Some Vancouver homeowners are becoming instant multi-millionaires
Anyone driving along Cambie Street between King Edward and West 57th, or reading the Real Estate Weekly, cannot help but notice that many of the single family properties along both sides of the street are for sale, or have been sold. According to newspapers, and recent CBC Early Edition reports, single family lots worth $1.2 million have sold for $3.4 million. This has included one ten lot assembly.
Experienced Vancouver developers have watched the situation with a mixture of amusement and surprise. They know that it is a mistake for anyone to buy a Vancouver property based on its potential rezoned value, since the City of Vancouver has a policy of charging a Community Amenity Contribution (CAC) whenever a property is rezoned. In other words, anyone paying $3.4 for a $1.2 million property may also have to pay another million to a million and a half dollars to the city as an amenity contribution.
I do not entirely object to this approach. I think it is reasonable for new development to make a contribution to offset the cost of providing additional amenities. What I do object to, however, is the manner in which the CAC is calculated, and in some instances, the amount of the CAC. The current system creates great confusion and uncertainty which is starting to stifle the type of redevelopment many of us want to see.
A couple of people have told me they don't really understand my concerns, and what I am proposing with respect to the determination of Community Amenity Contributions. In case you too are confused, here's a brief synopsis:
1. As discussed on CBC this morning, the city's current approach appears to be a negotiated CAC payment that takes into account the value of the land before rezoning, and the value of land after rezoning. The city's goal is to receive approximately 75% of the land 'lift' in cash or amenities. Sometimes the values are determined based on Purchase and Sale Agreements; sometimes they are based on appraisals; and sometimes they are negotiated with the City's real estate department
2. One of the drawbacks with this approach is that in some instances the city might not receive any CAC payment if it is determined there is not any increase in value upon rezoning. This was the case with the Lanesborough development in the 3000/3100 block of West 41st, where I did not pay any CAC's since the city's real estate department deemed I had paid too much for the land. In fact, my arrangement with the vendors was to pay them the rezoned value.
3. I am NOT advocating that we return to an approach based on Purchase and Sale Agreements. Nor am I advocating that we retain the current system which determines value using different approaches. On the contrary, I am advocating that the CAC be a pre-established amount on a square foot basis, (that is more reflective of the cost of providing services, not increase in land value) that is published and clearly understood by purchasers and sellers. I understand that this approach is currently in place around SEFC and other parts of the city. I think it is preferable since it creates more certainty, noting it is oftentimes very difficult to assess the rezoned value of a piece of property, years in advance of any development, or when the project is innovative and untested. This certainly was the case with my recent development known as Hollyburn Mews in West Vancouver.
4. Whether the CAC is paid in cash, or provided in amenities within the development is something that the city can negotiate with the developer. However, the value of the benefit will be predetermined
5. In establishing the CAC rate, the city will have to give regard to a number of considerations including: the cost of providing additional amenities; what is reasonable given the desired density, form of development and affordability; and finally, the value of the land under its current zoning. This latter point is important since if the residual value of the land for multi-family (after paying the CAC) is lower than for single family development, the desired redevelopment will not occur.
6. By way of example, the city might desire a CAC for the Cambie Corridor at $50 per square foot. However, if this results in a residual land value that is lower than the value as a single family lot, most owners will not bother with a rezoning. If it is $20 per square foot, then rezonings may be more likely. The challenge is to come up with a CAC rate that is sufficient to partially cover the cost of new amenities, but not so high as to deter rezoning and redevelopment
As the city seeks to encourage the transformation of single family lots to various forms of higher density multi-family development, it will be necessary to remove some of the uncertainties related to CAC's. I believe fixed CAC's, along with new forms of 'pre-zoning' are the way to go. This will hopefully help avoid the confusion and misunderstanding that has resulted in some people paying millions of dollars too much for the Cambie Street properties, which could well affect the timing and success of future redevelopment.
Editor's Note: CBC online also did a great story on this a few days ago that is worth reading. They stated:
Six months after Vancouver City Council approved a plan to transform the Cambie Street corridor, homes in the area have nearly tripled in value and some residents fear development will ruin the neighbourhood.
Last May the council passed a plan to bring 15,000 more people into the Cambie Street corridor through mid-rise development.
Then last month a block of 10 homes along Cambie Street near 41st Avenue sold for $3.4 million each — nearly three times their previously assessed value.
Neighbours say they're growing tired of being pressured to sell by developers and real estate agents.
Janice Douglas says she expects a six-storey building will soon be overlooking her single family home.
"We've got people looking in our back yard, looking in our bedroom, and we will never see the trees again — nor will we have any more sunshine," Douglas told CBC News.
- Post by Michael Geller. Michael is a Vancouver architect, planner, real estate consultant and property developer. From 1972 to 1981 he was an official with CMHC during which time he oversaw the development of thousands of affordable housing units and the preparation of numerous housing policy and strategy documents. You can visit his blog by clicking here.