landowners to sell, shown in green.
As costs rise, the green part shrinks. When it’s too small, the landowners aren’t interested in selling, and nothing happens until prices and rents rise enough for the project to make sense. In other words, cost increases are first absorbed by land lift, but once that’s gone, they end up being paid by homebuyers and renters. It doesn’t just affect prices for new buildings, it also affects prices for existing buildings, since they compete with each other.
I’d like to make two requests to the Metro Van board to help reduce costs and allow more housing. More specifically, I’d like to ask the board to request that Metro Van staff crunch the numbers and report back.
First, according to the staff report, per-unit servicing costs for apartments are 5-10X lower than for houses, while the planned DCCs for apartments are only 2X lower. Can the DCCs be lowered on new apartments and increased on new houses, to more closely match the actual infrastructure costs?
Second, rental housing operated by a not-for-profit developer can already receive a DCC waiver or reduction. It’s common for such projects to have 30% below-market apartments cross-subsidized by 70% market apartments. Can this be extended to for-profit purpose-built rental projects which include 20% below-market apartments? These are common in a number of municipalities including Vancouver, Burnaby, and Delta.
Thank you for your time.
Previous posts
Demand elasticity - CMHC’s estimate is that if we had 1% more housing, prices would be 2% lower.
Link to the Coriolis analysis from May 2022. The numbers shown in the stacked bar graph:
