800 replies to this topic

[Mixed365]

I'm very curious to see if/how this project moves forward. Building was purchased in 2013, at a premium no doubt. Victoria will take 75% of land lift. Now you need to renovate/build. 

 

Not trying to be skeptical, I'd rather they put a massive, beautiful showcase building there but I'm struggling to reconcile the economics of the current proposal.

The negative effects of the density bonus program, as you mention, will definitely be at effect here.

[dasmo]

I'm very curious to see if/how this project moves forward. Building was purchased in 2013, at a premium no doubt. Victoria will take 75% of land lift. Now you need to renovate/build.

Not trying to be skeptical, I'd rather they put a massive, beautiful showcase building there but I'm struggling to reconcile the economics of the current proposal.

Excuse my ignorance but what do you mean by Victoria will take 75% of the land lift? Did the developer here get bonus density and are they having to pay big time for that?

[Mike K.]

That's how business works in Victoria. If your property is up zoned and you realize a higher density, the City wants 75% of the increased land value in their pocket.

Affordable housing my...

[dasmo]

Really! They apprais the new land value and take 75%! Interesting. No wonder they are doing it this way....

[Mixed365]

Really! They apprais the new land value and take 75%! Interesting. No wonder they are doing it this way....

Yup! And they use a third party appraiser to determine the increased value. The funds are put into a pool to pay for things like heritage restoration, arts grants etc. See this article with Dave Chard on it:

http://www.vicnews.c.../247099961.html

 

[amor de cosmos]

dra has the plans
http://victoriadra.c...ernment-street/

[Urbanistco]

I've heard Mr. Chard talk about this at UDI meetings and I'm not sure I totally agree on his assessment of the land lift issue. For example:

 

Developer X does a proforma, since he knows the land lift will equal $10,000 per unit, he factors that in and makes the determination on whether or not he will proceed with a project. If the market upholds $400psf for a condo, Developer X is not going to sell his condo for $1 less then that. He will also not sell his condo for $1 more since the market will not uphold that. So what the City of Victoria is attempting to do is make these amenity costs totally clear up front. So that if Developer X cannot make the project work with a land lift, the project was likely not viable to begin with. If the City sudden got rid of the land lift, we all know Developer X will not make his condos cheaper now that the market has "risen" to accommodate this price. 

 

That said, in the development game, the value is in the land, it is rarely realized in the construction. So losing 75% of your profit is a tough pill to swallow. On the flip side, development is not full cost recovery. It does not pay its share of infrastructure so cities have to come up with new ways of financing infrastructure whether it be soft or hard services.

[lanforod]

Developers should be allowed to profit. Profit means more development! We don't need savings to go directly to the consumer necessarily - eventually, supply and demand dictates that - if many developers can make profit, they will compete.

 

The question in my mind is whether the 75% value 'tax' is causing some projects not to go forward. If increased density is a requirement for many projects, due to existing density being too low, wouldn't that be the case?

I'm not sure how much money we are talking about here.

 

If many projects are not even being considered the city needs to either unilaterally raise density in target areas where this is a problem, or give bonus density a lower cost.

[VicHockeyFan]

Developer X does a proforma, since he knows the land lift will equal $10,000 per unit, he factors that in and makes the determination on whether or not he will proceed with a project. If the market upholds $400psf for a condo, Developer X is not going to sell his condo for $1 less then that. He will also not sell his condo for $1 more since the market will not uphold that. So what the City of Victoria is attempting to do is make these amenity costs totally clear up front. So that if Developer X cannot make the project work with a land lift, the project was likely not viable to begin with. If the City sudden got rid of the land lift, we all know Developer X will not make his condos cheaper now that the market has "risen" to accommodate this price. 

 

That's awful simple, and defies the laws of economics.

 

We also have 13 municipalities here, the land lift tax just makes it more attractive to build outside of Victoria.

[Urbanistco]

That's awful simple, and defies the laws of economics.

 

We also have 13 municipalities here, the land lift tax just makes it more attractive to build outside of Victoria.

 

Many of the CRD municipalities have a land lift, they are called Community Amenity Contributions... some are specific policies, others are ad-hoc negotiations. From all the research carried out by varying groups, it was determined that developers prefer consistent application of amenity contributions, hence the land lift approach.

 

My apologies for simplifying the process for the sake of discussion.

[Mixed365]

Many of the CRD municipalities have a land lift, they are called Community Amenity Contributions... some are specific policies, others are ad-hoc negotiations. From all the research carried out by varying groups, it was determined that developers prefer consistent application of amenity contributions, hence the land lift approach.

 

My apologies for simplifying the process for the sake of discussion.

I'm not sure if more developers prefer the land lift approach over the Community Amenity Contribution, but I think, when looking at both, they are interesting to compare. 

Community Amenity Contributions, in some cases, can go above and beyond what a land lift approach would receive as it truly shows the demand from the developer and how much risk they are wiling to undertake. An example of this is the art gallery that was to-be built by Westbank at the Crystalview site. Or, for a more pronounced example, look at Westbank/Ivanhoe Cambridge Oakridge where $147 million in CAC's was given and that will make up a new civic centre, 9 acres of parks water park, 290 units of "social" housing, daycare, library branch, seniors centre etc. - article here. However, CAC's often give City Hall and developers a "bad rep" as they are seen to be buying out City Hall to get developments through. As well, City Hall is seen to be extorting developers as they are seen to be creating a "whoever pays the most, gets to build" approach.

The Bonus Density Program, often referred to as the land lift approach has been popular in large metropolitan and is slowly being enacted into Victoria. The benefits are, as Urbanistco mention, developers can properly prepare and analyze returns, risk etc. as it is a standard system. As well, the contributions of the funds are known. For instance, it is isn't a case by case basis, like the CACs, where City Hall will hope for a new social housing project, heritage restoration, a piece of public art etc. Rather, it is outlined in the plan, exactly where the funds are going. 

That being said, I would argue that in Victoria the Bonus Density Program is unviable as the demand isn't there. Sure, if you are able to sell out a condominium development in under a month, like in other markets, in may be viable, but taking out at 25 million dollar loan and to have to spend the money and time of over a year to sell out, the City taking 75% of your profits is a large disincentive and will push development away from the "core" where this tax is applicable. 

The goal of both programs is to get the largest return of the people, as a whole. I would argue that the Bonus Density Program will push some developers away as it will be seen as too risky and they'd rather have a CAC, so they can evaluate the risk and what they can give themselves. As well, I would argue, that the CAC program allows the funds created to actually get to the source much quicker and more efficiently. If you think about it, the Bonus Density Program, City Hall needs to hire a third party appraiser, and then once it goes into the pools of money, it then needs to be distributed. I find a simple CAC is much more creation -> source, if you will, and takes down the barriers and extra costs of the Bonus Density Program. At the end of the day it is all about returns for the people.

It is often hard to evaluate which will deter developers more, but what should be known is, if one does more than the other, there is an opportunity cost that needs to be taken into account. This means that not only does City Hall lose the funds from the tax, whether Bonus Density Program or CAC, but also the recurring revenue from the property taxes provided. I think the only way to get the answer to these tough questions is to not speculate ourselves, rather, to talk to developers and start a conversation as development doesn't need to be a zero sum game. 





 

[VicHockeyFan]

The goal of both programs is to get the largest return of the people, as a whole. I would argue that the Bonus Density Program will push some developers away as it will be seen as too risky and they'd rather have a CAC, so they can evaluate the risk and what they can give themselves. As well, I would argue, that the CAC program allows the funds created to actually get to the source much quicker and more efficiently. If you think about it, the Bonus Density Program, City Hall needs to hire a third party appraiser, and then once it goes into the pools of money, it then needs to be distributed. I find a simple CAC is much more creation -> source, if you will, and takes down the barriers and extra costs of the Bonus Density Program. At the end of the day it is all about returns for the people.

It is often hard to evaluate which will deter developers more, but what should be known is, if one does more than the other, there is an opportunity cost that needs to be taken into account. This means that not only does City Hall lose the funds from the tax, whether Bonus Density Program or CAC, but also the recurring revenue from the property taxes provided. I think the only way to get the answer to these tough questions is to not speculate ourselves, rather, to talk to developers and start a conversation as development doesn't need to be a zero sum game. 





 

 

That's what I think.  Forget the density program, encourage development, than reap up the property tax forever after some stuff ACTUALLY GETS BUILT.

[Mike K.]

the City taking 75% of your profits is a large disincentive and will push development away from the "core" where this tax is applicable.

 

 

This only applies to the increase in value as realized by a density increase. Say the land is worth $1 million with a single commercial unit. Once rezoned for 100 condos it's worth $3.75 million. The City then takes 75% of the $2.75 million value increase, as determined by them, not 75% of your profit from developing the property.

[Urbanistco]

That's what I think.  Forget the density program, encourage development, than reap up the property tax forever after some stuff ACTUALLY GETS BUILT.

 

The assumption being that property taxes are enough to cover all the costs of everything forever haha

[VicHockeyFan]

The assumption being that property taxes are enough to cover all the costs of everything forever haha

 

Property taxes on an upscale condo building will disproportionately pay for the services the residents there will ever use, say, as opposed to a block of social housing.

 

So why do we go to great lengths to block and hinder the former and then bemoan the lack of the latter?

[Mike K.]

The perennial question in Victoria.

[Urbanistco]

Agreed however you may be looking at this like an island...Victoria is not solely made up of upscale condo projects. There is years of development patterns and requirements for housing choice that development projects have not fully contributed towards.

 

A 40 unit condo project with each unit paying on average $3,500 a year is gonna generate $140,000 in tax revenue while causing 70 car trips (ITE Manual estimate). How far is $140,000 gonna go toward a $90m bridge? $900m sewage plant? New recreation centres? Park acquisitions? 

 

*Now I know that many of these things are cost shared with other muni's and levels of government and I know that building property taxes also contribute but under our current system of time wasting and over politicking (word?), municipalities are finding that development does not pay its own share. So they need new ways of finding revenue, do I think land lift is the answer, no. Am I against development, not at all, I do developments! I just don't agree with this idea of developers crying poor me saying "all things charged to us are a pass through to the consumer". A developer will charge what the market dictates.

[jonny]

How far is $140,000 gonna go toward a $90m bridge? $900m sewage plant? New recreation centres? Park acquisitions? 

 

Infinitely further than $0.00.

 

Victoria desperately needs to grow its tax base.

[VicHockeyFan]

Look Ubanisco, even you will agree that the city council occasionally makes mistakes in approving development.  So what new Victoria development was a huge negative on the city?

 

None? Ya, we can all ***** about Songhees, but at the end of the day, is it so bad?  It's certainly not a drain on our social services.

 

So I submit, that even if there were few or any rules on zoning and design, almost all new stuff is better than the old.

[VicHockeyFan]

. How far is $140,000 gonna go toward a $90m bridge?

 

I wish we were getting a $90M bridge.  More likely $120M.  That outrageous $23M refurb looked a lot better now, eh?