1896 replies to this topic

[Mike K.]

It's not necessarily the volume of buildings being built as the density of the buildings being built and the inflated costs of building them (municipal bonus density fees, permit fees, years of planning, rejigging plans over and over to appease committees, and on it goes). Our local government clamps down on density to the point where modern condos and apartments are lucky to hit 4:1, and of course for the privilege to go over the sacred 3:1 developers must give handsome kickbacks to city hall. In decades past the City had a far more relaxed attitude towards density (heck, the densest building in Victoria is 100 years old). No wonder Victoria's construction volume records are from the 60s, 70s and 80s (but you won't hear government talking about that, they'll praise recent efforts and cloud the situation with future forecasts for 30,000 new downtown residents by so-and-so).

The cost of housing is directly attributed to overly restrictive density policies. Remove the artificial caps and watch housing prices fall, but of course what politician would willingly work to reduce the value of his/her home and the homes of their supporters/constituents? The whole affordable housing pitch is just a game that you'll notice only applies to rentals (token amounts, of course) never market housing. Funny, that. And those subsidized rentals put a burden on tax payers paying market rates for their homes.

We saw the housing cost sentiment for what it really is in our region just the other week when assessments came out. Here we have people lamenting the high cost of housing, but the second values fell you could hear the shrieks across the country.

[jklymak]

I agree with this.  I'm all for government interfering in making sure buildings are well-built, look good, and that density is not concentrated in small 1-block clumps (i.e. the Pandora and Cook proposal).  But I'm strongly against developer kickbacks and added amenities being provided to the city, and it would be great if there were no such thing as "bonus density".  Decide what density we want, and then let it get built in a clear transparent manner.  Stop taxing new buildings; if we need more tax revenue, then make everyone pay rather than hamstringing new development.  

[Mike K.]

Some 600 rentals are currently under construction in downtown Victoria or are nearing construction. And apparently 70% of residents living in downtown Victoria are renters.

 

Downtown Victoria rental construction roundup

By Mike Kozakowski, VibrantVictoria.ca

http://vibrantvictor...uction-roundup/

 

After decades of a near-freeze on rental housing construction throughout the south Island Victoria builders have recently eased off the condo bandwagon and are once again investing into rental housing.

 

The bread and butter of multi-unit developments throughout the 1960’s and 1970’s, rental projects in Victoria have traditionally been tied to either government-backed incentives or periods of exceedingly high demand. With the downtown condo market over-supplied and plenty of pre-sale units awaiting buyers, developers are tapping into a segment of the market in search of newly-built downtown housing without the commitment and investment required with condos. In tandem the financial outlook for rentals is strong while rates remain low and banks are eager to lend money.

 

“Banks have appetite for rentals right now as mortgage restrictions make renting more feasible for a lot of people,” says Victoria mortgage adviser Sean Dhillon. “In the period between 2001 and 2008 there was strong demand to buy but that has eased and now there is strong demand to rent.”

 

Monthly rents have also increased over the last several years, further making the case for rental construction while condo sales dip.

 

“Market rental rates are impacted by both the cost to build and demand.  Strong demand gives developers more motive for higher unit rates,” Dhillon said, adding that the financial climate is just right for rental development. [Read more]

 

[pherthyl]

It's not necessarily the volume of buildings being built as the density of the buildings being built and the inflated costs of building them (municipal bonus density fees, permit fees, years of planning, rejigging plans over and over to appease committees, and on it goes).

The only important part for the supply end is volume of units, and we don't seem to have a shortage of those.

As for the administrative overhead, I'd like to see an actual breakdown of costs between land purchase, financing, construction, and regular planning, then any additional municipal bureaucracy costs that go above the normal and reasonable permits. I suspect even if we have an unnecessarily bureaucratic process it is not adding significantly to the cost of units built.

[Mike K.]

Sure it does, it adds a tremendous amount of money to the cost of a residential unit.

 

You'll want to read this, and this:

In Victoria’s case, the city plans to eventually collect 75 per cent of the value of the added density, as calculated by an independent consultant. The money will go toward improving the public-realm improvement fund, and toward seismic upgrades of heritage buildings.

 

The Canadian Home Builders’ Association, however, predicts the policy will stunt high-density development in the core.

 

“They’re making it extremely difficult for developers to build,” said Casey Edge, executive officer of the association’s Victoria branch.

 

 

 

The City was for several years getting a strong message from the development industry that given downtown Victoria’s high land costs, densities greater than 3:1 would enhance project viability. The City was also aware that many developers of downtown projects were using the cumbersome rezoning process to achieve densities in the range of 5:1; and that downtown area property owners were pricing their property on the assumption that 5:1 was a slam-dunk via rezoning. Old expectations of value die hard, of course, and even with the City’s new bonus density policy, property owners have hardly backed off their earlier asking prices. So, when the City stacks bonus density charges on top of a property owner’s price expectations, the essential rationale for greater density falls apart and turns into an invitation principally to take on the greater risks of attempting to sell or lease bigger buildings.
 

...
 

Of course, this is Victoria, so there are also “dark side” explanations for the bonus density policy: first, that it picks up on strong anti-density/anti-height sentiment in Victoria and by “punishing” developers with a surcharge tosses a bone to the folks who believe those higher densities threaten Victoria’s character and really should not be permitted under any circumstances; second, that by imposing bonus density costs, the City plays to the values of the single-family house-owning “urban aristocracies” of James Bay, Fairfield and elsewhere. Such values—call it the “Victoria lifestyle premium”—percolate into City land use policy and drive up property and housing costs in the core.

 

Very crude example of how the scheme works:

 

A developer buys three SFD properties together valued at $1.5 million. He combines the properties and wishes to build 9 townhomes. City Hall estimates the rezoned value of the land is now $2.2 million. Of that $700,000 in added density value they want 75%, or $525,000. Each of the buyers of those nine townhomes now has to pay $58,000 more to purchase that home.

 

This is not some pie-in-the-sky scenario, this is actually happening. Keeping that in mind just how much of a priority are housing prices at city hall? Just how much of a priority are more residents living in the downtown core? We hear these priorities and related buzzwords all the time but I'll let you come to your own conclusion about the substance of those statements.

 

Bonus density costs aside, the bureaucracy at city hall is another matter entirely. A developer can expend hundreds of thousands of dollars before the approvals are handed over, and by that point the project may no longer be viable. We've seen just that on several occasions.

[pherthyl]

Sure it does, it adds a tremendous amount of money to the cost of a residential unit.
 
You'll want to read this, and this:
 
 
Very crude example of how the scheme works:
 
A developer buys three SFD properties together valued at $1.5 million. He combines the properties and wishes to build 9 townhomes. City Hall estimates the rezoned value of the land is now $2.2 million. Of that $700,000 in added density value they want 75%, or $525,000. Each of the buyers of those nine townhomes now has to pay $58,000 more to purchase that home.
 
This is not some pie-in-the-sky scenario, this is actually happening. Keeping that in mind just how much of a priority are housing prices at city hall? Just how much of a priority are more residents living in the downtown core? We hear these priorities and related buzzwords all the time but I'll let you come to your own conclusion about the substance of those statements.
 
Bonus density costs aside, the bureaucracy at city hall is another matter entirely. A developer can expend hundreds of thousands of dollars before the approvals are handed over, and by that point the project may no longer be viable. We've seen just that on several occasions.

As I understand it that's the special case of developers not rezoning. Would this apply to condo developments? i.e. have the new condo construction projects downtown paid this density bonus or are they zoned properly to start with?

Edited by pherthyl, 20 January 2014 - 08:12 PM.

[Mike K.]

This applies to all properties regardless of size and pre-development density. Downtown properties are zoned at 3:1, typically. To make projects viable developers must apply for a variance to increase the zoning to 4 or 4.5:1, even 5:1 (the City allows 6:1 max, again, ridiculous in light of densities of our heritage buildings). That variance causes the density bonus calculation to kick in. Virtually every project recently built has had to add this bonus density fee to unit prices.

 

In years past developers were asked to pay for "amenities." The "amenity" program was dropped in favour of density bonuses as "amenities" were hard to quantify and in some cases didn't do anybody any good but the developer still had to expend hundreds of thousands of dollars to satisfy council.

 

With regards to large-scale condo projects the per-unit cost may be much less than the per-unit cost of a small rezoning/variance (like with townhomes and small apartment buildings), but it erodes affordability nonetheless. Really this is just another form of taxation masquerading as a goodwill statement.

[pherthyl]

This applies to all properties regardless of size and pre-development density. Downtown properties are zoned at 3:1, typically. To make projects viable developers must apply for a variance to increase the zoning to 4 or 4.5:1, even 5:1 (the City allows 6:1 max, again, ridiculous in light of densities of our heritage buildings). That variance causes the density bonus calculation to kick in. Virtually every project recently built has had to add this bonus density fee to unit prices.
 
In years past developers were asked to pay for "amenities." The "amenity" program was dropped in favour of density bonuses as "amenities" were hard to quantify and in some cases didn't do anybody any good but the developer still had to expend hundreds of thousands of dollars to satisfy council.
 
With regards to large-scale condo projects the per-unit cost may be much less than the per-unit cost of a small rezoning/variance (like with townhomes and small apartment buildings), but it erodes affordability nonetheless. Really this is just another form of taxation masquerading as a goodwill statement.

Gotcha. Thanks for clearing that up.

Sounds like it's just trading one form of payment for another. Like you said, no more amenities but now they pay the density bonus. One or the other sounds like a common model in cities.

[Mike K.]

On the surface it is, but while amenity amounts could vary and in some cases benefited the project being built (i.e. paying for underground wires and a beautification of the adjacent streetscape, etc) the amenity bonus is a calculated cash amount and translates to a higher-valued kickback to the city. In the end home buyers are paying more for their units and who knows where the money goes.

[Urbanistco]

While developers actually write the cheques to pay for amenity contributions, and while it is widely perceived (erroneously) that such costs are simply added onto the cost of new development, making prices higher and exacerbating an affordability problem, the actual situation is both more complex and less harmful than it is often made out to be. Whether a municipality raises funds via DCC’s, obtains amenities from a density bonus zoning regulation, obtains amenities via CAC policy at rezoning, or uses all of these approaches, the primary effect is to put downward pressure on the pre- development value of development sites (i.e. land). Thus the effect of CAC’s from developers is the lowering of land values. The market self regulates and establishes the price that a purchaser is willing to pay.

[Mike K.]

In Victoria DCC's and bonus density schemes have not lead to downward pressure on land prices by any measurable degree. If anything land owners are pricing their parcels at a premium knowing full well that City Hall will up-zone their property or be open to bonus density so the new owner will eventually realize a higher value on their land. So long as there is demand for strategic downtown parcels (and there is) prices will remain inflated regardless of any costs attributed to a rezoning or variance.

 

We've often seen a property purchased for $3 million (or what have you), rezoned, then put back on the market at $4.5 million.

[Urbanistco]

Taking a step back to a larger land economic theory, developers are not bound to buy land that requires rezoning; they can instead purchase sites already zoned for development. A developer acquiring development rights via rezoning should not expect to pay a lower total land cost (including the land purchase price, the cost of rezoning, and any amenity contribution to the municipality) in the rezoning route than would be paid to buy already-zoned land at market value. Simply put, a land lift should not be depended upon to make a project viable.

[Mike K.]

Exactly right, but in Victoria zoning is 9 times out of 10 inadequate to make a project viable and developers have to seek a variance. Usually it's a density variance but it can also be both a rezoning and density variance. A land owner would rather rezone or seek a variance himself than sell a property for less than market value. And if they do that they then seek a premium for the rezoned land.

There must have been some projects built over the last 20 years that did not a variance (obviously many don't require a zoning change but they will require a variance) but I can't think of any off the top of my head.

[Urbanistco]

I understand your point. To me, the larger issue is the lack of available land as Victoria is land locked and cannot sprawl. Their core is small with heritage, water, height, and context constraints. On a side note, you mentioned variances, for clarification density or use cannot be varied as per the local government act. Further to that, depending on how density is calculated you may have dependant and precedent variables on use/density such as height or accessory use that indirectly vary the primary use or density. It becomes a grey area of intent.

 

Anyway, costs per door are largely fixed, land value, CAC's, and holding costs are the variables. Land is Victoria is largely occupied by a small group of old money or family money. Hard to break into these echelon to land stays within the small group that has no incentive to develop as they have the money they need and they can sit. If a newcomer tries to do something innovative, they are forced to the fringes of a change in land use or rezone and increase in density. This triggers the overly powerful neighbourhood associations and Council's discretionary approval that desires nothing innovative. The rezone also triggers the CAC on increase in density. This started out as 25% of the lift, increased to 50%, then went up to 75%. Land economics would suggest that it should be $1 less then the lift. The problem is that you indirectly influence the type of development through this method. Adding $500,000 of costs to a redevelopment project may then keep the property as is, say a small convenience store with cash flow. To the opposite extreme, Abstract convinced Saanich Council that a parking stall costs $40,000 each and so he needed a 70 stall variance. He walked away from a $2.8m parking commitment and only had to give $60,000 to a housing fund. Now, do you think for one second that the $30,000 per unit that Abstract saved will reduce the sale price for those condos? Not a chance! They will sell them for exactly what the market dictates! So in the end, if the project WAS possible given the land was already zone then why give the CAC break? We know that development doesn't pay for itself so sooner or later the tax payers will be holding the capital cost bad on failing infrastructure now valued at $1 TRILLION across Canada. 

 

What I am trying to get at is there needs to be a balance. Consistent application of fees, processing times, and removing archiac regulation imposed by inflexible zoning bylaws. Saanich has an OCP revised in 2007 I think but it's LAP's are from the 70's and 80's, they don't even have corresponding zones! For every policy that says you can do something, there is 3 that contradict it. Everytime I try to do a development, I am pained by inconsistency...

 

yowzer...my Tuesday morning rant...

[VicHockeyFan]

To the opposite extreme, Abstract convinced Saanich Council that a parking stall costs $40,000 each and so he needed a 70 stall variance. He walked away from a $2.8m parking commitment and only had to give $60,000 to a housing fund. Now, do you think for one second that the $30,000 per unit that Abstract saved will reduce the sale price for those condos? Not a chance! They will sell them for exactly what the market dictates! 

 

Well, you had me until that statement.  Of course they will sell them for market value, so will everyone in every development.  But presumably, these units are at least slightly less attractive now that they offer less parking stalls, so it's not like he pockets the entire savings - he might have to decrease pricing slightly now.  It's hard to measure though.

[Mike K.]

"On a side note, you mentioned variances, for clarification density or use cannot be varied as per the local government act."

A zoning variance is just that, a change to what is allowed under a zoning. Changes to density require a variance, changes to zoning (industrial permitted but a developer wants to build residential) require a rezoning.

I'm not entirely sure what the government act refers to when it mentions variance, but I don't think it applies to what we're referring to in this thread.

[Urbanistco]

VHF:

We agree, when I say market, I mean market for the exact product, ie: 900sqft 2bed 2bath with 1.25 parking stalls

 

Mike:

I don't want this to sound like an online spitting contest so lets use this as a learning experience for us both. We need to clarify some terms and where/how municipal powers come from. For this, we turn to Part 26, Division 1 of the Local Government Act.

 

Rezoning: a change in zoning classification ie: R1 to RM3

Change in Use: C1 to RM3, normally will also require a OCP amendment to change from say Commercial to Multi Family.

 

Both trigger a public hearing that can be accomplish concurrently. A zoning classification, RM3, carries prescriptive guidelines to specifics, so it can be reviewed as the enforcement arm of the OCP. If you wish to modify these prescriptions, you have 2.5 options:

 

1. Apply for a new zone, ie: CD1 or RM3-A

0.5. Apply to the Board of Variance (rare as it is only for financial hardship or things minor in nature)

2. Apply for a Development Variance Permit (there is no such thing as rezoning variance)

 

Option 3, the most common, is governed by Section 922 of the Local Government Act. 

 

922  (1) On application by an owner of land, a local government may, by resolution, issue a development variance permit that varies, in respect of the land covered in the permit, the provisions of a bylaw under any of the following:

 

   a: section 694 (1) (j) [construction and layout of trailer courts, etc.];

   b: Division 7 [Zoning and Other Development Regulation], 8 [Use of Land for Agricultural Operations] or 11            [Subdivision and Development Requirements] of this Part;

   c: section 8 (3) (g) [fundamental powers — protection of persons and property] of the Community Charter in relation          to matters referred to in section 63 (e) [protection — trailer courts, manufactured home parks and camping                    grounds] of that Act.

 

We care about 922(1)b, variances to the Zoning or Development Regulations (ie Development Permits). That said, Section 922(2) puts a constriction on variances:

 

(2) As a limit on subsection (1), a development variance permit must not vary

     a: the use or density of land from that specified in the bylaw,

     b: a flood plain specification under section 910 (2), or

    c: a phased development agreement under section 905.1.

 

 

So the Local Government Act restricts the municipality from varying anything to do with use or density. Also, Council cannot delegate authority to Staff for variances like they can with Development Permits.

 

When a developer needs more density, measured by floor area ratio in Victoria, they must apply for a new zone as they are unable to vary.

Edited by Urbanistco, 21 January 2014 - 01:01 PM.

[Mike K.]

Ah, interesting. Thanks for that.

 

So the legal terminology differs from the commonly used terminology (erroneously). Now to clarify I don't think I said or intended to say rezoning variance (as one thing), I meant either a rezoning or a variance.

 

If a developer wishes to increase the density of a parcel in the City of Victoria this automatically triggers a rezoning and accompanying public hearing, even if the zoning itself does not change? So what then becomes of the zoning if it's, say R1 already? And if a developer wants to increase the height of a building, that triggers only a variance application? So if both the height and density are requested, that triggers a rezoning despite the zoning remaining the same (albeit with a higher density)?

[jklymak]

I agree with your comments about "market pricing" for any given property. If I give developer A a break, but not developer B and C, then I'm giving developer A a gift, and not helping reduce prices in any substantive way.  But if you change the environment of the whole market by removing a defacto tax, it will surely help to drive prices down.  If all of downtown were to change from 3:1 to 6:1 without tax, tomorrow, it would have the effect of doubling the land available downtown.  

[Urbanistco]

Mike:

 

No worries, happy to help, not in an internet snarky way as I know these types of things get lost in translation. Most planners don't even know how these processes work, I forget all the time as well, hence the LGA.

 

let's say a property is zoned R1 and carries a height of 7.5m and a density of 1.0 FAR. A developer wants to build a 1.0 FAR structure at 8.5m. They can apply for a DVP, Development Variance Permit, to vary the relevant section of the Bylaw by 1.0m. This requires a Public Hearing and must go to Council.

 

Same zone, a developer wants to build a structure in an R1 zone to 7.5m at an FAR of 1.5. They must apply for a rezoning to a new zone that allows the density of 1.5 FAR, lets pretend R2. When they do this rezoning, it triggers a public hearing AND a land lift. Even though the USE remains residential, the density has increased 0.5 in FAR which cannot be varied under the R1 so they must go to an R2. So, in short, if a developer wants to increase the density beyond what the current zone allows for, they MUST rezone the property. 

 

* R1 & R2 zones are only examples

 

jklymak:

 

yes & no...it does seem like reducing the input costs must automatically reduce the end product costs. It feeds through a larger land economic school of thought and that is that the market will always dictate what a project can sell for. A willing buyer and a willing seller, a product is only worth what it sells for, nothing more. So if it costs $100,000 or $500,000 to produce it doesn't matter as the product sells on the market for $750,000. Know I acknowledge that it is more complicated as personal tastes etc come into effect. Municipalities often don't understand that CAC's guide land use on the flip side, developers automatically say that any CAC's is 100% a passthru cost. Middle ground needs to be met and thus far, Burnaby seems to have the best system I think. It's a combination of prescribed bonus densities and CAC's. 

 

This attached photo simplifies how land use is guided by DCC's or CAC's.