Pace of Change proposal
Another limit on the rate of redevelopment in the Broadway Plan
Vancouver city council is meeting next Wednesday to consider a staff update on the implementation of the Broadway Plan. The staff report was released yesterday.
The staff report includes a number of items:
A Pace of Change limit for RM/multifamily areas, to explicitly limit the rate of redevelopment of older low-rise rental buildings to five projects per year
Formalizing height limits to preserve two views of City Hall
Alignment with the False Creek Flats area plan and with C-2 zones
Changes to industrial zones
An update on fixed development contributions (basically CACs)
The Pace of Change proposal is likely to get the most attention. The previous council directed staff to prepare a proposal, but the current council (and in particular the ABC majority) will need to decide whether to accept the proposal, set it aside, or ask for a revised version.
Motivation
The idea is to avoid what happened at Metrotown in Burnaby, where there were a lot of older, cheaper low-rise rental apartments which were torn down (displacing renters) and replaced with high-rise condos. After the 2018 election, Burnaby put in place renter protections, requiring high-rise projects to include 20% below-market housing and to offer the right of return to displaced renters.
In the Broadway Plan, the overall approach is that it should be easier to add new housing first in areas where there’ll be little or no displacement, in “centres” (close to the new SkyTrain stations) and in RT/duplex areas. Redevelopment of older apartment buildings in RM/multifamily areas, which will cause temporary displacement of renters, should proceed at a slower pace.
The targets in the Broadway Plan look roughly like this:
30,000 additional homes by 2050 (1,000 per year)
15,000 in centres
7,500 in RM/multifamily areas
6,000 in RT/duplex areas
The staff report says that there’s a lot of interest in rezoning in the RM areas. They estimate that if all of these rezonings go ahead at once, they would temporarily displace about 2,000 renter households in RM areas. (There’s only about 100 vacancies in the Broadway Plan area.)
If each redevelopment project includes 20% below-market rentals which are about equal to the number of existing rentals, that translates to 2,000 replacement below-market apartments and 8,000 additional market rental apartments. In other words, there’s already enough interest to potentially meet the 2050 target for the RM areas.
The staff report doesn’t say, but it’d be good to know what the interest is like for centres and for RT/duplex areas. Are staff city concerned that there’ll be a lot of redevelopment of existing apartment buildings, and not enough redevelopment of single-detached and duplex properties?
An additional bottleneck
The city already has a lot of bottlenecks which will limit new housing in the RM/multifamily areas. In the order in which they’re likely to be encountered by a project:
Economic viability. Requirement for rental housing and not condos (which are less secure for renters), 20% of the apartments below-market (roughly 35-40% below market rents), and restrictive limits on height and total floor space (20-25 storeys, 7.5 FSR). These requirements limit the value of the new building, and therefore reduce the number of economically viable projects. The city’s own estimate is that at current market rents, the limits on height and total floor space would need to be 35+ storeys, 10-15 FSR for a typical project to be economically viable.
For current tenants, right of return at existing rent, and covering of additional rent while temporarily living elsewhere. This further reduces the number of economically viable projects.
Development Contribution Expectations - the value of the public benefit (in the form of cash, rental housing instead of strata, or below-market housing) that the project is expected to provide. The higher the benefit extracted, the fewer economically viable projects. Providing below-market rental housing is quite expensive, so in the Broadway Plan area, this will likely be the main public benefit.
Pace of Change policy proposal: no more than five projects per year in RM areas, corresponding to about 200 renter households being displaced at a time. The five winners would be selected by city staff based on how many below-market apartments would be added, above those required to replace the existing rentals.
City approval of rezoning. This is likely to be a bottleneck, able to handle only a limited number of projects each year. For an example, see the Broadway and Granville rezoning.
City permitting. Again, this is likely to be a bottleneck.
Using a declining price instead
Thomas Davidoff and Tsur Somerville suggest using a declining price (“Dutch auction”) as a way to target a particular rate of redevelopment. See section 4.1.
The Pace of Change proposal is basically auctioning off five spots a year, with bids based on the amount of below-market rental apartments being offered (beyond those needed to replace the existing older rentals).
An alternative would be to use the Dutch auction approach, with RM redevelopment projects paying an additional density bonus fee. If the city doesn’t want much RM redevelopment in the first few years, set the price quite high to start with, and lower it slowly. If redevelopment in the centres and RT/duplex areas proceeds quickly, providing more below-market rentals and more housing overall, thus increasing the number of vacancies in the area beyond its current alarmingly low level, the city can lower the RM density bonus fee at a faster rate.
Advantages of using cash, in the form of the density bonus fee, instead of additional below-market rentals:
There’s greater certainty for the project. They don’t need to figure out how much additional below-market housing they can reasonably offer, which requires estimating a lot of uncertain factors. They don’t need to prepare a bid and then wait for the city to evaluate all the bids. They can just figure out whether their project is economically viable with the current level of density bonus fee - yes or no.
Building brand-new below-market rentals is quite expensive. Beyond the 20% requirement, is that the best form of public benefit? With cash, the city can decide how it wants to use the revenue.
If in the future it turns out to be appropriate to accept a higher rate of redevelopment, it should be simpler and faster to reduce the density bonus fee, compared to increasing the number of spots available for a future round of bids. Reducing the fee can be done almost immediately. Increasing the spots for a future round of bids would take effect only after about a year.
[A second alternative, being argued by the BC government: drop the Pace of Change policy entirely. There’s already a lot of bottlenecks.]
Justification for renter protection
A more theoretical question: How strong should renter protections be? Does it make sense to protect people who happen to live in the area now, while disregarding the interests of people who would like to live there in the future?
The thing about the current situation is that there’s so much suppressed demand for housing in the city of Vancouver, there’s an opportunity to unlock a huge amount of value by just allowing more floor space to be built, which can then be rented at more than $3.50 per square foot. There’s so much economic surplus that it should be possible to protect existing renters and build a lot more housing at the same time - we can make sure that no one ends up significantly worse off. (To use jargon, it’s “Pareto efficient” instead of “Kaldor-Hicks efficient.”)
From this perspective, deliberately putting height and FSR limits in the Broadway Plan to slow down redevelopment doesn’t make much sense, because it sharply reduces the total amount of value available. It’d be better to raise these limits, and use a declining bonus fee to slow the rate of redevelopment in a controlled way.
More:
Is Broadway corridor development too fast, too slow or just right? Dan Fumano in the Vancouver Sun.
As few as five rental housing redevelopments could be considered in some Broadway Plan areas each year. Kenneth Chan in the Daily Hive. And Opinion: Broadway Plan's "Pace of Change" policy will be disastrous for much-needed new rental housing supply.
Broadway ‘Pace of Change Policy’ Draft Details How Rezoning Would Work. Howard Chai in Storeys.
BC housing minister Ravi Kahlon on the Jas Johal show, yesterday. He argues that given the scarcity of housing, the city of Vancouver should just drop the Pace of Change limit entirely.