Rental unit demand is ‘off the charts.’ Why aren’t more being built?

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A new Metro Vancouver report raises the alarm over the insufficient amount of purpose-built rental housing being constructed across the region, but doesn’t linger on the regional district’s own contribution to making projects less viable.

The report, which is set to go before Metro’s regional planning committee on Thursday, outlines ways cities can encourage developers to build rental housing by reducing red tape, development charges and parking requirements.

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But it doesn’t address Metro Vancouver’s decision to hike development cost charges by up to 250 per cent over the next three years to raise money for regional infrastructure upgrades.

“I find it a little ironic,” said Jon Stovell, president and CEO of Reliance Properties, who had yet to see the report.

Stovell said the situation facing Metro’s housing market is unprecedented. While demand for rental units is “off the charts,” high interest rates, construction costs and government charges have stalled construction.

“This has the makings of a significant crisis,” he said.

The Metro Vancouver report shows how the current crisis has been years in the making.

For more than a decade, purpose-built rental construction across the region hasn’t kept pace with the number of new renters. While the number of rental housing units increased by 9,362 between 2011 and 2021, the region’s population increased by 329,497 people, including 97,155 renter households.

In 2011, there was one unit of purpose-built rental housing for every 2.85 renter households in Metro Vancouver. By 2021, there was one unit for every 3.67 renter households.

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The report examines the business case for construction of a six-storey rental apartment building in cities across the region, concluding that in lower-priced markets, such as Surrey, Delta, Langley and Maple Ridge, it might not be a viable project, largely due to lower market rents.

In moderate-priced markets, such as East Vancouver, Richmond, New Westminster and Coquitlam, building a six-storey rental apartment would likely be “financially challenging.”

“Project value at completion and stabilized operations only slightly exceed the overall cost to buy the land and construct the building,” says the report.

In higher-priced markets, including parts of Vancouver, West Vancouver, North Vancouver and Burnaby, higher rents led to a better business case for developers to go ahead, making a six-storey rental apartment viable under both build-and-operate and build-and-sell conditions.

The report’s authors ran the same study under two alternative scenarios, including one in which cities reduced parking requirements and development fees, among other incentives, and one in which free land was provided for the project. In all three market types, the incentives made the project more viable.

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In lower-priced markets, reduced parking requirements, better financing and reduced development fees made a six-storey rental apartment an attractive investment based on a cash-flow metric, and “borderline viable” as a build-and-sell project.

In other markets, and under other alternatives such as the provision of free land, the business case for rental construction improved even more.

Metro Vancouver’s regional planning committee will consider the report Thursday and may decide to forward it to member municipalities with an offer to present the information to city councils or staff.

Stovell said he is happy to see the regional district recognizing the obstacles preventing the construction of more rental housing. When it comes to waiving development cost charges and removing minimum parking requirements, “every little thing helps,” he said.

But he was cynical about the “mixed message” being sent by the Metro Vancouver board, which has raised taxes on new construction, negating some of the incentives being offered by other levels of government to encourage rental projects.

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He said the benefits of the federal government’s move to remove the GST from the construction of new rental apartments was “gobbled up” by regional cost increases.

Stovell said the next few months will be important. While interest rates have started to come down, many developers continue to wait to ensure a downward trend is established before moving ahead with new construction. If the trend holds, the red light may eventually turn to green.

gluymes@postmedia.com

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