Property owners and developers have made dozens of development inquiries for housing projects along Vancouver’s planned Broadway subway line, but economic factors and the city’s own zoning rules for the area may mean few of those proposals result in net gains for the region’s strained housing supply.
Inquiries are written indications of interest that may include detailed information about development proposals. They frequently go forward into formal applications. Matt Shillito, the senior planner who has overseen the Broadway project, said the current volume of inquiries is “unusually high.”
In the three months after a new zoning plan for the 485 blocks around the subway line went into effect in September, the city received 100 of them for the area. It typically receives only 80 formal applications in a year. “It shows the plan has interest and take-up,” Mr. Shillito said.
But some in the development community say all the interest might not translate into a building boom. Housing developers’ finances are being squeezed by high and rising interest rates, as well as inflated material and labour costs. And the new zoning regulations contain unusual rules that critics say make it too risky for developers to commit to large projects.
In a first for any Canadian city, the zoning plan requires developers to provide tenants displaced by redevelopment either with substantial cash payouts, or with similar apartments at their existing rents during construction, and then in the completed new buildings.
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The area, which stretches from Clark Drive in the east to Arbutus Street in the west, has a wide range of housing. About 78,000 people live there already. The new plan aims to make room for another 30,000 homes and 50,000 residents, along with new office and retail space, over the next 30 years. The subway line is under construction, and the city plans to have it running by 2026.
The area includes blocks with older four-storey apartments from the 1960s and 70s, other blocks with single-detached homes and duplexes dating from 1899 to the present, and commercial buildings, ranging from one-storey structures to small towers, along Broadway itself. The city’s plan aims to redevelop many of these properties.
“I don’t think we’re going to see any massive change. We are not seeing, as brokers, a huge swell of deals going forward,” said Mark Goodman, whose company, Goodman Commercial, deals exclusively in apartment buildings. “If we sell a 65-unit apartment building, all those tenants have the right to come back at the same rent. That risk alone has scared buyers.”
Mr. Goodman said he knows of only one apartment sale in the area since the plan was approved in July – a smaller pair of buildings at 10th Avenue and Hemlock Street. The buyer was someone planning to continue renting them out, not a developer planning an immediate demolition and rebuild, he said.
Tony Letvinchuk, managing director at MacDonald Commercial, said he has noticed the same trend.
“We haven’t seen a lot of trades in the last two or three months,” he said. “It’s an untried rezoning system. We’re looking up and down Broadway and the smoke hasn’t cleared yet on what will work.”
He said many of the development inquiries are probably not coming from new speculators because there is so much risk.
“It’s likely that it’s more the existing owners making the inquiry,” Mr. Letvinchuk said. “There’s a lot of interest but not a lot happening.”
That, he added, is because there are so many potential pitfalls.
Anyone buying apartment buildings in the area to redevelop would need to factor in the costs of providing apartments for an unknown number of existing tenants, for an unknown number of years.
Those buying single-detached houses to assemble them into development lots face the possibility that they will have to pay far more than market value to entice those owners to move. If their projects aren’t approved, the existing homes might not be able to provide enough income to cover the high purchase prices.
Many of Vancouver’s biggest apartment builders have been saying for years that they can’t count on making any more than 3-per-cent annual returns on money invested in their rentals.
When interest rates were below 3 per cent, that meant they could service debt and still profit. (Many have said that they make more money on the gain in the value of the land over the years.)
With interest rates now above 3 per cent, turning a profit has become more difficult, except in cases where companies have owned their land for long periods of time or have some other strategies for lowering overall building costs.
Mr. Goodman noted that anyone pitching a project in the Broadway area also doesn’t have any guarantee they will receive the city’s approval, because the plan limits the number of high-rises to two per block in most of the area, except right around transit stations.
Mr. Shillito said the city won’t be able to give firm answers to development inquiries right away because there are so many of them. The inquiries have been evenly spread among the different property types in the plan.
“We’re working through those and being as efficient as we can. Inevitably, it’s taking longer than the 12 to 16 weeks we said,” he added.