B.C.’s new density requirement only one factor for building new homes

The province can lead developers to higher density, but it doesn’t mean they will build right away

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The province’s housing-density legislation unlocks zoning to create tens of thousands of new homes across Metro Vancouver, but that alone might not spur developers to build houses, at least not quickly.

Bill 44, which allows for multi-unit construction on previously single-family lots, and Bill 47, which sets minimum standards for increased zoning around transit hubs, have been heralded in many circles as revolutionary changes in the face of B.C.’s housing crisis.

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Zoning, however, is still just one element that developers need to consider before building new homes in an environment of high interest rates and soaring costs.

“I think the central assumption in all this legislation is that municipalities and zoning are the (main) reasons for inaction” on building more housing, according to Andy Yan, urban planner and director of the City Program at Simon Fraser University. “And I think it’s problematic. It’s the housing system we’re talking about, not just one part of it.”

Yan said the objectives raise questions about whether B.C. will have the construction workforce needed to build the number of units desired and whether the goals are financially sustainable, considering prevailing inflation-fighting interest rates.

A modelling exercise commissioned by the province to support its legislation assumes still extremely high prices would be required to entice the levels of development it wants, particularly in high-priced centres such as Vancouver, Burnaby and Richmond.

The scenarios’ report uses anticipated sale prices as high as $1,500 a square foot in Vancouver, $1,200 in much of the North Shore and $1,000 in parts of Burnaby to make redevelopment of single-family lots or transit-adjacent locations attractive.

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On a theoretical $1,500-a-square-foot, three bedroom unit, that implies prices as high as $2.25 million, with a $12,000-a-month mortgage payment in much of Vancouve or an $8,000-a-month mortgage in big swaths of Burnaby.

Those prices wouldn’t be sustainable and $1,500-sq.-ft units wouldn’t be realistic, according to Anne McMullin, CEO of the Urban Development Institute.

“That’s just not happening now,” McMullin said. “Right now, the sweet spot for prices is $750,000 to $800,000, and right now it’s very difficult to build units of a certain size for that amount.”

Besides being too expensive to build, McMullin said buyers typically aren’t interested in three-bedroom, family-oriented apartments. Their preferences lean to townhouses or row homes, which are more likely to be built in suburbs such as Surrey or Langley where land is more available.

“Costs have to come down,” McMullin said. “It’s very difficult right now to even build what people can afford and meet the (federally mandated mortgage) stress test.”

As it is, McMullin expects to see her organization’s members hit pause on existing developments over the next 12 to 18 months hoping for interest rates to fall, which will reduce holding costs of purchasing land for development.

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On Dec. 6, the Bank of Canada held its benchmark interest rate at five per cent for the fifth month in a row after more than doubling over the previous year-and-a-half, but bank Gov. Tiff Macklem warned on Friday that it’s too soon to discuss rate cuts.

The provincial policy, particularly Bill 47, sets minimum expectations from municipalities for zoning around transit hubs allowing for towers a minimum of 20 storeys within 800 metres of rapid transit, but owners and developers still face a lot of unknowns, said Mark Goodman, principal at Goodman Commercial Inc.

Municipalities still need to enact their own zoning rules that comply with the province’s minimum standards and have short timelines in 2024 to do so, Goodman said.

“But there is no requirement to approve any proposal that meets the prescribed height and density,” Goodman said.

For instance, a developer might be willing to pay more to buy and build on a site that allows for market condos, Goodman said. However, if a municipality wants to see purpose-built rental housing on a site, with a significant number of below-market units, redevelopment might not be viable.

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“It’s natural when you see community plans changing, everyone jumps to the conclusion, if you can build a highrise on a site, it must be worth more to a developer,” said Goodman analyst Ian Brackett. “It’s just not always that simple and it comes back to all the details of how profitable is a project to build.”

Goodman said he has surprised a lot of property owners who have made initial inquiries about their holdings with news that what they hold, particularly income-generating commercial properties, is worth more than what a developer would be able to pay for redevelopment under the scenario.

The federal and provincial governments will also need to step in with contributions to build the non-market rental housing that will be in reach of renters with more modest incomes, according to Alex Hemingway, a housing economist with the Canadian Centre for Policy Alternatives.

“The provincial government has been investing in low-income housing, supportive housing for folks experiencing or at risk of homelessness,” Hemingway said. Now, the province is “signalling that they also want to get in the business of enabling and building housing aimed at middle-income earners who are also squeezed in this housing crisis.”

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McMullin said it might take four years for developers to start moving on building a larger numbers of units, such as a developer with property on Vancouver’s Cambie Street corridor that will be up-zoned from six storeys to 12 under the new standards.

“It’s hard to predict what the world will be like, but we had to do this,” McMullin said. “In the short-term, there’s going to be some confusion and some difficulties.”

Goodman added that prices will be tempered as more municipalities enact zoning requirements once developers realize they face a lot more competition.

“It comes down to the proverbial supply and demand question,” Goodman said. Owners will have to remember, “now it’s not just you who has a transit-oriented development site, it’s everybody else around you.”

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