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Some developers in Vancouver say they aren’t sure if they will continue with current rental projects, citing contradictory demands and slow timelines.

DARRYL DYCK/THE CANADIAN PRESS

Vancouver's stratospheric housing costs have driven the city to groundbreaking interventions to make more rentals available. That has included Canada's first sin tax for homes left vacant and a radical new housing policy emphasizing creating purpose-built apartments geared to rates local residents can afford.

But some developers and housing advocates say the city has actually obstructed – not helped – efforts to build the kind of projects Vancouver says it wants, prompting at least a few to walk away from potential projects that would have produced hundreds of units.

Those forging ahead with projects say they are not sure whether they will continue in the future, asserting that rentals have become increasingly difficult to build because of a maze of contradictory demands and agonizingly slow permitting times.

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And developers say that city policies haven't kept up with the changing conditions in Vancouver's ever-more-surreal real estate market, which are making rental projects less and less viable as land and market condo prices soar.

"This mayor and his council have loaded my pockets, but they've destroyed this city for my children," said Harvey Dales, the president of Rosebud Properties Ltd., who has been trying for three years to develop a site that would have included at least a couple hundred suites.

"Anything rental is borderline on whether to do it. And the city's current methodology of zoning is not going to produce any rental units."

Mr. Dales recently gave up in frustration and sold his prime Robson Street property – to an off-shore development company that will build luxury condos.

Mr. Dales said the city's current policies are producing more unaffordable housing – great for developers, but no one else.

Those policies include the city's recent efforts to extract hefty special additional fees from developers doing rental projects and a refusal in some zones to grant extra density for rental projects.

City officials say they are trying their best to keep up with the changing economics of rental to ensure that the supply keeps coming, but acknowledge that it's a challenge.

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Developers are so concerned about the increasing level of regulations and disincentives for rental that some have created an informal information-exchange group to try to strategize about solutions. Among the 10 companies involved in the group, there are about 1,800 units that appear to be mired in city-related complications that are producing delays and possible future cancellations.

For decades, the city has extracted money from condo developers for services such as parks, libraries, housing, heritage restoration and more through negotiations over what are called "community amenity contributions," or CACs. Those CACs, which get layered on over other fees all developers are required to pay, are applied only to rezonings and have generated tens of millions of dollars, especially in recent years.

Property owners developing rentals never used to pay those fees. In early decades, it was because no one was building rentals at all – condos were far more profitable. As of 2009, when the new Vision Vancouver council created incentives for rental construction, the city was giving developers breaks to build, not charging them extra.

But in the past few years, as builders got more comfortable with the economics of building rental projects, developers started opting for rezonings to do all-rental towers. The city's real estate department began negotiating for CACs as land values soared.

"We don't disagree with the notion that it is challenging to deliver rental. It does make it a harder decision [for developers]," said Dan Garrison, the city's assistant director of housing policy. "We're always looking at [whether we should change the CAC negotiation]."

Two weeks ago, Vancouver introduced a 10-year housing plan that envisions building 36,000 units of rental in the next 10 years – a target that was specifically designed to create more affordable housing in the city. About 12,000 of those units are supposed to be social housing and 4,000 are projected to be from laneway houses. The remaining 20,000 purpose-built rental apartments are forecast to be build by private developers.

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It's an ambitious goal: Since 2010, the city has seen only about 5,000 units completed or under construction. That's less than 1,000 a year, far lower than the 2,000 a year needed to meet the housing-goal plans.

The new housing policy stipulated that it would exempt certain kinds of rentals from CACs, affecting about 80 per cent of projects outside the downtown area. But many projects will remain subject to the fees.

Two of the most high-profile possibilities for rental projects that disappeared the past six months were in the West End neighbourhood.

The Dales family have owned their property on Robson Street since the 1980s.

Mr. Dales wanted to redevelop the site, currently a two-storey retail and office building that houses a restaurant and the housewares shop Chocolate Mousse, and originally pitched the city on a new building with two stories of commercial, 30 stories of rental and a two-storey stratified penthouse on top for himself.

"I felt that rental would be a good long-term stream," Mr. Dales said.

But city officials turned him down, saying they would never approve a rental building that had a stratified unit in it, even though at least one developer had built something similar.

Mr. Dales said he hired a consultant do an analysis of the building to look again at the possibility of building a rental tower. The analysis showed it made no economic sense to build rental because of the city's demands for a substantial community-amenity contribution. Meanwhile, condo prices had risen so high that he'd be giving up millions by doing rental under any conditions.

He gave up on the idea.

"I'm not a condominium developer," said Mr. Dales, who owns industrial, commercial and rental properties throughout the city.

So he sold the building for $79.5-million to Vivagrand Developments, a relatively new company in Vancouver that has described itself in the past as linked to a real estate firm in Guangzhou, China. At the price paid for the land, no developer could do a workable rental project, so it will have to be developed as condos.

Those in the development community say they know of at least six large-scale rental projects that have been cancelled in recent years because of city complications. Owners often don't want to talk to media because of concerns about antagonizing the city in future dealings.

One case has become a hot topic among those in the rental-housing industry and developers: the 1600-block Alberni Street site owned until recently by Hollyburn Properties Limited. The director of Hollyburn, David Sanders, declined to comment on his situation to The Globe and Mail.

But city documents show Hollyburn went through a rezoning for that site in November, 2016, with a plan to replace a 66-unit rental building with a 276-unit rental tower. The 42-storey tower was going to include 104 units of family housing, 15 of those three-bedroom apartments.

A source in the development community with knowledge of the deal said the city's real estate department, which handles negotiations over community amenity contributions, wanted a $43-million contribution. That was later lowered to $15-million. A statement from the real estate department said it does not provide information about specific cases.

Hollyburn, which focuses exclusively on rentals, currently has the property up for sale and is in negotiations with a company that specializes in luxury condos, the source said.

Wesgroup, a major condo developer in the city, acknowledged through an e-mail statement that "the City of Vancouver's proposed and significant CAC costs on rental projects is what led to cancellation of some Wesgroup projects previously, resulting in the loss of some 230-240 units."

The statement said the developer has now moved onto other projects and doesn't have the capacity to resubmit applications, even though the city has now modified its position on CACs for rentals. Even among developers still carrying on with their rental projects, there's a sense of acute frustration, as well as uncertainty about how long they can keep going.

"They're going ahead through a lot of pain and suffering and to make no money," said Hani Lammam, vice-president at Cressey Development Group, which currently has three rental projects on the go in Vancouver.

"We're managing to get our projects through but at tremendous cost. There haven't been so many done because they're so difficult to do. It truly is not profitable to build rental."

Cressey, a company that started as a rental-only business and later became a condo developer, just got city approval this week for a rental project near Olympic Village, one that was included in a news release from the mayor's office, highlighting the 477 units of rental and social housing and noting, "Vancouver is doing more than any other city in Canada when it comes to housing."

But Mr. Lammam said it was touch and go whether the project would go forward at several points.

When he started planning the project, he was assured there would be no CACs and that the project would qualify under a program the offered waivers from normal development cost charges.

But some time after getting into the application process, he got a call from the real estate department, which wanted him to detail how much "land lift" – increase in value – the property had seen. That's a prelude to a negotiation about CACs.

Mr. Lammam successfully argued that there had been no land lift. Then he was told the project would not qualify for the waiver of cost charges because the city suspected the units would eventually be rented out at luxury rates.

All of that made for a nerve-racking process, with Mr. Lammam wondering whether the project would actually lose money in the end.

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