Building more rental housing is a win-win for cities, society

Goodman Report

For civic leaders there is a route through this crisis, but it requires innovative thinking and a reversal of tired policies. This time of introspection opens a door.

The new coronavirus pandemic has exposed Metro Vancouver municipalities to intense financial pressure as civic facilities have shut down and tax revenues have declined. The City of Vancouver has projected a $152 million loss for 2020. Coquitlam says its operating deficit could reach $6.5 million this year. Surrey is forecasting a budget shortfall of up to $42 million. Many other municipalities are in the same boat.

At the same time, the rental housing shortage has become starkly outlined. The pandemic derailed a recovering housing market, with sales down 50 per cent in April from a year earlier (though May at mid-point looks substantially better). This has increased pressure on municipal tax revenues, as well as raising demand for rental housing. The simple truth is that many tenants who would have become homeowners have remained and will remain renting for some time to come as the economy recovers.

For civic leaders with courage there is a route through this dual crisis, but it requires innovative thinking and a reversal of tired policies.

Three years ago when Metro Vancouver was seeing a spike in home prices, three tiers of government intruded into the market with a myriad of policies to weaken demand. These include the highest foreign-homebuyer tax in the world, the mortgage stress test, increased property transfer tax on higher-value properties, rental-only zoning used to downzone demand in some municipalities and the addition of school and speculation taxes on development land.

The interventions temporarily chilled housing sales, but they have largely failed in their quest to address our housing shortage and create the average person’s definition of affordability. Metro Vancouver home prices were at a composite benchmark of $1.03 million in April 2020, 7.2 per cent higher than in April 2017. The rental vacancy rate remains at around 1 per cent, rental rates have increased and, most troublesome, new rental construction has fallen. According to Canada Mortgage and Housing Corp. (CMHC), this April only 257 new rental units started construction in the Metro region, down from 775 in the same month last year. Only 372 rental apartments have started in the City of Vancouver so far in 2020, down from 954 at the same time last year. And rental starts could fall further.

In an unprecedented special housing report released May 27 in reaction to the pandemic, CMHC’s CEO Bob Dugan forecast that overall B.C. housing starts could fall up to 50 per cent this year and housing sales will decline 31 per cent, compared to a year ago. This could translate into both lower supply and higher demand for rental units across Metro Vancouver.

Because of the pandemic’s impact on incomes, some tenants may retreat from the rental market in the short term (double up or move back with Mom and Dad) but will eventually make it back out into the rental pool. First-time buyers traditionally make up 51 per cent of homebuyers, but that fell to less than 47 per cent in 2019, according to the Canadian Real Estate Association. At the present time, an even larger number of potential first-time buyers will remain renters this year. This is especially true in Vancouver, which has Canada’s highest housing costs.

Cynthia Jagger and Mark Goodman, Principals of Goodman Commercial.

The only solution to higher rental demand is to quickly increase the supply and availability of additional housing options. This is possible.

It is time for a concrete policy direction that puts an emphasis on fast-tracking the planning, approvals and construction of rental units across Metro Vancouver. Municipalities need to be open to amending existing processes to get more rentals built faster. So how to do it? A look at the City of North Vancouver provides some clues.

North Vancouver city, with a population of less than 60,000, accounted for 20 per cent of all the rental housing starts in Metro Vancouver through the first four months of this year – and the majority of its 346 new rental apartments started are aimed at mid-market incomes. To create incentives for rental, the City of North Vancouver provides a density bonus for rental housing projects, waives community benefit contributions for purpose-built rentals and reduces parking requirements. Vancouver and other municipalities have similar incentives but see fewer rental starts on a per capita basis. Clearly, more could be done, and it starts with slashing through the civic bureaucracy surrounding the delivery of rental units.

Some ideas to increase the number of rental projects in the pipeline:

We endorse the May 10, 2020, recommendation by Vancouver Mayor Kennedy Stewart to eliminate the need for rental developers to submit an inquiry to the city before they can file a rezoning application. The rezoning inquiry is not mandated by either the Vancouver Charter or the city’s zoning and development bylaw. Originally introduced five years ago to streamline the process, it now often involves hundreds of pages of correspondence and takes a year or more to complete, rental developers say. But there is a further step Vancouver and other cities should take: the elimination of public hearings during rezoning applications for rental projects that already conform to a local area plan and city policies. Even if a development checks all the boxes, it can be delayed for months and/or truncated in size during public hearings that can be dominated by “not-in-my-backyard” programming. We’ve seen it play out before and we will see it again.

A recent Altus Group report shows that nearly three-quarters of Vancouver rental development applications submitted in 2017 were still being studied as of the end of last year!

Incentives go a long way and may need to increase given this new normal. Savings on fees – both municipal and regional – would also aid in making projects feasible. GST waiver would be the single most significant way to get more rental housing built on a national basis.

We continue to advocate for an end to the moratorium on the demolition of older rental stock, which is still in place in Vancouver and some other jurisdictions after more than a decade. The majority of the Metro Vancouver rental stock universe is more than 50 years old and in dire need of upgrades. Allowing its replacement would encourage the construction of modern, more sustainable projects with increased rental units, for instance, new purpose-built rentals made from sustainable B.C. wood, which are now allowed for structures of up to 12 storeys.

Metro Vancouver needs to build at least 30,000 new rental units over the next two years to balance supply with demand, according to 2019 data from GWL Realty Advisors. If even half of these units were started, it would generate at least a little hope that we may be on our way to creating some meaningful progress toward a future with new rental buildings instead of a universe of aging low-density buildings and basement suites.

The pandemic has challenged us all, but it also opens a door to think again – to switch from the failed emphasis on reducing demand to a fresh approach on increasing the construction of new rental units. Many projects that may have previously pencilled could sit idle, especially in light of changing parameters and a lack of construction cost reductions. While the focus should be on improving the rental inventory, any increase in multi-family supply will aid tenants since, in many areas of Metro Vancouver, a quarter of condominiums become rental units.

Will municipalities take note? Many have ignored such advice in the past, but there is a new urgency now and, we believe, a groundswell of support for a new direction, strength of leadership and new policies.

We are at the end of the beginning of this crisis, and there is a chance to significantly alter Metro Vancouver’s rental housing woes as we move forward. The question remains: who is willing to step up?

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