Above: L2 at 1807 Larch Street in Kitsilano, by Jameson Developments
Part I
"A deal's a deal" people say.
But that wasn't the case when City of Vancouver staff and Council decided to shovel more cash into the pockets of some developers last fall. On October 4, 2023 they changed City policy on rents for City-subsidized BMR (Below Market Rental) housing units, and retroactively sweetened the deals made at rezoning. They amended previously enacted Housing Agreements to allow developers to charge higher rents for BMR units that were under construction and nearing completion (and thus didn't need any further incentives to get built).
That money comes directly out of the pockets of the future tenants of those BMR units.
The City has been expending enormous amounts of taxpayer resources and staff time and energy to facilitate development of "affordable" market rental housing with a 20% below market component. The provincial and federal governments have also jumped in, providing low-interest financing for some developments.
Recently there has been growing public awareness that most rents at the subsidized developments are actually not-very-affordable, and that the City had retroactively relaxed rent maximums for the benefit of developers. This has resulted in people questioning the City's approach. There's also been questioning of how the below-market BMR units are publicized and allocated. That is left up to individual developers, who often proceed non-transparently, even though the BMR units were heavily subsidized by the City.
Generous City Incentives for Market and Below Market Rental Housing
The City has often granted substantial extra density to increase the profitability of "secured" market rental housing. ("Secured" simply means that there are legal agreements preventing the sale of the rental housing as condos.) Also, the rental developments are not required to make any Community Amenity Contributions (CACs).
In some of these developments, 80% of the units will be rented for market rents at whatever the market will bear, while the City subsidizes 20% of the units as BMR (Below Market Rental) by exempting the development from paying the applicable Development Cost Levies (DCLs).
Forgoing these payments represents a significant expenditure by the City to create the BMR units. In 2021 to 2023 this was equivalent to paying the developer an average of $80,000 per BMR unit (ranging from $53,000 to $114,000 per unit in individual developments). (See "2023 Annual Report on Development Cost Levies" report to Vancouver City Council 22-May-2024)
One specific project which has been in the news recently due to its high rents for an ostensibly affordable development is Jameson Development's recently completed building at 1807 Larch Street in Kitsilano. This building includes 14 BMR units and was exempted from paying $1,258,408 in Development Cost Levies. That works out to the City granting a $90,000 subsidy per BMR unit. On a floor area basis the City subsidy was $156 per sq. ft. of BMR unit. That seems very generous when compared to the 2023 Altus index construction cost of $310 to $380 per sq. ft. The rezoning for the development was approved in 2019 and the building permit was issued in 2021. The developer received a low-interest loan from the Province to finance construction.
In return for the development cost waiver, the rezoning for the Larch development initially stated its 54 market rental units (and not just the BMR units) would be subject to rent caps. City staff and Council dropped that requirement just before the Public Hearing. As a result, for example, a 665 sq ft 2-bedroom that would have been limited to a maximum rent of $2,909 per month now goes for $4,250.
The requirement that remained for 1807 Larch was the same for all 14 market rental developments that were exempted from paying $33 million in Development Cost Levies between 2021 and 2023. Those developments include 411 BMR units.
The maximum starting rents at first occupancy for the BMR units were set at $950 for studios, $1,200 for 1-bedrooms, $1,600 for 2-bedrooms, and $2,000 for 3-bedrooms. Rezoning conditions and the subsequent Housing Agreements explicitly stated these rents were "not subject to adjustment" prior to first occupancy. Vacancy Control also applied to the BMR units, with agreements stating that rent increases "will be capped at the Residential Tenancy Act [RTA] maximum annual allowable increase, regardless of a change in occupancy".
Council Sweetens its Existing Deals with Developers
On October 4, 2023 Council considered a staff report entitled "Below-Market Rental Housing Program Optimization" from the Planning Department and adopted its recommendations to increase rents and to eliminate Vacancy Control for BMR units. On that same day Council amended the existing Housing Agreements for 9 developments then under construction, to implement those changes. (See "Below-Market Rental Housing Program Optimization" 4-Oct-2023)
Staff's justification – a concern that projects might not proceed – was not valid for developments with construction already well under way. Staff's overall summary of the rationale for the overwhelming changes recommended was also weak: "To improve financial viability of these projects and long-term monitoring and compliance of BMR programs and contribute to a more streamlined development review and permitting process".
The allowed starting rents for BMR units were changed to "20% below the CMHC average market rents for the city". For 2024 this amounted to an average rent increase of 23% ranging from an increase of $229 to $395 monthly per unit, depending on type. Here is a comparison of maximum average rents in the Housing Agreements before and after amendment.
Housing Agreement Amended % Increase
Studio $950 $1,223 28.7%
1-Bedroom $1,200 $1,429 19.1%
2-Bedroom $1,600 $1,969 23.1%
3-Bedroom $2,000 $2,395 19.8%
The overall increase in rents is estimated at $1.3 million annually for 355 BMR units in 13 of the projects for which DCLs were waived in 2021 to 2023 and for which building permits had already been issued. That's a pure increase to the NOI (net operating income) of the developments with no added expenses. That can be translated into an increase of $37 million in the total capital value of the 13 developments, based on a 3.5% cap rate.
The elimination of Vacancy Control was also a significant benefit to the BMR landlords. While they had previously been restricted to only increasing rents according to RTA maximums "regardless of a change in occupancy" they are now allowed to increase rent between tenants to 80% of CMHC market rents. Planning staff justified this change based on greater ease in tracking allowed maximum rents. This is ludicrous when weighed against the value of maintaining affordability for the long term as achieved by Vacancy Control. In fact, the City itself fought hard to impose Vacancy Control on SRO (single room occupancy) landlords, in order to "slow speculative investment and rapidly rising rents in SRO buildings". (See "B.C. law change will let City of Vancouver enact SRO vacancy control" CBC 13-May-2024)
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Part II: Examples of High-Profile Developments that Profited
1. 1807 Larch St (Jameson)
Jameson Development's building at 1807 Larch is mentioned above. The amendment to its Housing Agreement allowed it an increase of $49,608 in the rents for its 14 BMR units for the first year. That increased the capital value of the building by about $1.4 million.
2. 2538 Birch St (Jameson)
Another development by Jameson was the very controversial rezoning of its site at West Broadway and Birch (former Denny's site). The City initially rezoned the site in 2018 for a 16-storey rental building with an FSR of 7.07. In 2020 City Council approved a new rezoning for a 28-storey rental building with an FSR of 10.5.
Planning staff justified the massive increase in building height and density as necessary to allow the inclusion of 58 BMR units in the development, as follows:
"The cost to an owner to legally secure below market rental units over a long period of time, is significant when compared to market rental housing. The proposed below market rental units in this project will rent at approximately half the rate of a market rental unit in the same building.
As noted, the City's Real Estate Division has evaluated the applicants pro forma and determined the cost to secure 58 below market rental units at this location, over 60 years, is equivalent to the value of the additional floor area requested. No additional land lift or profit is generated.
… the number of storeys correspond directly to the amount of floor space that the project requires to achieve profitability from the type of tenure that is targeted … the increase in height of 11 storeys between the Rental 100 tower and the 28-storey MIRHPP tower, is the direct result of the requirement to secure a minimum of 20% of the residential floor area as below market rental units."
(See "2538 Birch Street (formerly 1296 West Broadway)- RTS # 13730 Response to Council's questions" memo to Council, 14-Jul-2020)
The DCL waiver of $3.1 million for the development amounted to a $53,000 subsidy per BMR unit from the City. The developer also received a subsidy from the Province in the form of a $164 million low-interest loan to finance construction.
When Council amended the Housing Agreement for the development on October 4, 2023 it effectively granted Jameson a $203,000 annual rent increase for its 58 BMR units for 2024. This was a pure giveaway to the developer, given the staff comments quoted above. It also increased the capital value of the building by approximately $5.8 million.
3. 1649 East Broadway (Jameson)
Yet another development by Jameson was on a site initially rezoned in 2018 for a 10-storey half condo/half rental building with an FSR of 4.0. In 2020 City Council approved a new rezoning for a 12-storey rental building with an FSR of 5.0 including 23 BMR units. The $1.8 million DCL waiver equated to a $80,000 subsidy per BMR unit from the City.
The October 2023 amendment to its Housing Agreement allowed it an increase of about $79,000 in total annual rent for its 23 BMR units. That increased the capital value of the building by about $2.3 million.
In December 2023, Jameson sold the building to CAPREIT (Canadian Apartment Properties Real Estate Investment Trust) for $68 million. That represented about $550,000 per unit after adjusting for the retail component, according to CAPREIT. The rental info site for the building does not include any information about the BMR units.
4. 2488 Granville, formerly 1477 W Broadway (PCI)
This hugely controversial rezoning for a 39-storey rental building at Broadway and Granville with an FSR of 12.3 was approved by Council in April 2022. Council's amendment of its Housing Agreement on October 4, 2023, effectively granted PCI an approximately $170,000 annual rent increase for its 44 BMR units for 2024. It also increased the capital value of the building by approximately $4.9 million.
5. 3701 West Broadway (Westbank)
The initial rezoning application in 2015 for this site at the northwest corner of West Broadway and Alma, was for a 6-storey rental building, with an FSR of 3.15. The subsequent application was for a 14-storey rental building with 33 BMR units and an FSR of 5.27, and was very contentious. Council approved it in October 2020, and construction is nearing completion.
The changes approved by Council in October 2023 effectively granted Westbank an approximately $117,000 annual rent increase for its 33 BMR units for 2024. It also increased the capital value of the building by approximately $3.3 million.
Above: Summary table (click to enlarge)
Part III: Evaluation
These so-called affordable rental developments were heavily subsidized by the City, both through the granting of substantial density increases without payment of CACs, and the exemption from paying DCLs. In some cases there were also low-interest construction loans from the BC and federal governments. But the return in terms of affordable rents has been very disappointing.
Even the rents for the BMR units are much higher and will escalate more rapidly than promised by City staff and Council at the Public Hearings for the developments. Why staff recommended and Council approved changes last fall to increase rents is an open question. The public can wonder whether lobbying on behalf of developers was involved, but Vancouver's lack of a lobbyist registry makes that a futile exercise.
Noteworthy is that Council approved the changes unanimously (with only the Mayor absent). ABC Councillors are expected to vote for most initiatives that benefit developers, but in this case Green Councillors Adriane Carr and Pete Fry and One City's Christine Boyle also voted to increase BMR rents and eliminate Vacancy Control.
The BMR units the City has subsidized within for-profit rental buildings will be owned and administered by private corporate landlords. The Housing Agreements do contain detailed requirements regarding allowable tenants and rent charges, and require submission of an annual report to the City.
Nevertheless, there are concerns that the BMR units in some developments are not publicized as well as questions about how they are awarded to would-be tenants. One option to address such concerns would be a centralized waiting list for BMR apartments, but the City has no plans to pursue that. Another option used in some jurisdictions such as New York City and Toronto, is to award below-market rentals by lottery. (See "A Brutal System": Toronto's Affordable Housing Lotteries Need An Upgrade," Storeys, 2-May-2024)
Essentially though, the big question is whether providing public subsidies to market rental developments is the best route to providing desperately-needed affordable housing.
BC Green Party leader Sonia Furstenau says NO.
She believes the public is losing faith in government because of the discrepancy between what is promised and what is delivered, and that government needs to focus on co-op and non-profit housing instead of relying on the market to fix the housing crisis. "The market isn't geared to delivering affordable housing, and where we have jurisdictions, countries, cities around the world, that have successfully kept housing affordable, it is because of significant investment from governments into non-market, not-for-profit, social and co-operative housing." (See "B.C.'s HousingHub program at the centre of controversy over high rents," Time Colonist, 11-Aug-2024)
Robert Renger
2024 August
Robert Renger was the senior development planner for the City of Burnaby and the city's lead for the planning and development of the UniverCity community at Simon Fraser University.
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