This article was written and submitted by Mark Goodman and Ian Brackett, brokers at Goodman Commercial and authors of the Goodman Report.
Mayor Ken Sim and his ABC collaborators promised to bring a business-like ethos to the management of the City’s affairs. Perhaps it should be no surprise, then, that they are taking steps to turn the City of Vancouver into a profit-seeking corporation, in direct competition with the private-sector developers over whom the City holds so much power.
Those developers are currently knocking on the door at City Hall, with proposals to build more than 15,000 much-needed market-rental units in the Broadway Plan area alone. Yet, so many of these projects are rendered unfeasible in the face of ever-increasing municipal fees, lengthy approval delays, and the onerous requirement to include below-market housing – policies that are under the direct control of this Mayor and Council.
The City faces no such roadblocks in the market-rental project at Pacific and Hornby that it announced last week – 1,136 units in two towers, 40 and 52 storeys tall, on a landmark 1.8-acre site at the north end of the bustling Burrard Bridge.
The market for these suites? “Middle income” earners – those making between $90,000 and $194,000. Which is to say, people who have the resources to compete, even in Vancouver’s brutal and inappropriately compressed housing market.
And the purpose of the project? To make money. Or, per the City”s news release, to “generate financial returns and non-tax revenues.”
So, the City of Vancouver is elbowing its way to the front of the line, intent upon creaming profit from one of the most desirable sites in the downtown core without having to fuss with any of the inclusionary housing or other bureaucratic obstructions facing every other developer.
Rather than dive into the for-profit development game (in a massive way!), the City of Vancouver should focus on providing core services and setting conditions that allow Vancouver’s world-renowned developers to do what they do best.
In defence of the City’s proposed project, it is quite beautiful, featuring thoughtful design by a worl-class Canadian architectural firm, on an underutilized site that badly needs revitalization. But, even aside from the City’s regulatory self-dealing, its business case rests on artificially high returns propped up by what is practically speaking a land cost near zero. The site is a gem among the 440 parcels in the City’s $6 billion Property Endowment Fund.
But what of the opportunity costs for that piece of property? This highly coveted, high-density site, zoned for 942,000 sq. ft of development could easily fetch $200 million. Given the prime location, you might even get more if you added in some market-strata units.
Even without land costs, the budget for such a project easily hits $700 million, likely more; building tall towers in the downtown core is notoriously expensive. Projects like this are often more about the prestige of owning a shiny new building in a high-profile location than the financial returns, which take decades to realize.
How much good could be done, instead, by selling this trophy site and investing the $200 million (plus the construction costs!) in services that residents of Vancouver actually want, like a new aquatic centre? Better yet, rather than competing with developers building market-rate housing, the City could be doing a job not suited to private industry: investing in non-market housing where the need is most desperate.
If the City truly wants to expand housing availability, the proceeds from selling this one trophy property could pay for 10 perfectly serviceable sites outside the downtown core.
By building below-market housing on these lots, the City could lift the inclusionary-housing burden from private-sector projects – spurring the construction of many times the 1,100 units planned for this expensive city-led project.
In addition to taking appropriate responsibility for non-market housing, the City could also make less prominent properties available as swing sites, where tenants temporarily displaced by new development could be housed until replacement units are completed. Such safe and modern government-operated housing would relieve a massive obstacle to new development, and remove the uncertainty and disruption these tenants endure.
We’re all in favour of the City managing its affairs in a businesslike way. But it should stick to its own job, rather than using its resources and regulatory weapons to take unfair advantage in a market that, right now, it is actively obstructing.