Metro Vancouver Purpose-Built Rental Housing: Inventory ...€¦ · Analysis of actual rental demolitions and redevelopment projects to identify the sorts of buildings that have been

Metro Vancouver Purpose-Built Rental Housing: Inventory and Risk Analysis

8 May 2012

Prepared for:

Metro Vancouver

By: Coriolis Consulting Corp.

JHolton

Typewritten Text

5.1 Attachment 1

METRO VANCOUVER PURPOSE-BUILT RENTAL HOUSING: INVENTORY AND RISK ANALYSIS

CORIOLIS CONSULTING CORP. PAGE I

Table of Contents

1.0 Introduction ............................................................................................................ 1

1.1 Background .......................................................................................................... 1

1.2 Study Area ............................................................................................................ 1

1.3 Approach .............................................................................................................. 2

1.4 Definitions ............................................................................................................ 3

1.5 Professional Disclaimer ....................................................................................... 4

2.0 Metro Vancouver Rental Housing Inventory ....................................................... 6

2.1 Types of Rental Housing Included in the Inventory ........................................... 6

2.2 Sources of Data .................................................................................................... 6

2.3 Summary of Inventory and Characteristics ........................................................ 7

2.3.1 Inventory by Location .............................................................................. 7

2.3.2 Inventory by Building Height .................................................................... 8

2.3.3 Inventory by Age ................................................................................... 11

2.3.4 Inventory by Building Size ..................................................................... 13

2.3.5 Ownership Pattern ................................................................................. 16

2.4 Implications ........................................................................................................ 16

3.0 Characteristics that Can Indicate a Rental Property is a Redevelopment

Candidate ............................................................................................................. 18

4.0 Rental Properties at Risk of Redevelopment .................................................... 20

4.1 City of New Westminster ................................................................................... 21

4.1.1 Evaluation of Properties Currently At Risk of Redevelopment ............... 21

4.1.2 Projection of Properties at Risk of Redevelopment in Longer Term ....... 22

4.1.3 City of New Westminster Summary ....................................................... 22

4.2 City of North Vancouver .................................................................................... 23



4.2.3 City of North Vancouver Summary ........................................................ 24


CORIOLIS CONSULTING CORP. PAGE II

4.3 District of North Vancouver ............................................................................... 24

4.3.1 Evaluation of Properties Currently At Risk of Redevelopment - Low Scenario ................................................................................................ 25

4.3.2 Evaluation of Properties Currently At Risk of Redevelopment - High Scenario ................................................................................................ 26


4.3.4 District of North Vancouver Summary .................................................... 27

4.4 City of Richmond ............................................................................................... 28



4.4.3 City of Richmond Summary .................................................................. 29

4.5 City of Surrey...................................................................................................... 29



4.5.3 City of Surrey Summary........................................................................ 30

4.6 District of West Vancouver ................................................................................ 31



4.6.3 West Vancouver Summary .................................................................... 32

4.7 Summary ............................................................................................................. 33

5.0 Policy Options to Reduce Loss of Rental Housing Stock ................................ 34

5.1 Factors to Consider ........................................................................................... 34

5.1.1 Main Findings of Risk Analysis .............................................................. 34

5.1.2 Under-Utilization of Development Capacity ........................................... 34

5.1.3 Interviews with Industry Participants ...................................................... 35

5.2 Policy Options .................................................................................................... 37

5.2.1 Increasing Revenue from Existing Rental Buildings ............................... 39

5.2.2 Decrease the Operating Costs at Existing Rental Buildings ................... 39

5.2.3 Using Under-Utilized Properties to Increase the Housing Stock ............ 40


CORIOLIS CONSULTING CORP. PAGE III

5.2.4 Limiting the Ability for an Owner to Redevelop or Convert Existing Rental Housing ................................................................................................. 41

5.2.5 Tax Incentives that Encourage Owners to Keep Rental Buildings in the Rental Inventory .................................................................................... 42

5.2.6 Summary ............................................................................................... 42

6.0 Conclusions ......................................................................................................... 44

6.1 Rental Inventory ................................................................................................. 44

6.2 Risk Analysis ...................................................................................................... 45

6.3 Strategies and Policies ...................................................................................... 46

Attachment 1: Approach to Identifying Properties at Risk of Redevelopment ......... 49

Evaluation of Property Characteristics that are Potential Indicators of Risk ............ 50

Age of Property .................................................................................................... 50

Physical Condition ................................................................................................ 51

Contribution of Improvements to Property Value .................................................. 51

Location of the Property ....................................................................................... 53

OCP Designation and Zoning ............................................................................... 53

Existing Utilization of Permitted Density ............................................................... 53

Implications for Identifying Properties at Risk of Redevelopment ......................... 55

Approach to Identifying Existing Rental Properties that are Redevelopment

Candidates ..................................................................................................................... 56

Attachment 2: Supplemental Data ................................................................................ 59

Ratio of Assessed Improvements Value to Total Assessed Value ........................ 59

Attachment 3: Maps of Rental Housing Inventory ....................................................... 62


CORIOLIS CONSULTING CORP. PAGE 1

1.0 Introduction

1.1 Background

Metro Vancouver is compiling an inventory of purpose-built rental housing in the region and evaluating the degree to which the rental housing in the region is at risk of demolition and redevelopment to alternative uses such as strata-titled housing. Metro Vancouver retained Coriolis Consulting Corp. to:

1. Help produce a comprehensive data base of purpose-built market rental housing stock in Metro Vancouver which can be used to quantify and describe the total existing rental stock by location, age, size of building, zoning, and other characteristics so that Metro Vancouver has a strong understanding of the size and nature of the existing rental inventory.

2. Analyze and evaluate the risk of demolition and redevelopment to strata residential (or mixed use) of the existing buildings that make up the purpose-built rental stock, in the absence of policies (existing or potential new policies) designed to limit demolition. This included an in-depth analysis of the risk of demolition and redevelopment of the existing rental stock in six municipalities.

3. Suggest strategies and policies which could reduce the risk of redevelopment of the purpose-built rental housing stock.

This report summarizes the rental inventory, the results of our risk analysis and the policies that could be considered to lower the risk of redevelopment of the rental stock. A separate technical report entitled "Metro Vancouver Purpose-Built Rental Housing: Detailed Risk Analysis" documents the approach, analysis and conclusions of the risk analysis.

1.2 Study Area

This report addresses three different topics, each with a different study area.

1. The Metro Vancouver purpose-built rental inventory covers all of the municipalities (plus UEL) in the region except for the City of Vancouver as an inventory was recently compiled for the City of Vancouver1. Where possible, we have incorporated information from the City of Vancouver inventory into our analysis to provide a full picture of the regional rental housing stock. However, this was not possible for all of the inventory summaries contained in this report. Readers are cautioned that some of the inventory summaries in this report (in Section 2.3) exclude the rental housing stock in the City of Vancouver.

2. The detailed risk analysis focuses on the following six municipalities:

1 http://vancouver.ca/commsvcs/housing/pdf/RentalHousing/Final_Report/Study%202A%20-

%20final%20report%20november%202009.pdf

http://vancouver.ca/commsvcs/housing/pdf/RentalHousing/Final_Report/Study%202A%20-%20final%20report%20november%202009.pdf

http://vancouver.ca/commsvcs/housing/pdf/RentalHousing/Final_Report/Study%202A%20-%20final%20report%20november%202009.pdf



The City of New Westminster. The City of North Vancouver. The District of North Vancouver. The City of Richmond. The City of Surrey. The District of West Vancouver.

3. The identification of strategies and policies to consider to reduce the risk of rental housing demolition applies to all municipalities in the region.

1.3 Approach

Our analysis included the following main steps.

1. For all Metro Vancouver municipalities:

a) Compile a comprehensive data base of purpose-built rental housing in Metro Vancouver. Working with Metro Vancouver, we combined information about existing rental properties in the region (from BC Assessment) with information provided by individual municipalities. Combined, these sources provided a full list of all rental housing in the region plus a wide variety of information about each property. The combined data was then inspected and adjusted for ambiguities and deficiencies to provide a more accurate inventory. Where important information was missing, we tried (where possible) to fill in the data through a variety of sources, including fieldwork, air photos, and assessment information.

b) Sort the rental housing data base to summarize the existing rental housing stock by municipality, age, size of building and other characteristics.

2. For the six municipalities that are the focus of the detailed risk analysis:

a) Complete detailed analysis to identify the main factors that are good indicators of whether or not an existing rental building is financially attractive for redevelopment and at risk of redevelopment. This included the following tasks: Financial analysis for selected individual rental properties designed to show “tell-tales”

of whether an existing rental building is financially attractive for redevelopment, such as a low existing built density, a ratio of assessed improvements value to total assessed value, or construction type (wood-frame versus concrete).

Analysis of actual rental demolitions and redevelopment projects to identify the sorts of buildings that have been demolished and the characteristics that may be tell-tales of impending redevelopment.

Sensitivity analysis on the risk factors identified to test the threshold that indicates an individual rental building is likely a redevelopment candidate.



b) Apply the property characteristics that we identified as good indicators of redevelopment risk to the entire rental housing inventory, to gauge the total proportion of the inventory that is at low, moderate, or high risk of redevelopment in the foreseeable future.

c) Forecast how the number of properties and inventory of existing units that are at risk of redevelopment could change over the next ten years or so.

3. For all municipalities in the region, identify and evaluate strategies and policies that could reduce the risk of redevelopment of the existing stock.

The approach to identifying redevelopment candidates used in this analysis necessarily relied on applying general tests to the entire inventory of rental properties. It did not include a property by property evaluation. The approach used to identify properties that are at risk of redevelopment produces a precise result, but the results should be viewed as an approximation of the number of rental properties that are at risk of demolition and redevelopment. Whenever a general rule or test is applied to a large inventory of properties, it is likely to exclude some properties that are actually development candidates and capture some properties that are not.

1.4 Definitions

Some of the commonly used terms in this report are as follows:

1. Purpose-built rental housing. The rental housing data base includes the residential rental units in all purpose-built rental housing buildings in Metro Vancouver (outside of the City of Vancouver) of 4 units or more built prior to 1980. It does not include: Rental properties in the City of Vancouver (although some of the summary tables in this

report include information on the City of Vancouver rental stock to provide information on the total rental stock in the region).

Properties constructed after 19802 (these were excluded by Metro Vancouver on the basis that newer buildings are not likely to be at risk of redevelopment and very little purpose-built rental housing has been built since 1980).

Rental properties with 3 or less units. Basement suites. Rental units in strata properties and rental units in properties that have forms of multiple

unit ownership that preceded BC's condominium legislation (e.g., market co-op buildings). Non market housing, special needs housing, care homes, and tourist accommodation.

2. Official Community Plan, or OCP. This is a comprehensive plan created by each municipality in Metro Vancouver which outlines the municipality's long term objectives and policies on a variety of topics, including land use, transportation, housing, public facilities, environment,

2 The inventory was intended to exclude rental properties constructed after about 1980. However,

some of the municipalities that provided input to the database included newer properties. Therefore, the database does include some properties built since 1980. Generally, there have been very few purpose-built rental housing units constructed in the region since 1980. The data and analysis in this report excludes any properties built since 1980.



green house gas reductions, and other topics. The OCP often includes policies that guide the permitted uses, heights and densities that will be considered by the municipality in a rezoning application.

3. Existing floorspace. The existing total floor area of a building (measured in square feet). This figure includes the sum of the gross floor area of each floor of a building, excluding basement areas, underground parking, elevator shafts and some other minor exclusions.

4. Permitted floorspace. The amount of floorspace that is allowed at a property if it is developed to the maximum permitted density under existing zoning or under a rezoning that is consistent with the OCP.

5. Floor Area Ratio, or FAR. This is a measure of built (or permitted) density at a property. FAR is calculated by dividing the total gross floor area of a building by the site size. For example, a 50,000 sq.ft. building on a 50,000 sq.ft. site produces an FAR of 1.0.

6. Permitted density. This is the maximum FAR permitted at a site under existing zoning or under a rezoning that is consistent with the OCP. A higher FAR indicates higher permitted density.

7. Ratio of existing floorspace to permitted floorspace. This is a measure of how well a property is utilizing the density permitted under the existing zoning (or OCP). It is calculated by dividing the total existing floorspace by the total permitted floorspace under existing zoning (or under a rezoning that is consistent with the OCP). A low ratio indicates the property is being under-utilized.

8. Assessed value. The BC Assessment Authority estimates the market value of each property in BC on an annual basis. This assessed value is divided into two components: the assessed value of the existing improvements and the assessed value of the land.

9. Ratio of assessed improvements value to total assessed value. This figure is calculated by dividing the assessed value of the improvements by the total assessed value of the property. A low ratio indicates that the value of the property is mainly land value.

10. Proforma. In real estate analysis, a proforma financial analysis a statement of the projected revenues and costs associated with a real estate investment or development project.

11. Cap rate. The capitalization rate, or cap rate, is calculated by dividing the net operating income of an investment property by the purchase price of the property. In real estate investment, a property is often valued by dividing the net operating income by the market cap rate for that type of property.

1.5 Professional Disclaimer

This document may contain estimates and forecasts of future growth and urban development prospects, estimates of the financial performance of possible future urban development projects, opinions regarding the likelihood of approval of development projects, and recommendations regarding development strategy or municipal policy. All such estimates, forecasts, opinions, and recommendations are based in part on forecasts and assumptions regarding population change, economic growth, policy, market conditions, development costs and other variables. The assumptions, estimates, forecasts, opinions, and recommendations are based on interpreting



past trends, gauging current conditions, and making judgments about the future. As with all judgments concerning future trends and events, however, there is uncertainty and risk that conditions change or unanticipated circumstances occur such that actual events turn out differently than as anticipated in this document, which is intended to be used as a reasonable indicator of potential outcomes rather than as a precise prediction of future events.

Nothing contained in this report, express or implied, shall confer rights or remedies upon, or create any contractual relationship with, or cause of action in favor of, any third party relying upon this document.

In no event shall Coriolis Consulting Corp. be liable to Metro Vancouver, the District of West Vancouver, the District of North Vancouver, the City of North Vancouver, the City of New Westminster, the City of Richmond, the City of Surrey, or any third party for any indirect, incidental, special, or consequential damages whatsoever, including lost revenues or profits.



2.0 Metro Vancouver Rental Housing Inventory The rental housing data base that we compiled has been provided to Metro Vancouver. The database is very large so it is not reproduced in hard copy as an attachment to this report. This section describes the sources of data used to compile the data base, identifies the kind of rental housing included in the data base and provides some summaries of the existing stock.

Attachment 3 includes a series of maps which show the location and characteristics of the inventory.

2.1 Types of Rental Housing Included in the Inventory

The rental housing data base includes the residential rental units in all purpose-built rental housing buildings in Metro Vancouver (outside of the City of Vancouver) of 4 units or more built prior to 1980. It does not include:

1. Rental properties in the City of Vancouver. However, we were able to obtain separate information from the City of Vancouver about its existing rental stock which we used to estimate the total rental stock in the region. Therefore, some of the summary tables in this report (which are noted) include City of Vancouver rental housing data.

2. Properties constructed after 1980 (these were excluded by Metro Vancouver on the basis that newer buildings are not likely to be at risk of redevelopment and very little purpose-built rental housing has been built since 1980).

3. Rental properties with 3 or less units. 4. Basement suites. 5. Rental units in strata properties and rental units in properties that have forms of multiple unit

ownership that preceded BC's condominium legislation (e.g., market co-op buildings). 6. Non market housing, special needs housing, care homes, and tourist accommodation.

2.2 Sources of Data

The data in the rental housing data base comes from four sources:

1. BC Assessment (provided to Metro Vancouver), which provided information about address, location, site size, number of residential units, year built, number of floors, commercial floorspace (for mixed use buildings), property descriptions (actual use and manual class codes and descriptions), and assessed value information for rental properties.

2. Metro Vancouver, which provided information about zoning, OCP designations, number of rental units (plus notes about the property and some other characteristics) for rental properties in the region.



3. Individual municipalities, which provided information about permitted density under existing zoning and OCP designations, existing floorspace, number of rental units (plus notes about the property and some other characteristics) for rental properties in the municipality.

4. Coriolis Consulting, which filled in missing information (where available) needed (such as existing floorspace, permitted achievable floorspace) to complete the risk analysis in this study.

2.3 Summary of Inventory and Characteristics

The detailed inventory can be sorted based on a wide variety of property characteristics. This section summarizes some of the notable characteristics of the existing inventory, including the distribution by:

1. Location. 2. Building Height (indicating whether a building is likely constructed from woodframe or likely

constructed using concrete/steel). 3. Age. 4. Building size. 5. Ownership.

The summaries of the rental stock by municipality3 and by building height include information for the City of Vancouver rental stock4 to provide information about the scale of the entire regional rental inventory. The other summaries exclude the City of Vancouver rental stock.

2.3.1 Inventory by Location

Exhibit 1 shows the rental stock by municipality listed in order of total number of rental units. In total, there are about 115,000 purpose-built rental housing units in the region (in properties with 4 or more units4 built prior to 1980) at about 6,300 different properties.

Rental housing is spread throughout the region. The City of Vancouver accounts for the largest share of the stock (about 58%). Outside the City of Vancouver, the municipalities with the largest amount of rental housing are:

1. Burnaby (10% of the regional stock) 2. New Westminster (8% of the regional stock). 3. City of North Vancouver (6% of the regional stock). 4. Surrey (5% of the regional stock).

3 This exhibit excludes municipalities with no rental stock (as defined for this study), including Bowen

Island, Lions Bay and Pitt Meadows. 4 The City of Vancouver data includes properties with 3 units and properties built since 1980 while

the data for the other municipalities does not.



5. Coquitlam (3% of the regional stock).

Exhibit 1: Distribution of Existing Rental Housing Stock by Location

Municipality Number of Properties

Share of Metro Vancouver

Number of Units

Share of Metro

Vancouver

Burnaby 363 5.7% 11,214 9.8%

Coquitlam 59 0.9% 3,207 2.8%

Delta 61 1.0% 1,479 1.3%

Langley (City) 37 0.6% 1,546 1.3%

Langley (Township) 21 0.3% 211 0.2%

Maple Ridge 42 0.7% 1,054 0.9%

New Westminster 348 5.5% 9,235 8.0%

North Vancouver (City) 230 3.6% 6,830 6.0%

North Vancouver (District) 41 0.6% 1,206 1.1%

Port Coquitlam 14 0.2% 260 0.2%

Port Moody 11 0.2% 409 0.4%

Richmond 27 0.4% 2,259 2.0%

Surrey 89 1.4% 5,347 4.7%

West Vancouver 35 0.6% 1,864 1.6%

White Rock 52 0.8% 1,244 1.1%

UEL 15 0.2% 398 0.3%

Total (Excluding the City of Vancouver) 1,445 22.8% 47,763 41.6%

City of Vancouver5 4,902 77.2% 66,966 58.4%

Total (All Metro Vancouver) 6,347 100.0% 114,729 100.0%

2.3.2 Inventory by Building Height

Woodframe buildings likely have a shorter lifespan than concrete buildings. The database does not provide information about the construction material for each property. However, it does provide information about building height (number of storeys). Therefore to gauge the share of rental housing that is likely woodframe construction, we identified the buildings that are 4-storey or less (assumed to be woodframe). Exhibits 2a and 2b and 2c summarize the rental stock by building height in the region.

5 The City of Vancouver data includes properties with 3 units and properties built since 1980 while

the data for the other municipalities does not.



1. Outside of the City of Vancouver, about 69% of all rental units are at buildings that are likely woodframe construction (4-storeys or less). Older woodframe rental buildings may be at a greater risk of demolition than newer woodframe buildings and concrete buildings.

2. In several municipalities, over 80% of the rental stock is likely woodframe, including the District of North Vancouver, City of North Vancouver, Coquitlam, Delta, City of Langley, Township of Langley, Port Moody, Port Coquitlam, and White Rock. The share in Burnaby and Maple Ridge is just under 80%.

3. Municipalities/jurisdictions with high shares of the existing rental stock at buildings that are 5-storeys or more (likely concrete or steel construction) include West Vancouver (92%), UEL (55%), Surrey (62%), Richmond (46%) and New Westminster (39%).

Exhibit 2a: Existing Rental Housing Inventory by Building Height

Municipality

All Properties 4 Storeys or Less 5 Storeys or More

Number of Properties

Number of Units

Number of

Properties Number of Units

Number of

Properties Number of Units

Burnaby 363 11,214 340 8,810 23 2,404

Coquitlam 59 3,207 57 3,070 2 137

Delta 61 1,479 57 1,199 4 280

Langley (City) 37 1,546 36 1,502 1 44

Langley (Township) 21 211 21 211 0 0

Maple Ridge 42 1,054 39 818 3 236

New Westminster 348 9,235 298 5,590 50 3,645

North Vancouver (City) 230 6,830 213 5,530 17 1,300

North Vancouver (District) 41 1,206 39 1,146 2 60

Port Coquitlam 14 260 14 260 0 0

Port Moody 11 409 11 409 0 0

Richmond 27 2,259 20 1,222 7 1,037

Surrey 89 5,347 70 2,040 19 3,307

West Vancouver 35 1,864 5 158 30 1,706

White Rock 52 1,244 46 993 6 251

UEL 15 398 14 178 1 220

Total (Excluding the City of Vancouver) 1,445 47,763 1,280 33,136 165 14,627

City of Vancouver 4,902 66,966 4,602 44,359 300 22,607

Total (All Metro Vancouver) 6,347 114,729 5,882 77,495 465 37,234



Exhibit 2b: Regional Share of Existing Rental Housing Inventory by Building Height

Municipality

All Properties 4 Storeys or Less 5 Storeys or More Share of

Metro Vancouver Properties

Share of Metro

Vancouver Units

Share of Metro

Vancouver Properties

Share of Metro

Vancouver Units

Share of Metro

Vancouver Properties

Share of Metro

Vancouver Units

Burnaby 5.7% 9.8% 5.4% 7.7% 0.4% 2.1%

Coquitlam 0.9% 2.8% 0.9% 2.7% 0.0% 0.1%

Delta 1.0% 1.3% 0.9% 1.0% 0.1% 0.2%

Langley (City) 0.6% 1.3% 0.6% 1.3% 0.0% 0.0%

Langley (Township) 0.3% 0.2% 0.3% 0.2% 0.0% 0.0%

Maple Ridge 0.7% 0.9% 0.6% 0.7% 0.0% 0.2%

New Westminster 5.5% 8.0% 4.7% 4.9% 0.8% 3.2%

North Vancouver (City) 3.6% 6.0% 3.4% 4.8% 0.3% 1.1%

North Vancouver (District) 0.6% 1.1% 0.6% 1.0% 0.0% 0.1%

Port Coquitlam 0.2% 0.2% 0.2% 0.2% 0.0% 0.0%

Port Moody 0.2% 0.4% 0.2% 0.4% 0.0% 0.0%

Richmond 0.4% 2.0% 0.3% 1.1% 0.1% 0.9%

Surrey 1.4% 4.7% 1.1% 1.8% 0.3% 2.9%

West Vancouver 0.6% 1.6% 0.1% 0.1% 0.5% 1.5%

White Rock 0.8% 1.1% 0.7% 0.9% 0.1% 0.2%

UEL 0.2% 0.3% 0.2% 0.2% 0.0% 0.2% Total (Excluding the City of Vancouver) 22.8% 41.6% 20.2% 28.9% 2.6% 12.7%

City of Vancouver 77.2% 58.4% 72.5% 38.7% 4.7% 19.7%

Total (All Metro Vancouver) 100.0% 100.0% 92.7% 67.5% 7.3% 32.5%



Exhibit 2c: Share of Existing Rental Housing Inventory by Building Height by Municipality

Municipality

4 Storeys or Less 5 Storeys or More Share of

Municipal Properties

Share of Municipal

Units

Share of Municipal

Properties

Share of Municipal

Units

Burnaby 94% 79% 6% 21%

Coquitlam 97% 96% 3% 4%

Delta 93% 81% 7% 19%

Langley (City) 97% 97% 3% 3%

Langley (Township) 100% 100% 0% 0%

Maple Ridge 93% 78% 7% 22%

New Westminster 86% 61% 14% 39%

North Vancouver (City) 93% 81% 7% 19%

North Vancouver (District) 95% 95% 5% 5%

Port Coquitlam 100% 100% 0% 0%

Port Moody 100% 100% 0% 0%

Richmond 74% 54% 26% 46%

Surrey 79% 38% 21% 62%

West Vancouver 14% 8% 86% 92%

White Rock 88% 80% 12% 20%

UEL 93% 45% 7% 55%

Total (Excluding the City of Vancouver) 89% 69% 11% 31%

City of Vancouver 94% 66% 6% 34%

Total (All Metro Vancouver) 93% 68% 7% 32%

2.3.3 Inventory by Age

Exhibits 3a and 3b show the entire inventory of rental buildings by year built. These exhibits exclude the City of Vancouver and municipalities with no rental stock (Pitt Meadows, Lions Bay, Bowen Island) that meets the definition of rental for this analysis.

Exhibit 3a shows that 55% of the region's rental inventory (outside the City of Vancouver) was built before 1970.



Exhibit 3a: Existing Rental Housing Inventory by Age of Construction by Municipality

Municipality

1949 or older 1950 to 1959 1960 to 1969 1970-1979 Total

Num

ber o

f P

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rties

Num

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f U

nits

Num

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f P

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Num

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f U

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Num

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f P

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Num

ber o

f U

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Num

ber o

f P

rope

rties

Num

ber o

f U

nits

Num

ber o

f P

rope

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Num

ber o

f U

nits

Burnaby 14 85 99 1,199 198 6,640 52 3,290 363 11,214

Coquitlam 4 28 0 0 25 1,372 30 1,807 59 3,207

Delta 0 0 0 0 23 293 38 1,186 61 1,479

Langley City 0 0 1 5 9 233 27 1,308 37 1,546

Langley Township 1 8 1 4 7 28 12 171 21 211

Maple Ridge 2 8 3 28 12 214 25 804 42 1,054

New Westminster 95 817 73 964 140 5,143 40 2,311 348 9,235

North Vancouver City 5 87 76 959 93 3,343 56 2,441 230 6,830

North Vancouver District 4 45 5 20 24 830 8 311 41 1,206

Port Coquitlam6 0 0 0 0 6 55 4 77 10 132

Port Moody 0 0 1 6 5 263 5 140 11 409

Richmond 0 0 0 0 7 603 20 1,656 27 2,259

Surrey 4 24 17 142 27 1,000 41 4,181 89 5,347

West Vancouver 1 12 1 4 27 1,149 6 699 35 1,864

White Rock 4 20 1 8 23 550 24 666 52 1,244

UEL 8 70 6 108 0 0 1 220 15 398

Total (Excluding the City of Vancouver) 142 1,204 284 3,447 626 21,716 389 21,268 1,441 47,635 Share of Metro Vancouver excluding the City of Vancouver 10% 3% 20% 7% 43% 46% 27% 45% 100% 100%

Exhibit 3b shows the age of the rental stock for buildings that are 4-storeys or less (which is an indicator of woodframe construction). This exhibit illustrates that about 64% of the lowrise (likely woodframe) inventory was built before 1970, making these units about 40 years old or more, which is notable because there are examples of 40 to 50 year old woodframe rental buildings in the region which have been demolished.

Although age (on its own) is not a good indicator of a property’s likelihood of being redeveloped (it could be in excellent condition), a large share of the woodframe rental properties have reached an age where they have a higher likelihood of being candidates for redevelopment.

This suggests that a large share of the rental stock outside of Vancouver (as 69% of the entire inventory is likely woodframe) has reached an age where its likelihood of being a candidate for redevelopment increases.

6 Year built information for four of the Port Coquitlam properties is not included in the database so

these properties are excluded from this exhibit.



Exhibit 3b: Rental Housing Inventory by Age of Construction by Municipality - 4 Storeys or Less

Municipality

1949 or older 1950 to 1959 1960 to 1969 1970-1979 Total

Num

ber o

f P

rope

rties

Num

ber o

f Uni

ts

Num

ber o

f P

rope

rties

Num

ber o

f Uni

ts

Num

ber o

f P

rope

rties

Num

ber o

f Uni

ts

Num

ber o

f P

rope

rties

Num

ber o

f Uni

ts

Num

ber o

f P

rope

rties

Num

ber o

f Uni

ts

Burnaby 14 85 97 1,169 190 6,062 39 1,494 340 8,810

Coquitlam 4 28 0 0 24 1,309 29 1,733 57 3,070

Delta 0 0 0 0 23 293 34 906 57 1,199

Langley City 0 0 1 5 9 233 26 1,264 36 1,502

Langley Township 1 8 1 4 7 28 12 171 21 211

Maple Ridge 2 8 3 28 12 214 22 568 39 818

New Westminster 93 773 70 747 111 3,493 24 577 298 5,590

North Vancouver City 5 87 75 929 84 2,638 49 1,876 213 5,530

North Vancouver District 4 45 5 20 22 770 8 311 39 1,146

Port Coquitlam7 0 0 0 0 6 55 4 77 10 132

Port Moody 0 0 1 6 5 263 5 140 11 409

Richmond 0 0 0 0 7 603 13 619 20 1,222

Surrey 4 24 17 142 22 449 27 1,425 70 2,040

West Vancouver 1 12 1 4 2 22 1 120 5 158

White Rock 4 20 1 8 20 427 21 538 46 993

UEL 8 70 6 108 0 0 0 0 14 178

Total (Excluding the City of Vancouver) 140 1,160 278 3,170 544 16,859 314 11,819 1,276 33,008

Share of Metro Vancouver excluding the City of Vancouver 11% 4% 22% 10% 43% 51% 25% 36% 100% 100%

2.3.4 Inventory by Building Size

As shown in Exhibit 1, there are about 115,000 rental units in the region at about 6,300 different properties. Exhibits 4a and 4b show the distribution of the stock by building size (number of units at each building). These exhibits exclude the City of Vancouver and municipalities with no rental stock (Pitt Meadows, Lions Bay, Bowen Island) that meets the definition of rental for this analysis.

The exhibits show that buildings with 20 or fewer units account for 49% of all rental buildings, but only 15% of the stock (outside the City of Vancouver).

7 Year built information for four of the Port Coquitlam properties is not included in the database so

these properties are excluded from this exhibit.



Exhibit 4a: Existing Rental Housing Inventory by Size of Building

Municipality

Number of Units at Property

0 to 20 21 to 50 51 to 100 101+ Total

Burnaby Properties 181 130 42 10 363

Units 2,094 4,615 2,759 1,746 11,214

Coquitlam Properties 8 22 23 6 59

Units 78 785 1,513 831 3,207

Delta Properties 37 14 10 0 61

Units 291 451 737 0 1,479

Langley (City) Properties 14 15 4 4 37

Units 82 516 286 662 1,546

Langley (Township) Properties 18 2 1 0 21

Units 92 66 53 0 211

Maple Ridge Properties 22 15 4 1 42

Units 168 475 264 147 1,054

New Westminster Properties 198 105 32 13 348

Units 1,754 3,569 2,191 1,721 9,235

North Vancouver (City) Properties 104 101 17 8 230

Units 1,261 3,430 1,161 978 6,830

North Vancouver (District) Properties 23 8 8 2 41

Units 231 249 505 221 1,206

Port Coquitlam Properties 9 3 2 0 14

Units 54 90 116 0 260

Port Moody Properties 5 5 0 1 11

Units 52 157 0 200 409

Richmond Properties 1 13 6 7 27

Units 10 518 419 1,312 2,259

Surrey Properties 48 9 11 21 89

Units 341 283 798 3,925 5,347

West Vancouver Properties 4 19 7 5 35

Units 38 691 440 695 1,864

White Rock Properties 27 20 5 0 52

Units 313 632 299 0 1,244

UEL Properties 12 2 0 1 15

Units 118 60 0 220 398

Metro Vancouver Total Excluding City of Vancouver

Properties 711 483 172 79 1,445

Units 6,977 16,587 11,541 12,658 47,763



Exhibit 4b: Share of Existing Rental Housing Inventory by Size of Building by Municipality

Municipality

Number of Units at Property

0 to 20 21 to 50 51 to 100 101+ Total

Burnaby Properties 50% 36% 12% 3% 100%

Units 19% 41% 25% 16% 100%

Coquitlam Properties 14% 37% 39% 10% 100%

Units 2% 24% 47% 26% 100%

Delta Properties 61% 23% 16% 0% 100%

Units 20% 30% 50% 0% 100%

Langley (City) Properties 38% 41% 11% 11% 100%

Units 5% 33% 18% 43% 100%

Langley (Township) Properties 86% 10% 5% 0% 100%

Units 44% 31% 25% 0% 100%

Maple Ridge Properties 52% 36% 10% 2% 100%

Units 16% 45% 25% 14% 100%

New Westminster Properties 57% 30% 9% 4% 100%

Units 19% 39% 24% 19% 100%

North Vancouver (City) Properties 45% 44% 7% 3% 100%

Units 18% 50% 17% 14% 100%

North Vancouver (District) Properties 56% 20% 20% 5% 100%

Units 19% 21% 42% 18% 100%

Port Coquitlam Properties 64% 21% 14% 0% 100%

Units 21% 35% 45% 0% 100%

Port Moody Properties 45% 45% 0% 9% 100%

Units 13% 38% 0% 49% 100%

Richmond Properties 4% 48% 22% 26% 100%

Units 0% 23% 19% 58% 100%

Surrey Properties 54% 10% 12% 24% 100%

Units 6% 5% 15% 73% 100%

West Vancouver Properties 11% 54% 20% 14% 100%

Units 2% 37% 24% 37% 100%

White Rock Properties 52% 38% 10% 0% 100%

Units 25% 51% 24% 0% 100%

UEL Properties 80% 13% 0% 7% 100%

Units 30% 15% 0% 55% 100%


Properties 49% 33% 12% 5% 100%

Units 15% 35% 25% 26% 100%



2.3.5 Ownership Pattern

Ownership information was available for about 65% of the overall rental inventory. Exhibit 6 shows the incidence of multiple rental building ownership by investors. As noted, this data covers about 65% of all rental units in Metro Vancouver outside the City of Vancouver so it should be regarded as an indicator of multiple property ownership, not a precise measure.

The exhibit shows that:

1. About 64% of all rental units in Metro Vancouver (excluding the City of Vancouver) are owned by investors who own a single rental property.

2. A further 16% are owned by investors who own two properties. 3. A further 7% are owned by investors who own three properties. 4. About 13% are owned by investors who own four or more properties.

This indicates that ownership of the rental inventory in the region is dispersed across a large number of investors who each own a small number of properties.

Exhibit 6: Incidence of Multiple Rental Building Ownership Number of Rental Projects Owned by Single Company Frequency Units Share of Units

1 Rental Project 821 20,778 64%

2 Rental Projects 87 5,241 16%



5 Rental Projects 1 50 0%

6 Rental Projects 2 320 1% 7 Rental Projects 7 519 2%







Total in Sample 953 32,443 100%

2.4 Implications

The key points from the rental housing inventory are as follows:

1. There are about 115,000 rental housing units in the region, at about 6,300 different properties.

2. There are about 78,000 units at buildings that are 4-storeys or less (likely woodframe) and 37,000 units at buildings that are 5-storeys or more (likely concrete, steel, or masonry construction).



3. The City of Vancouver accounts for about 58% of the entire rental housing stock in Metro Vancouver.

4. The municipalities that account for the majority of rental housing outside of the City of Vancouver are Burnaby, New Westminster, City of North Vancouver, Surrey and Coquitlam. Combined these five municipalities account for about 31% of the entire rental housing stock in Metro Vancouver, or about 76% of the region’s rental stock outside the City of Vancouver.

5. In Metro Vancouver, excluding the City of Vancouver, units in buildings that are 4-storeys or less (likely woodframe) make up about 69% of the total rental stock. Older woodframe rental buildings may be at a greater risk of demolition than newer woodframe buildings and concrete buildings.

About 64% of these buildings were constructed before 1970 so a large share of the woodframe stock is 40 or more years old. There are examples of 40 to 50 year old woodframe rental buildings in the region which have been demolished for redevelopment. Although age (on its own) is not necessarily a good indicator of a property’s likelihood of being redeveloped (because it could be in excellent condition if it has been well maintained), a large share of the woodframe rental properties have reached an age where they have a higher likelihood of being candidates for redevelopment.

6. In Metro Vancouver, excluding the City of Vancouver, about 31% of the existing rental units are at buildings that are 5 storeys or more. These are likely concrete, steel, and masonry buildings. About 35% of these buildings were constructed in before 1970 so most of concrete stock is less than 40 years old. In addition, there are not any recent examples in the region of highrise rental buildings that have been demolished for redevelopment. Therefore, the concrete rental stock is less likely to include properties that are candidates for redevelopment than the woodframe inventory.

7. Ownership of the rental units in Metro Vancouver (outside the City of Vancouver) is dispersed across a large number of investors who typically own one or two rental properties.



3.0 Characteristics that Can Indicate a Rental Property is a Redevelopment Candidate

A rental property is at risk of demolition and redevelopment if its market value as an income producing investment property is less than (or equal to) its value as a redevelopment site (land value).

To determine whether a specific property is at risk of redevelopment, we would normally compare the market value of its potential income stream (its value under existing use) with its land value as a redevelopment site. However, given the number of rental properties in each of the municipalities, it is not practical to complete this kind of analysis for each individual property. Therefore, we identified the characteristics of a property that are good indicators of whether a property is financially attractive for redevelopment (that is, the land value is equal to or higher than the income producing value), focusing on characteristics that are included in the rental housing data base.

There are several property characteristics that could potentially be good indicators of whether an existing rental property is at risk of demolition and redevelopment. These include:

1. The age of the property. 2. The physical condition of the rental property. 3. The extent to which a property is under-utilized in comparison to permitted density under

existing zoning. 4. The location of the property. 5. OCP designation and zoning. 6. The contribution of existing improvements to total property value.

We completed a detailed evaluation of each of these potential indicators based on our analysis of the 30+ case study rental buildings and the examples of demolitions of rental buildings that we examined to identify the best indicator(s) to apply to the properties in the database. Our approach is outlined in Attachment 1.

A separate technical report entitled "Metro Vancouver Purpose-Built Rental Housing: Detailed Risk Analysis" documents the detailed approach, analysis and conclusions of the risk analysis.

We found that:

1. The ratio of existing floorspace to permitted floorspace is a good indicator of whether a property is financially attractive for redevelopment and it is practical to apply this criterion to all of the properties in the rental inventory data base. Therefore, we estimated the ratios of existing to permitted floorspace which indicate an existing rental building is at risk of redevelopment by the type of redevelopment project (as indicated by OCP and zoning) for each municipality. We used these ratios to identify properties that are at risk of redevelopment on a property by property basis.



One of the case study sites in West Vancouver8 can be used to illustrate the process that we used to calculate the ratio thresholds:

The existing rental building is built to a density of 1.33 FAR on site zoned for 1.75 FAR. Therefore, its existing ratio is 0.76 (1.33 / 1.75 = 0.76).

The first proforma shows our estimate of the market value of the rental income stream. We estimate the rental value at $4,052,560.

The second proforma shows our estimate of the value of the property as a concrete apartment development site. We estimate the redevelopment land value is $4,042,250.

If the estimated land value matches or exceeds the estimated value of the rental income steam, the site is financially attractive for redevelopment. In this case, the estimated land value essentially matches the rental value indicating this property is attractive for redevelopment. Therefore, this case study indicates that, in West Vancouver, an existing to permitted floorspace ratio of 0.76 (rounded to 0.75) indicates that a property zoned for concrete apartment development may be at risk of demolition and redevelopment.

2. If a property’s improvements make a small contribution to overall property value, it is possible it could be a redevelopment candidate (the low improvements value could be due to a low ratio of existing to permitted floorspace).

Using the ratio of existing to permitted floorspace is the best indicator of risk of redevelopment in the municipalities where we completed detailed case study financial analysis. However, to get a very rough sense of the number of rental properties at risk of redevelopment in the municipalities that are not analyzed in this study, the ratio of assessed improvements value to total assessed value may be a useful indicator.

Attachment 2 summarizes the ratio of assessed improvements to total assessed value for the rental stock in each of the Metro Vancouver municipalities, excluding the City of Vancouver.

8 For details, see case study site number 1 in West Vancouver in the technical appendix.



4.0 Rental Properties at Risk of Redevelopment We identified properties that are redevelopment candidates based on a ratio of existing to permitted floorspace that indicates a property is attractive for redevelopment. For example if a property is zoned to allow 1.5 FAR, but is developed at 0.5 FAR, the existing ratio is 0.33 (0.5 / 1.5 = 0.33). We used the financial analysis from our 30+ case study sites to estimate the ratio of existing to permitted floorspace that is the "tipping point" at which a property is more valuable as a redevelopment site than as rental apartment building.

Our risk analysis focuses on six municipalities:

1. The City of New Westminster. 2. The City of North Vancouver. 3. The District of North Vancouver. 4. The City of Richmond. 5. The City of Surrey. 6. The District of West Vancouver.

For each municipality we divided the existing rental property into several categories based on the type of redevelopment project permitted under the existing OCP designation and zoning (e.g., townhouse, 4-storey woodframe apartment, 6-storey woodframe apartment, concrete mid/highrise apartment, mixed-use), location, and site size.

Determining the exact threshold at which a property becomes a redevelopment candidate involves judgment. Therefore, we have identified lower and upper bounds that we think (based on our detailed case study and sensitivity analysis) span the range of likely thresholds in each municipality for different types of redevelopment projects9.

For example, in West Vancouver we estimate that non-waterfront rental buildings on sites zoned for apartment development are at high risk of redevelopment if the ratio of existing to permitted floorspace is about 0.65 or less. The property is at moderate risk if the existing ratio is between 0.65 and 0.75. If the ratio is above 0.75, the rental building is at low risk of redevelopment. The thresholds used in our analysis can be interpreted as follows:

1. If the ratio for a property falls below the lower threshold, our analysis indicates that the property is at high risk of redevelopment (that is, it is almost certainly a redevelopment candidate).

2. If the ratio for the property falls between the lower and upper thresholds, there is a moderate to high likelihood the property is a redevelopment candidate, so it is possibly at risk.

3. If the ratio is above the upper threshold, there is a very low risk that the property is at risk of redevelopment.

9 Our lower and upper bounds are rounded to the nearest 5 percentage points.



Over time the number of rental properties that are attractive redevelopment candidates will increase if land values for strata development sites increase at a faster pace than the value of rental apartment buildings, which has been the long term trend in Metro Vancouver.

Therefore, for each municipality, we provide a projection of the change in the number of rental properties at risk of redevelopment in 10 year or so based on potential changes in land values and apartment building values over the next 10 years.

The following sections summarize the results of our findings for each municipality. A separate technical report entitled "Metro Vancouver Purpose-Built Rental Housing: Detailed Risk Analysis" documents the approach, analysis and conclusions of the risk analysis.

It should be noted that our estimate of the number of existing rental buildings at risk of redevelopment in each municipality does not include buildings that are at risk of demolition due to poor physical condition. Our estimate focuses on buildings that are at risk of redevelopment because the property's land value as a development site is equal to or higher than the market value of the income stream from the existing rental building.

For some municipalities, we identified a large share of rental buildings as being at risk of redevelopment. However this does not mean these buildings will be demolished in the short term. Most of these buildings are probably not at risk of demolition until the existing owner chooses to sell to a developer. This could take many years as most rental owners are interested in holding their rental building for the long term, particularly given the potential capital gains taxes that many owners could face upon sale of their building. Many owners prefer the reliable income stream generated by the rental building to any potential capital generated by a sale.

4.1 City of New Westminster

4.1.1 Evaluation of Properties Currently At Risk of Redevelopment

Exhibit 6 summarizes the number of rental properties and units identified as currently being at risk of redevelopment (under existing OCP and zoning, but in the absence of policies to protect the stock) in New Westminster.

As shown in the exhibit, we estimate that there are currently 28 existing rental properties that include a total of 150 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 1.7% of all existing rental units in the City of New Westminster included in this study.



Exhibit 6: City of New Westminster - Number of Existing Rental Properties at Risk of Redevelopment Properties Units Share of Units Total City of New Westminster Inventory 348 9235 100% High Risk 14 78 1% Moderate Risk 14 72 1% Subtotal of Moderate and High Risk 28 150 2%

Low Risk 320 9085 98%

4.1.2 Projection of Properties at Risk of Redevelopment in Longer Term

We estimated the number of properties and number of existing rental units that will be redevelopment candidates in 10 years (in the absence of policies to protect the rental stock). Exhibit 7 summarizes the results.

Exhibit 7: 10 Year Projection City of New Westminster - Number of Existing Rental Properties at Risk of Redevelopment

Properties Units Share of Units Total City of New Westminster Inventory 348 9235 100% High Risk 28 150 2% Moderate Risk 7 49 1% Subtotal of Moderate and High Risk 35 199 2%

Low Risk 313 9036 98%

Based on our projection for strata unit sales prices, construction costs, and rental building values, we estimate that the number of units at existing rental buildings in New Westminster that are redevelopment candidates will increase from about 150 in 2011 to about 199 in 2021 (or from 1.7% of the existing inventory to about 2.2%).

4.1.3 City of New Westminster Summary

Our analysis for the City of New Westminster can be summarized as follows:

1. There are about 9,235 rental units at 348 properties in the City of New Westminster. 2. About 150 of these units are at properties that we identified as being currently at risk of

redevelopment, or about 1.7% of the total rental stock. Based on historic trends in strata unit prices, construction costs and rental building values, this could increase to about 199 units (or about 2.2% of the rental stock) by about 2021. This excludes any existing rental buildings that are at risk of redevelopment due to the poor physical condition of the building.

3. The City of New Westminster has a relatively low number of rental units at risk of redevelopment. There are a variety of factors that contribute to this: Most rental properties in New Westminster are built to a relatively high existing density in

comparison to the density permitted under the existing zoning (so the income from the existing buildings is valuable).



Development site values are relatively low in New Westminster so a property needs to be built to a low existing density to be attractive for redevelopment.

Many of the rental properties are in density bonus zoning districts. In these density bonus zoning districts, the charge for bonus density floorspace is set roughly at the market land value of the bonus density. The required bonus contribution reduces the number of rental properties that are financially attractive for redevelopment.

Many of the rental properties are designated for increased density in the OCP. For sites where the OCP allows increased density, the City's voluntary amenity contribution policy seeks contributions at rezoning that are based on the estimated increase in land value associated with the increase in permitted density (less rezoning costs). The amenity contribution reduces the number of rental properties that are financially attractive for redevelopment.

4.2 City of North Vancouver


Exhibit 8 summarizes the number of rental properties and units identified as currently being at risk of redevelopment (under existing OCP and zoning, but in the absence of policies to protect the stock) in the City of North Vancouver.

As shown in the exhibit, we estimate that there are currently 85 existing rental properties that include a total of 1,553 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 23% of all existing rental units in the City of North Vancouver included in this study.

Exhibit 8: City of North Vancouver - Number of Existing Rental Properties at Risk of Redevelopment Properties Units Share of Units Total City of North Vancouver Inventory 230 6,830 100% High Risk 50 836 12% Moderate Risk 35 717 10% Subtotal of Moderate and High Risk 85 1,553 23% Low Risk 145 5,277 77%





Exhibit 9: 10 Year Projection City of North Vancouver - Number of Existing Rental Properties at Risk of Redevelopment

Properties Units Share of Units Total City of North Vancouver Inventory 230 6,830 100% High Risk 88 1,574 23% Moderate Risk 49 1,180 17% Subtotal of Moderate and High Risk 137 2,754 40% Low Risk 93 4,076 60%

Based on our projection for strata unit sales prices, construction costs, and rental building values, we estimate that the number of units at existing rental buildings in the City of North Vancouver that are redevelopment candidates will increase from about 1,553 in 2011 to about 2,754 in 2021 (or from 23% of the existing inventory to about 40%).

4.2.3 City of North Vancouver Summary

Our analysis for the City of North Vancouver can be summarized as follows:

1. There are about 6,830 rental units at 230 properties in the City of North Vancouver. 2. About 1,553 of these units are at properties that we identified as being currently at risk of

redevelopment, or about 23% of the total rental stock. Based on historic trends in strata unit prices, construction costs and rental building values, this could increase to about 2,754 units (or about 40% of the rental stock) by about 2021. This excludes any existing rental buildings that are at risk of redevelopment due to the poor physical condition of the building.

3. Land values for development sites in the City of North Vancouver are relatively high and many of the existing rental buildings are built to a density that is significantly less than the permitted density. This creates redevelopment pressure on the existing rental housing stock.

4.3 District of North Vancouver

The District of North Vancouver recently adopted a new OCP which includes four town centres (Lynn Valley, Maplewood, Lower Lynn and Lower Capilano). For sites outside the town centres, the District has an existing amenity contribution policy for rezonings which sets out the contribution expected from different types of rezonings. Therefore, our analysis for case study sites outside of the four town centres is based on the amenity contribution costs that would be associated with rezoning these rental apartment case study sites.

However, for sites inside the four town centres, the District has not yet adopted an amenity contribution policy. Amenity contributions have a downward influence on the value of a property as a redevelopment site. Therefore, the details of the future amenity contribution policy for rezonings in the town centres will affect the land value of properties that are upzoned as envisioned in the OCP, which will have an impact on whether or not rental properties are at risk of demolition. However, the details are not yet available so the impact on land value is uncertain.



Therefore, our analysis for rental properties inside the town centres considered two different scenarios:

1. The economics of redevelopment under existing zoning (no amenity contribution would be required).

2. The economics of redevelopment assuming rezoning as envisioned in the OCP, but in the absence of any amenity contribution.

These scenarios bracket the lower and upper bound on the number of properties at risk of redevelopment in the District's town centres.

Overall, our risk analysis for properties in the District of North Vancouver uses the following approach:

1. For rental properties outside the town centres, the risk analysis assumes properties can be rezoned as envisioned in the OCP and rezonings would be subject to the existing amenity contribution policy.

2. For rental properties inside the town centres, we completed the analysis twice, to determine a lower and upper bound on the number of rental properties at risk of redevelopment: first, we completed the risk analysis assuming the properties could only be redeveloped

under the existing zoning. This scenario identifies the minimum number of rental properties that could be at risk of redevelopment as it assumes no upzonings.

second, we completed the risk analysis assuming the properties could be rezoned as envisioned in the OCP, but without any amenity contribution. This overstates the number of properties that are at risk of redevelopment as it effectively assumes the District's amenity contribution policy for the town centres will result in little or no amenity contribution from applicants that upzone properties.

4.3.1 Evaluation of Properties Currently At Risk of Redevelopment - Low Scenario

This section provides our low estimate of the number of rental properties at risk of redevelopment in the District of North Vancouver. The analysis is based on the OCP designation for properties outside of town centres (and the amenity contribution policy for these properties) and under existing zoning for properties inside town centres.

Exhibit 10 summarizes the number of rental properties and units identified as currently being at risk of redevelopment in our low scenario.

As shown in the exhibit, in our low risk scenario, we estimate that there are currently 28 existing rental properties that include a total of 840 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 70% of all existing rental units in the District of North Vancouver included in this study.



Exhibit 10: District of North Vancouver - Number of Existing Rental Properties at Risk of Redevelopment - Low Scenario Properties Units Share of Units Total District of North Vancouver Inventory 41 1206 100% High Risk 22 557 46% Moderate Risk 6 283 24% Subtotal of Moderate and High Risk 28 840 70%

Low Risk 13 366 30% 4.3.2 Evaluation of Properties Currently At Risk of Redevelopment - High

Scenario

This section provides our high estimate of the number of rental properties at risk of redevelopment in the District. The analysis is based on the OCP designation for properties outside of town centres (and the amenity contribution policy for these properties) and the OCP designation for properties inside the town centres, assuming no amenity contribution at rezoning.

Exhibit 11 summarizes the number of rental properties and units identified as currently being at risk of redevelopment in our high scenario.

As shown in the exhibit, in our high risk scenario, we estimate that there are currently 34 existing rental properties that include a total of 1,128 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 93% of all existing rental units in the District of North Vancouver included in this study.

Exhibit 11: District of North Vancouver Number of Existing Rental Properties at Risk of Redevelopment - High Scenario

Properties Units Share of Units Total District of North Vancouver Inventory 41 1206 100% High Risk 32 1089 90% Moderate Risk 2 39 3% Subtotal of Moderate and High Risk 34 1128 93%

Low Risk 7 78 7%


Based on our projection for strata unit sales prices, construction costs, and rental building values, we estimated the number of units at existing rental buildings in the District of North Vancouver that could be redevelopment candidates by 2021. We completed a low and high forecast using the approach outlined in Sections 4.3. We estimated the number of properties and number of existing rental units that will be redevelopment candidates in 10 years (in the absence of policies to protect the rental stock).

Exhibit 12 summarizes the results for our low risk scenario.



Exhibit 12: 10 Year Projection District of North Vancouver - Number of Existing Rental Properties at Risk of Redevelopment - Low Scenario

Properties Units Share of Units Total District of North Vancouver Inventory 41 1206 100% High Risk 27 819 68% Moderate Risk 4 213 18% Subtotal of Moderate and High Risk 31 1,032 86%

Low Risk 10 174 14%

In our low scenario, we estimate that the number of units at existing rental buildings in the District of North Vancouver that are redevelopment candidates will increase from about 840 in 2011 to about 1,032 in 2021 (or from 70% of the existing inventory to about 86%).

Exhibit 13 summarizes the results for our high risk scenario.

Exhibit 13: 10 Year Projection- District of North Vancouver Number of Existing Rental Properties at Risk of Redevelopment - High Scenario

Properties Units Share of Units Total District of North Vancouver Inventory 41 1206 100% High Risk 33 1107 90% Moderate Risk 1 21 3% Subtotal of Moderate and High Risk 34 1128 93%

Low Risk 7 78 7%

In our high scenario, we estimate that the number of units at existing rental buildings in the District of North Vancouver that are redevelopment candidates will remain steady at about 1,128 units between 2011 and 2021 (93% of the existing inventory).

4.3.4 District of North Vancouver Summary

Our analysis for the District of North Vancouver can be summarized as follows:

1. There are about 1,206 rental units at 41 properties in the District of North Vancouver. 2. Between 840 and 1,128 of these units (or about 70% to 93% of the rental stock) are at

properties that we identified as being currently at risk of redevelopment. This range depends on the outcome of the amenity contribution policy that the District is working on for rezonings in its four town centre locations. The estimate of units that at risk of redevelopment excludes any existing rental buildings that are at risk due to the poor physical condition of the building.

3. The outcome of the details of the town centre amenity contribution policy that the District is working on will have a significant impact on the share of rental properties that are at risk of redevelopment.

4. Based on historic trends in strata unit prices, construction costs and rental building values, this could increase to between 1,032 and 1,128 units (or about 86% to 93% of the rental stock) by about 2021.

5. We identified a large share of rental properties in the District as redevelopment candidates for two main reasons:



Land values for redevelopment sites in the District are relatively high. Many of the existing rental properties are built to existing densities that are significantly

below the density permitted under existing zoning and OCP designations.

The high land values combined with the opportunity for redeveloping at higher densities creates redevelopment pressure on the existing rental housing stock.

4.4 City of Richmond


Exhibit 14 summarizes the number of rental properties and units identified as currently being at risk of redevelopment (under existing OCP and zoning, but in the absence of policies to protect the stock) in the City of Richmond.

As shown in the exhibit, we estimate that there are currently 13 existing rental properties that include a total of 1,078 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 48% of all existing rental units in the City of Richmond included in this study.

Exhibit 14: City of Richmond - Number of Existing Rental Properties at Risk of Redevelopment Properties Units Share of Units Total City of Richmond Inventory 27 2259 100% High Risk 7 609 27% Moderate Risk 6 469 21% Subtotal of Moderate and High Risk 13 1078 48%

Low Risk 14 1181 52%



Exhibit 15: 10 Year Projection City of Richmond - Number of Existing Rental Properties at Risk of Redevelopment

Properties Units Share of Units Total City of Richmond Inventory 27 2259 100% High Risk 15 1180 52% Moderate Risk 6 549 24% Subtotal of Moderate and High Risk 21 1729 77%

Low Risk 6 530 23%



Based on our projection for strata unit sales prices, construction costs, and rental building values, we estimate that the number of units at existing rental buildings in Richmond that are redevelopment candidates will increase from about 1,078 in 2011 to about 1,729 in 2021 (or from 48% of the existing inventory to about 77%).

4.4.3 City of Richmond Summary

Our analysis for the City of Richmond can be summarized as follows:

1. There are about 2,259 rental units at 27 properties in the City of Richmond. 2. About 1,078 of these units are at properties that we identified as being currently at risk of


3. Most of the existing rental buildings in Richmond are built to a density that is significantly less than the density permitted under the OCP designation. This opportunity for rezoning to a higher density, coupled with relatively high land values for development sites, creates significant redevelopment pressure on the existing rental housing stock.

4.5 City of Surrey


Exhibit 16 divides existing rental properties in the City of Surrey into eight different categories based on the type of redevelopment project permitted under the existing OCP and zoning (townhouse, woodframe apartment, concrete apartment), location, and site size.

Exhibit 16 summarizes the number of rental properties and units identified as currently being at risk of redevelopment (under existing OCP and zoning, but in the absence of policies to protect the stock) in the City of Surrey.

As shown in the exhibit, we estimate that there are currently 25 existing rental properties that include a total of 451 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 8% of all existing rental units in the City of Surrey included in this study.



Exhibit 16: City of Surrey - Number of Existing Rental Properties at Risk of Redevelopment Properties Units Share of Units Total City of Surrey Inventory 89 5347 100% High Risk 17 111 2% Moderate Risk 8 340 6% Subtotal of Moderate and High Risk 25 451 8%

Low Risk 64 4896 92%



Exhibit 17: 10 Year Projection City of Surrey - Number of Existing Rental Properties at Risk of Redevelopment

Properties Units Share of Units Total City of Surrey Inventory 89 5347 100% High Risk 35 837 16% Moderate Risk 10 390 7% Subtotal of Moderate and High Risk 35 1227 23%

Low Risk 44 4120 77%

Based on our projection for strata unit sales prices, construction costs, and rental building values, we estimate that the number of units at existing rental buildings in Surrey that are redevelopment candidates will increase from about 451 in 2011 to about 1,227 in 2021 (or from 8% of the existing inventory to about 23%).

4.5.3 City of Surrey Summary

Our analysis for the City of Surrey can be summarized as follows:

1. There are about 5,347 rental units at 89 properties in the City of Surrey. 2. About 451 of these units are at properties that we identified as being currently at risk of


3. Land values in Surrey for development sites are relatively low. This reduces redevelopment pressure on the existing rental stock.

4. Most of the existing rental buildings in Surrey are built to a density that is significantly less than the density permitted under the OCP designation. The opportunity for rezoning to a higher density creates redevelopment pressure on the existing rental housing stock.



4.6 District of West Vancouver


Exhibit 18 summarizes the number of rental properties and units identified as currently being at risk of redevelopment (under existing OCP and zoning, but in the absence of policies to protect the stock).

As shown in the exhibit, we estimate that there are currently 4 existing rental properties that include a total of 309 existing rental units which are at either moderate or high risk of redevelopment in the absence of any municipal policies to protect the existing rental stock. This is equivalent to 17% of all existing rental units in West Vancouver included in this study.

Exhibit 18: West Vancouver - Number of Existing Rental Properties at Risk of Redevelopment Properties Units Share of Units Total West Vancouver Inventory 36 1864 100% High Risk 4 309 17% Moderate Risk 0 0 0% Subtotal of Moderate and High Risk 4 309 17%

Low Risk 32 1555 83% Almost all of the units at risk of redevelopment are located at waterfront rental buildings.



Exhibit 19: 10 Year Projection West Vancouver - Number of Existing Rental Properties at Risk of Redevelopment

Properties Units Share of Units Total West Vancouver Inventory 36 1864 100% High Risk 5 359 19% Moderate Risk 2 49 3% Subtotal of Moderate and High Risk 7 408 22%

Low Risk 29 1456 78%

Based on our projection for strata unit sales prices, construction costs, and rental building values, we estimate that the number of units at existing rental buildings in West Vancouver that are redevelopment candidates will increase from about 309 in 2011 to about 408 in 2021 (or from 17% of the existing inventory to about 22%).



4.6.3 West Vancouver Summary

Our analysis for West Vancouver can be summarized as follows:

1. There are about 1864 rental units at 36 properties in West Vancouver. 2. About 309 of these units are at properties that we identified as being currently at risk of

redevelopment, or about 17% of the total rental stock. Based on historic trends in strata unit prices, construction costs and rental building values, this could increase to about 408 units (or about 22% of the rental stock) by about 2021. This excludes any existing rental buildings that are at risk of redevelopment due to the poor physical condition of the building.

3. Land values for development sites in West Vancouver are high, which creates redevelopment pressure on the existing rental housing stock. However, existing rental buildings are generally built to high existing densities relative to permitted density which makes the existing buildings valuable and redevelopment less attractive.

4. The properties identified as being at risk of redevelopment in West Vancouver can be divided into two categories: Waterfront rental buildings. These buildings are at risk because the value of waterfront

development sites in West Vancouver is very high. Therefore, the land value exceeds the value of the potential income stream from these rental buildings.

Rental buildings that are under-utilizing the permitted density. Over time, these types of properties will be increasingly at risk if land values for development sites increase at a faster rate than rental building values (which has been the historic trend).



4.7 Summary

Our analysis indicates that many of the existing purpose-built rental units in the six municipalities that we examined are currently at moderate to high risk of redevelopment in the absence of any policies to protect them from demolition. Combined, we estimate that between 4,381 and 4,669 units are at moderate to high risk of redevelopment out of a total of 26,591 units (between 16% and 18% of the total stock in the six municipalities combined). This excludes any buildings that are at risk of demolition due to poor physical condition.

However, the share of rental housing at risk of redevelopment varies significantly by municipality. In the District of North Vancouver and Richmond a high share of the existing stock is at risk of redevelopment. In West Vancouver and the City of North Vancouver a moderate share of the stock is at risk of redevelopment. In New Westminster and Surrey a low share of the stock is currently at risk.

The share of the existing rental stock that is at risk of redevelopment in the region will likely increase significantly over time because:

1. Land values supported by strata residential development will likely increase at a faster rate than the value of the income stream generated by existing rental apartment buildings.

2. The existing stock of apartment buildings (many of which are woodframe buildings that were built more than 40 years ago) will continue to age and may become more attractive for redevelopment if not maintained.



5.0 Policy Options to Reduce Loss of Rental Housing Stock

This section identifies and evaluates policy options that could be considered to help retain the rental housing stock in the region. First, we examine some of the key factors to consider. Next, we identify and evaluate policy options.

5.1 Factors to Consider

5.1.1 Main Findings of Risk Analysis

Our analysis indicates that many of the existing purpose-built rental units in the six municipalities that we examined are currently at moderate to high risk of redevelopment in the absence of any policies to protect them from demolition. The share of stock that is at risk varies significantly across the different municipalities, due mainly to three factors:

1. The degree to which existing rental buildings are under-utilizing the achievable density at the site under existing zoning and existing OCP designations. Properties that are under-utilizing achievable density are at a higher risk of demolition and redevelopment.

2. Variation in land values for development sites. Rental properties in municipalities that have high land values are more likely to be at risk of demolition and redevelopment.

3. Differences in municipal policies and approaches to amenity contributions for rezonings. Rental properties in municipalities where rezonings are not expected to make significant contributions toward public amenities are at increased risk of demolition and redevelopment.

The share of the existing rental stock that is at risk of redevelopment will likely increase significantly over time because:

1. Land values supported by strata residential development will likely increase at a faster rate than rent rates.

2. The existing stock of apartment buildings (many of which are woodframe buildings that were built more than 40 years ago) will continue to age and may become more attractive for redevelopment if not maintained.

5.1.2 Under-Utilization of Development Capacity

Existing rental properties that are likely to be most at risk of redevelopment are the properties that are under-utilizing the density permitted under the existing zoning or existing OCP designation. However, it is possible that many of these rental properties are in locations where Metro Vancouver and individual municipalities would like to encourage densification, such as town



centres or transit nodes. Therefore, protecting rental properties that are under-utilizing permitted density in these locations may not be consistent with other planning goals.

In addition, it is worth noting that the net impact on the overall rental stock of a demolition may be less than the actual number of units that are demolished.

If a rental building is demolished and redeveloped to strata-titled residential, many of the new strata-titled units may be purchased by investors who rent out the new units. Therefore, the net impact on the inventory of rental housing in the region (or in a specific municipality) may be less than the number of demolished rental units, particularly if the existing rental property is under-utilizing the permitted density.

For example, in the District of North Vancouver our high estimate is that 1128 existing rental units at 34 properties are at risk of redevelopment. Under the existing OCP designations, these properties have an estimated development capacity of roughly 5.3 million square feet of floorspace. At an average unit size of about 1000 sq.ft., these sites could accommodate up to 5,300 units if redeveloped to the maximum permitted density.

If 19%10 of these units are purchased and used for rental purposes, then the new strata-titled projects would create about 1000 new rental units (5300 x 19%). Therefore, the net loss in rental units would be roughly 128, or 11% of the number of units demolished. However, the new investor owned strata units may be smaller units and would have higher rents than the demolished purpose-built rental units.

The net impact of demolitions on the rental inventory would vary across the different municipalities, depending on the share of permitted density at the existing rental properties that is not being utilized and the share of new strata units that are typically purchased by investors.

5.1.3 Interviews with Industry Participants

We contacted five apartment investors and commercial real estate brokers who are (or have been) active involved in the Metro Vancouver rental housing market to discuss a wide range of issues including:

The role of large real estate investors/corporations in the rental housing market. The locations that are the most attractive for rental apartment investors. The type of projects that are the most attractive for rental apartment investors. The key factors that investors consider when making an investment decision. The key factors that lead to sale of existing property(s). Factors that would lead to demolition and redevelopment of existing property (although most

owners will not be in the development business).

10 CMHC Rental Market Report, Fall 2010, Table 4.3.1. indicates that 19% of condominium units on

the North Shore are used for rental purposes.



Constraints on selling existing property(s), such as tax issues or development policies. Factors that would make holding/retaining existing rental buildings more attractive.

Comments that we received can be summarized as follows:

1. Metro Vancouver apartment investment is dominated by smaller investors, not large corporations or institutional investors. Institutional investors indicated that annual returns on rental housing investment in Metro Vancouver are low in comparison to other parts of Canada. In addition, the large investors tend to focus on large new rental buildings (which are rare in Metro Vancouver).

Smaller local rental apartment investors are typically willing to accept the low annual yields in Metro Vancouver due to the expectation that the overall investment return will benefit from higher long term capital gains than in other jurisdictions due to:

The expectation that existing rental properties will appreciate due to long term opportunities for redevelopment.

The expectation that rents in Metro Vancouver will increase over time and occupancy will remain high in comparison to other markets.

Historic trends in rental building values, which have increased significantly in Metro Vancouver over the long term.

Institutional investors usually require a minimum annual return (to fund pension or other ongoing annual obligations) so other Canadian rental housing markets (offering higher initial annual yields) are more attractive.

2. Investors are interested in rental properties throughout Metro Vancouver. A wide range of factors are considered when making a decision on where to invest and whether a specific building is a good candidate, such as:

Expected return on investment. Political risk. Some municipalities have more regulations concerning the demolition or

conversion of rental buildings. Market conditions. Some locations offer lower, more stable vacancy than others. The condition of the building. If a building is in need of major upgrades this is less

attractive. However, a building in need of minor repairs or cosmetic upgrades can be attractive as these types of improvements can increase the marketability of a building at a relatively low cost.

Whether there is an opportunity to increase rents at building over time. Many buildings have units renting at below market rates due to Provincial rent control. As tenants turn-over, rents can often be increased.

3. Most rental investors prefer to hold buildings for the very long term, partly due the potential magnitude of capital gains taxes upon disposition. Many pass the properties onto their children. Very few rental properties trade hands in Metro Vancouver in a typical year. Sales



typically occur due to a major life event, such as divorce or death of the owner. For example, between 2008 and 2011, about 330 rental properties in Metro Vancouver were sold11, or about 82 per year on average. This suggests that 2.5% to 3.0% of all rental properties in the Metro Vancouver region are sold in a typical year.

4. Rental buildings that are most likely to be demolished fall into two categories:

Properties that are in high land value locations so the land is more valuable than the income stream generated by the building.

Older buildings in need of major capital upgrades.

5. Suggested policies and regulations that municipalities could examine that have the potential to improve the viability the existing rental stock (in no particular order):

Look for opportunities to allow existing rental properties to build additional space on-site. This may be feasible where there are existing highrise buildings with large set-backs from property lines.

Allow existing apartment owners to transfer un-used development rights that cannot be utilized on-site.

Reduce property taxes while projects are used for rental. This will reduce operating costs and increase the net operating income from the new project, increasing the project’s value.

Help educate tenants that capital upgrades (and associated rental rate increases) are often required at existing buildings to help preserve the existing rental stock.

6. The Province and Federal governments should consider the following:

Eliminate rent control on new rental buildings. Provide incentives (tax or funding) to rental owners who are interested in making capital

upgrades that will extend the life of a rental building. Allow for a capital gains rollover provision on rental housing investment. This will allow

investors who want to sell to re-invest all of the sale proceeds back into other rental buildings.

5.2 Policy Options

One policy approach that municipalities could consider is to focus on policies that encourage the creation of new rental housing, rather than implement policies to reduce the likelihood that existing rental housing will be redeveloped. However, this report focuses on policies that can help protect the existing rental stock.

Options to protect the existing rental buildings that are at risk of redevelopment can be divided into the following categories:

11 Based on sales information contained in the Goodman Report (2008 to 2011).



1. Strategies that increase the revenue from existing rental buildings. Increased revenue will result in higher values for existing buildings, which makes buildings less attractive for redevelopment.

2. Strategies that decrease the operating costs at existing rental buildings. Reduced operating costs will result in higher values for existing buildings, which makes buildings less attractive for redevelopment.

3. Strategies that look for opportunities to use the existing under-utilized rental properties to increase housing stock without a net reduction in existing rental units (and, ideally, increasing the number of rental units).

4. Strategies that limit the ability of a rental property owner to redevelop (or convert) or increase the costs of redevelopment.

5. Strategies that offer rental building owners tax incentives to keep buildings in the rental inventory.

Before examining options to protect the existing rental housing stock, it is worth re-iterating how our analysis determined whether or not an existing building is at risk of redevelopment. After evaluating a wide variety of potential indicators of risk, we determined that the best indicator of whether or not an existing rental property is a redevelopment candidate is the proportion of permitted density that is currently utilized on-site. Properties below a certain ratio of existing to permitted density are at risk of redevelopment.

In the municipalities we evaluated, there is a wide variation in the existing utilization of permitted density, quality, income, land value as a redevelopment site, OCP designation, zoning, and age of the rental properties that we identified as being at risk of redevelopment. Because of this variation, all properties should be considered as at comparable risk of redevelopment if their ratio of existing to permitted density falls below the risk threshold that we identified. Properties that need a relatively small amount of financial assistance to make them attractive to retain as rental buildings can be scattered throughout the pool of properties identified as being at risk of redevelopment. They are not necessarily clustered near the ratio of existing to permitted density identified as the cut-off of whether a property is a redevelopment candidate.

The effectiveness of any specific strategy or policy to protect existing buildings from demolition (and the duration of its effectiveness) will vary from building to building. In addition, our analysis indicates that in most municipalities (with the exception of the District of North Vancouver and Richmond) most existing units are not currently at risk of redevelopment and will still not be at risk in 10 years. Therefore, one of the challenges of any strategy to protect the existing rental stock is to determine how to select the specific buildings or types of buildings that should be included in any policy initiatives.

To analyze the effectiveness of any strategy, municipalities need to set objectives for the retention strategy and address the following questions:



1. Is the concern about protecting the existing rental stock equal across all locations or are there specific neighbourhoods that should be targeted?

2. In the long term, is it really desirable to protect all of the rental buildings that are at risk of redevelopment given that these sites are under-utilizing permitted density? Protecting these buildings from redevelopment in perpetuity will under-utilize the capacity to accommodate future multifamily residential development.

Because of the variation in the kinds of properties that are at risk of redevelopment and the degree of improved financial performance that is likely required to make different buildings attractive to retain, it is difficult to analyze the effectiveness of policy options and strategies unless municipalities identify the specific goals of the policy.

However, we can comment on the likely effectiveness of different policies and strategies.

5.2.1 Increasing Revenue from Existing Rental Buildings

Strategies that could increase the revenue from existing rental buildings include:

1. Relaxing or eliminating existing Provincial rent control legislation so that building owners can achieve full market rents and have incentive to upgrade and re-invest in existing buildings. Allowing building owners to achieve full market rents is likely an effective strategy to reduce the number of at-risk properties because it will increase existing rental building values, encourage investment in existing buildings, and discourage disinvestment.

2. Introducing government funded rent supplements. Rent supplements could help protect the existing stock from redevelopment, but we have two concerns about this approach: Over time, the amount of any rent supplement will need to increase if the value of the site

for redevelopment (land value) increases at a faster pace than the value of the rental income (which has been the long term trend and will likely continue).

Governments will need to determine which buildings should receive the rent supplement and which should not (given that most rental properties are not currently at risk of redevelopment).

We suggest that it would be more practical for government to use any rent supplements to help stimulate the construction of new rental housing.

5.2.2 Decrease the Operating Costs at Existing Rental Buildings

Strategies that decrease the operating costs at existing rental buildings include:

1. Reducing property taxes (municipal, regional and Provincial). 2. Eliminating (or reducing) government sales taxes (HST, GST and PST) on rental building

operating costs.



3. Offering tax incentives to rental building owners to encourage improvements to the energy efficiency of existing buildings.

Any of these steps would reduce the operating costs for existing buildings and increase the property’s income and value. Properties that are currently at the margin of being redevelopment candidates will be more attractive to retain as rental buildings if operating costs are reduced.

However, any reduction in the number of properties that are redevelopment candidates will be temporary because each property’s value as a redevelopment site (land value) will probably continue to increase at a faster rate than its value as an income producing rental property. Therefore, even with reduced operating costs, the number of rental properties that are redevelopment candidates will continue to grow over time.

5.2.3 Using Under-Utilized Properties to Increase the Housing Stock

Existing under-utilized rental sites could be used to help increase the rental stock while protecting the existing rental housing. There are two general approaches that could be considered:

1. Allow the transfer of unused density from under-utilized rental apartment sites to properties that are upzoned in exchange for an agreement to retain and maintain the existing rental building (i.e., a housing agreement).

Density transfers are used to help protect heritage buildings in some municipalities and could also be considered to help protect rental housing. However, we have three concerns:

The rental apartment sites which are the source of the transferred density would effectively be downzoned in perpetuity so that permitted density matches the existing built density. Density at the receiver site would be increased. However, it is possible that the receiver site would be in a less optimal location for the additional density than the downzoned rental property (e.g., the rental property might be in a town centre or at a transit node, but the receiver site might not). Therefore, the transfer would not necessarily be helping create increased density in the preferred location, development capacity at the rental site will be permanently reduced.

The additional density (and residential units) transferred to the receiver area could not be used to help create amenities in the receiver area to serve the additional residents because the density would have been acquired from the rental property owners, not provided in exchange for amenity contributions. The protection of the existing rental housing (possibly in a different part of the municipality) would have to be regarded as the amenity contribution from the new higher density project that is approved. Therefore, residents near the new higher density receiver site could object.

Density transfers from rental housing sites could compete for receiver sites with the density transfers permitted for heritage protection (this might be a concern in Lower Lonsdale or in New Westminster).



Overall, we think that transferring unused density is worth considering, but it would probably work best in locations where the density is being transferred to another adjacent site (or a nearby site) as this would ensure that the permitted density remains in the same general location and would minimize competition any other density transfer systems that a municipality may have in place (such as heritage density transfers).

2. Encourage owners of existing under-utilized rental properties to build additional housing (rental or strata) on-site, if the property can physically accommodate additional development (e.g., if part of the site is undeveloped or used for surface parking). As part of the rezoning, the municipality could negotiate an agreement to retain and maintain the existing rental units (i.e., a housing agreement) and any new rental units created at the site.

5.2.4 Limiting the Ability for an Owner to Redevelop or Convert Existing Rental Housing

Strategies that limit the ability of a rental property owner to redevelop or convert include:

1. Introducing strata conversion policies that limit the conditions in which a rental building can be converted (e.g., specifying that market vacancy rates need to be above a certain threshold). Many municipalities already use this strategy.

2. Eliminating strata redevelopment as an option (e.g. zoning for “rental only” use), which would reduce land value and reduce the number of sites that are attractive for redevelopment. Under the Local Government Act, municipalities in BC are not currently permitted to use zoning to specify tenure (without the consent of the property owner) so this may require a change to existing legislation.

3. Impairing the economics of redevelopment (e.g. levies on redevelopment that depress supportable land value, required replacement of existing rental housing, or amenity contributions from any rental properties that are rezoning). Many municipalities already use this strategy.

4. Managing the pace of redevelopment (e.g. putting a moratorium on rental demolitions or defining a maximum number of rental demolitions per year). A change may be required to existing legislation to allow municipalities to directly manage the pace of redevelopment (although we understand some municipalities in Metro Vancouver have instituted moratoriums on rental demolitions in the past).

An example of this approach is the City of Vancouver's existing rate of change policy, which requires the replacement of existing rental units as part of a redevelopment (Vancouver operates under the Vancouver Charter, not the Local Government Act so it has different powers). The rate of change policy demonstrates the effectiveness of protecting the existing stock through any policy that creates an obligation to replace demolished rental units, places a substantial levy on demolished rental units, or reduces land value by restricting the use of the property.



It is clear that strategies which limit the ability of an owner to redevelop can be effective at protecting buildings from redevelopment. However, over the long term, this type of approach will result in an under-utilization of the land occupied by many lower density rental buildings and reduce the incentive to invest in existing rental buildings. Given that a large share of the existing rental units in most municipalities are in woodframe buildings constructed prior to 1970, a share of the existing stock may be at risk of demolition in the long term due to building condition (even with policies in place that impair the economics of redevelopment).

5.2.5 Tax Incentives that Encourage Owners to Keep Rental Buildings in the Rental Inventory

There are a variety of tax incentives that could be offered to existing rental building owners that would encourage the retention of the existing rental stock.

One option recently proposed by the Federation of Canadian Municipalities12 (FCM) is to offer a tax credit to existing rental building owners if they sell an existing rental building to an eligible non-profit provider who agrees to hold the building and maintain affordable rents for a period of time. This will reduce the capital gains tax that an existing rental owner could face upon sale of the property.

The tax credit would create an incentive for existing rental building owners to sell properties to a non-profit rental apartment provider rather than a developer (who might demolish and redevelop the property).

5.2.6 Summary

There are several different ways that redevelopment of the existing rental housing stock could be prevented or postponed.

However, due to the variation in the kinds of buildings that are at risk of redevelopment, the effectiveness of any specific strategy or policy (and the duration of its effectiveness) will vary widely on a building by building basis.

In addition, one of the challenges of any strategy to protect the existing rental stock is to determine how to select the specific buildings or types of buildings (or types of sites) that should be included in any policy initiatives.

To evaluate the potential impact and effectiveness of individual policies, municipalities need to identify the specific goals of the policy direction, such as the share of the existing rental stock that

12 "The Housing Market and Canada's Economic Recovery", Federation of Canadian Municipalities,

January 2012.



should be protected, the locations that are the priority, and whether the continued under-utilization of specific properties is acceptable.



6.0 Conclusions

6.1 Rental Inventory

The main conclusions from our rental housing inventory are as follows:

1. There are about 115,000 rental housing units in the region at about 6,300 different properties.

a) The City of Vancouver accounts for about 58% of the entire rental housing stock in Metro Vancouver, with the remaining 42% spread across the other municipalities.

b) The municipalities that account for the majority of rental housing outside of the City of Vancouver are Burnaby, New Westminster, City of North Vancouver, Surrey and Coquitlam. Combined these five municipalities account for about 31% of the entire rental housing stock in Metro Vancouver, or about 76% of the region’s rental stock outside the City of Vancouver.

2. In the entire region, there are about 78,000 units at buildings that are 4-storeys or less (likely woodframe) and 37,000 units at buildings that are 5-storeys or more (likely concrete, steel, or masonry construction). Outside of the City of Vancouver, units in buildings that are 4-storeys or less (assumed to be woodframe) make up about 69% of the total rental stock.

3. Outside of the City of Vancouver, about 64% of the buildings that are 4-storeys or less were constructed before 1970 so a large share of the woodframe stock is 40 or more years old. There are examples of 40 to 50 year old woodframe rental buildings in the region which have been demolished for redevelopment. Although age (on its own) is not necessarily a good indicator of a property’s likelihood of being redeveloped (because it could be in excellent condition if it has been well maintained), a large share of the woodframe rental properties have reached an age where they have a higher likelihood of being candidates for redevelopment.

4. Outside of Vancouver, about 31% of the existing rental stock is at buildings that are 5 storeys or more. These are primarily concrete buildings. About 35% of these buildings were constructed in before 1970 so most of concrete stock is less than 40 years old. In addition, there are not any recent examples in the region of highrise rental buildings that have been demolished for redevelopment. Therefore, the concrete rental stock, it is less likely to include properties that are candidates for redevelopment than the woodframe inventory.

5. Ownership of the rental units in Metro Vancouver (outside the City of Vancouver) is dispersed across a large number of investors who typically own one or two rental properties.



6.2 Risk Analysis

1. The best indicator of whether a rental property is at risk of demolition and redevelopment is the ratio of its existing floorspace to permitted floorspace (under zoning or OCP designation). Properties with a low ratio of existing to permitted floorspace are at increased risk of redevelopment.

2. Many of the existing purpose-built rental units in the six municipalities that we examined are currently at moderate to high risk of redevelopment in the absence of any policies to protect them from demolition. In the six municipalities combined we estimate that 16% to 17% of the existing rental stock is at risk of redevelopment. The share of stock that is at risk varies significantly across the different municipalities. We estimate that:

a) In the District of West Vancouver, about 17% of the existing rental units are at risk of demolition and redevelopment.

b) In the City of North Vancouver, about 23% of the existing rental units are at risk of demolition and redevelopment.

c) In the City of Richmond, about 48% of the existing rental units are at risk of demolition and redevelopment.

d) In the City of New Westminster, about 2% of the existing rental units are at risk of demolition and redevelopment.

e) In the City of Surrey, about 8% of the existing rental units are at risk of demolition and redevelopment.

f) In the District of North Vancouver at least 70% of the existing rental units are at risk of demolition and redevelopment.

3. Although we identified a large share of rental buildings as being at risk of redevelopment (in financial terms) in some municipalities, most of these buildings are probably not at risk of demolition until the existing owners choose to sell to a developer. This could take many years as most rental owners are interested in holding their rental building for the long term, particularly given the potential capital gains taxes that many owners could face upon sale of their building.

4. If a rental building is demolished and redeveloped to strata-titled residential, a share of the new strata-titled units will likely be purchased by investors who rent out the new units. Therefore, the net impact on the inventory of rental housing in the region (or in a specific municipality) may be significantly less than the number of demolished rental units, particularly if the existing rental property is under-utilizing the permitted and achievable density at the site (although the new strata units will have higher rents).

5. The variation in the share of existing rental properties that are at risk of redevelopment across the region is due mainly to three factors:



a) The degree to which existing rental buildings are under-utilizing the achievable density at the site under existing zoning and existing OCP designations. Properties that are under-utilizing achievable density are at a higher risk of demolition and redevelopment.

b) Variation in land values for development sites. Rental properties in municipalities that have high land values are more likely to be at risk of demolition and redevelopment.

c) Differences in municipal policies and approaches to amenity contributions for properties that are rezoning. Rental properties in municipalities where rezonings are not expected to make significant contributions toward public amenities are at increased risk of demolition and redevelopment.

6. The share of the existing rental stock that is at risk of redevelopment will likely increase significantly over time because:

a) Land values supported by strata residential development will likely increase at a faster rate than the value of the income stream generated by existing rental apartment buildings.

b) The existing stock of apartment buildings (many of which are woodframe buildings that were built more than 40 years ago) will continue to age and may become more attractive for redevelopment if not maintained.

6.3 Strategies and Policies

The share of rental stock that is at risk varies significantly across the different municipalities, due mainly to three factors:

The degree to which existing rental buildings are under-utilizing the achievable density at the site under existing zoning and existing OCP designations.

Variation in land values for development sites. Differences in municipal policies and approaches to amenity contributions for rezonings.

Therefore, protecting the rental stock may be a greater concern in some municipalities than in others. Municipalities that are concerned about the amount of existing rental stock that is at risk, should consider the following points:

1. The effectiveness of any specific strategy or policy (and the duration of its effectiveness) will vary on a building by building basis. Therefore, one of the challenges of any strategy to protect the existing rental stock is to determine how to select the specific buildings or types of buildings (or types of sites) that should be included in any policy initiatives.

2. To evaluate the potential impact and effectiveness of individual policies, municipalities need to identify the specific goals of the policy direction, such as the share of the existing rental stock that should be protected, the locations that are the priority, and whether the continued under-utilization of specific properties is acceptable (given other planning objectives such as densification in town centres and near transit).



3. Options to protect the existing rental housing stock can be divided into the following categories:

a) Strategies that increase the revenue from existing rental buildings. Increased revenue will result in higher values for existing buildings, which makes buildings less attractive for redevelopment. Options include:

Relaxing or eliminating existing Provincial rent control legislation so that building owners can achieve full market rents and have incentive to upgrade and re-invest in existing buildings. Allowing building owners to achieve full market rents is likely an effective strategy to reduce the number of at risk properties because it will encourage investment in existing buildings and discourage disinvestment.

Introducing government funded rent supplements. Rent supplements could help protect the existing stock from redevelopment, but (i) over time, the amount of any rent supplement will need to increase (ii) Municipalities will need to determine which buildings should receive the rent supplement and which should not (given that most rental properties are not currently at risk of redevelopment). Therefore, we think that it would be more practical for government to use any funding to help stimulate the construction of new rental housing.

b) Strategies which decrease the operating costs at existing rental buildings. Reduced operating costs will result in higher values for existing buildings, which makes buildings less attractive for redevelopment. Options include:

Reducing property taxes. Eliminating (or reducing) government sales taxes (HST, GST and PST) on rental

building operating costs. Offering tax incentives to rental building owners to encourage improvements to the

energy efficiency of existing buildings.

Any reduction in the number of properties that are redevelopment candidates will be temporary because each property’s value as a redevelopment site (land value) will probably continue to increase at a faster rate than its value as an income producing rental property. Therefore, even with reduced operating costs, the number of rental properties that are redevelopment candidates will continue to grow over time.

c) Strategies that look for opportunities to fully use the permitted density at existing rental buildings to increase housing stock without a net reduction in existing rental units (and, ideally, increasing the number of rental units), such as allowing the transfer of unused density from under-utilized rental apartment sites or additional infill development on under-utilized apartment sites in exchange for a housing agreement to retain and maintain the existing rental building.



Transferring unused density is worth considering, but it would probably work best in locations where the density is being transferred to another adjacent site (or a nearby site) as this would ensure that the permitted density remains in the same general location.

d) Strategies that limit the ability of a rental property owner to redevelop or convert an existing rental building. Options include:

Limiting the conditions in which a strata conversion is permitted. Several Metro Vancouver municipalities already use this strategy.

Eliminating strata redevelopment as an option (e.g. zoning for “rental only” use). Municipalities would need to seek a change to the Local Government Act to use this strategy without the consent of the land owner.

Impairing the economics of redevelopment (e.g. levies on redevelopment that depress supportable land value, required replacement of existing rental housing, or amenity contributions at rezoning).

Managing the pace of redevelopment (e.g. moratorium or defining a maximum number of rental demolitions per year). This may also require a change to existing legislation.

These options are effective at protecting buildings from redevelopment. However, over the long term, this type of approach will result in an under-utilization of the land occupied by many lower density rental buildings and reduce the incentive to invest in existing rental buildings. Given that about 45% of the existing rental units in the region (outside the City of Vancouver) are in woodframe buildings constructed prior to 1970, a significant share of the existing rental stock may be at risk of demolition in the long term due to building condition (even with policies in place that impair the economics of redevelopment).

e) Strategies that offer rental building owners tax incentives to keep buildings in the rental inventory, such as tax credits when a property is sold to a non-profit rental apartment provider.



Attachment 1: Approach to Identifying Properties at Risk of Redevelopment In order to sort the data base of existing rental properties into properties that are currently at risk of redevelopment and those that are not, we needed to identify the characteristics of a rental property that are strong indicators of whether or not a property is financially attractive for redevelopment to strata development (or an alternative use). The key was to identify risk characteristics that could then be applied to all the properties in the rental housing data base.

Our approach included the following steps:

1. Financial analysis for over 30 selected individual rental properties (5 to 7 in each municipality) designed to show “tell-tales” of whether an existing rental building is financially attractive for redevelopment, such as: an existing built density below a certain threshold, a ratio of assessed improvements value to total assessed value below a certain threshold, or construction type (woodframe versus concrete).

These case study properties were selected through an initial preliminary review of assessment data to help gauge whether a property might be more valuable as a development site than as an income producing rental building13. We completed this initial review of assessments for every property in the database to identify properties that were possible redevelopment candidates (or at least close to being candidates). This allowed us to focus our case study analysis on properties that had the potential to be the most informative about the characteristics that indicate a property is at risk of redevelopment. For example, our initial evaluation indicated that (in most municipalities) highrise concrete rental buildings are not attractive redevelopment candidates so our case studies concentrate on woodframe buildings. The case study analysis was completed assuming all existing land use and development policies were met in any redevelopment, with the exception of any policies that are specifically in place to prevent the demolition of existing rental buildings (such as moratorium on rental demolitions). Many of the case study sites are already zoned to allow high density apartment use. However, some case studies would require rezoning. If the case study involved rezoning, the use(s), height and density assumed in the rezoning scenario was based on the OCP designation for the property. In addition, any existing amenity contribution policies applicable to rezonings were taken into account in the analysis.

2. Analysis of actual rental demolitions and redevelopment projects. We wanted to examine a variety of actual rental demolitions. However, only a small number of rental buildings have been demolished and redeveloped for other uses. The only municipality (other than

13 For this, we examined the ratio of assessed improvements value to the assessed total property

value. A low ratio of improvements to total assessed value could indicate that the improvements have relatively little value and the site's value is mainly in the land, making it a possible redevelopment candidate.



Vancouver) that provided us with information about rental properties that have been redeveloped for new strata housing projects was the City of North Vancouver. All other demolitions that municipalities identified involved the replacement of existing rental housing with new rental housing (usually due to fire). We examined two of the City of North Vancouver rental buildings that have been recently demolished to help identify the sorts of circumstances that existed immediately prior to redevelopment that may have been tell-tales of impending redevelopment.

3. Sensitivity analysis on the identified risk factors to test the threshold that indicates an individual rental building is likely a redevelopment candidate.

This section documents our identification and evaluation of property characteristics that are potential indicators of risk and describes the approach we used to identify properties that are at risk of redevelopment in each municipality.

The detailed analysis and findings of our risk assessment is included in a separate technical appendix entitled ""Metro Vancouver Purpose-Built Rental Housing: Detailed Risk Analysis".

Evaluation of Property Characteristics that are Potential Indicators of

Risk

There are several property characteristics that could potentially be good indicators of whether an existing rental property is at risk of demolition and redevelopment. These include:

1. The age of the property. 2. The physical condition of the rental property. 3. The contribution of existing improvements to total property value. 4. The location of the property. 5. OCP designation and zoning. 6. The extent to which a property is under-utilized in comparison to permitted density under

existing zoning.

The following sections summarize our evaluation of each of these potential indicators based on our analysis of the case study rental buildings (Appendices) and the examples of demolitions of rental buildings that we examined.

Age of Property

The data base includes information on the year a property was built. It is possible that older properties are at more risk of redevelopment pressure than new properties, if they have not been well maintained.



Our evaluation of actual demolitions over the past five years or so at the municipalities that are the focus of the detailed analysis (plus information about the City of Vancouver rental demolitions) indicates that all of the demolished rental buildings were at least 40 to 50 years old at the time of demolition (and all were wood frame). This suggests that once a wood frame rental property reaches an age of 40 years, it may be at increased risk of demolition.

However, our case study analysis of existing woodframe rental properties demonstrated that many of the existing buildings which we analyzed (all at least 40 years old) are not financially attractive for redevelopment at this point. This is likely due to the fact that many older buildings (including many of the case studies) are very well maintained, are built to a high existing density, and have high market values at rental buildings. In addition, many are at sites with comparatively low land values.

Therefore, our analysis indicates that on its own, the age of a building is not a good predictor of whether it is financially attractive for redevelopment. In addition to being old, the actual demolitions that we examined had other characteristics which made them attractive for redevelopment (such as low existing built densities and locations where redevelopment sites have high land values).

Physical Condition

It is possible that the physical condition of a property is an indicator of whether it is a candidate for redevelopment. For example, a building that is in poor condition might achieve lower rents and/or require major capital repairs so it may have a higher likelihood of being a development candidate than a building that is well maintained.

The rental housing data base does not include specific information about the physical condition of a property. Therefore, we cannot use physical condition as an indicator for identifying properties in the rental database that are development candidates without input from other information sources, such as an inspection of the individual properties.

Contribution of Improvements to Property Value

One approach to identifying properties that are redevelopment candidates is to compare the value of the rental property under its continued use as an income producing asset (the capitalized value of the net income stream) with its value as a redevelopment site (land value). A property is attractive for redevelopment when its land value meets or exceeds the value of its continued use a rental property. Therefore, if a property’s improvements add significant value to the overall property value, by definition it is not attractive for redevelopment.

For example, if a property has a value of $5,000,000 as a redevelopment site (land value) and its value as an income producing property is $5,250,000, then the improvements contribute about



5% to the overall value of the property ($250,000 / $5,000,000 = 5%). Although this is a relatively low ratio, the $250,000 could represent a significant additional cost to any developer interested in acquiring the site for redevelopment purposes. This additional property acquisition cost would reduce the potential profit from redevelopment, typically causing developers to look for an alternate development site.

However, there are circumstances in which developer might pay a premium to secure a development site. For example:

A developer that can apply the holding income from a rental property to off-set the property acquisition costs might pay a small premium over land value. This would only be possible if the developer could retain the tenants in the building during approvals and presales for the new project (otherwise there would be no holding income).

A developer who anticipates that strata unit sales prices will increase (faster than construction costs) after acquisition might pay a premium for the property above current land value.

A developer willing to accept a reduced development profit on a project because the site is unique (so marketing risk is low) might pay a premium above land value for the property.

To identify specific properties in the database where the improvements make a small contribution to overall property value, we would need to estimate the value of every property in the database as a development site and as an income producing property, which is not practical.

However, one indicator that is included in the database that might be worth examining is the ratio of assessed improvements value to total assessed value for the property (i.e., a low ratio would indicate that the improvements have a low value compared to the land value).

Therefore, we considered using the assessment information in the database as an indicator of the actual contribution of improvements to total value. In theory, properties with low ratios of assessed improvements value to total assessed value likely have improvements that are making a small contribution to overall value. However, our case study analysis and review of the assessment data indicates that the assessed improvements data may not be a reliable indicator on a property by property basis for the following reasons:

1. Assessments can be appealed by a property owner if the owner thinks that the assessed value overstates market value. Therefore, the assessment process includes a correction mechanism to ensure that assessed values are a good reflection of market value. However, assessment appeals typically focus on the total assessed value of a property, not on the split between land and improvements (because taxes are based on total assessed value). Therefore, the split between the assessed value of the improvements and the assessed land value can be less accurate than the overall assessed value of a property.

2. The assessment data included in the database in from 2009 (which is based on mid-2008 market values). Therefore, the assessment information in the database is more than 3 years out of date.



Therefore, the accuracy of the assessed improvements value in the database is uncertain so it may not be a reliable indicator of whether a property is a redevelopment candidate, particularly on a property-by-property basis.

Location of the Property

The economics of redevelopment vary by location in the region as strata unit prices (and therefore land values) are higher in some locations than in others and the existing value of rental buildings varies by location (due to variation in rents). Rental buildings in municipalities with high land values for strata development are more likely to be financially attractive for redevelopment than properties in municipalities with lower land values.

Our case study financial analysis indicates that:

1. Recent demolitions have been concentrated in municipalities with relatively high sales prices for strata units, such as the City of North Vancouver (and the City of Vancouver).

2. The case study properties that we identified as being most at risk of redevelopment are located in higher land value locations, such as West Vancouver, District of North Vancouver, Richmond, and the City of North Vancouver.

So any indicator of whether a property is at risk of redevelopment must account for differences in land value and rental building values by location.

OCP Designation and Zoning

Our case study financial analysis indicates that the economics of redevelopment (and land values) vary by permitted structure type (townhouse, woodframe apartment, concrete apartment, mixed-use) and permitted density, so rental properties in some land use designations and some zoning districts may be at higher risk of redevelopment pressure than rental buildings in other zoning districts.

So any indicator of whether a property is at risk of redevelopment must account for differences in the economics of development by OCP designation and zoning district.

Existing Utilization of Permitted Density

A low ratio of existing floorspace to permitted floorspace (under the OCP designation or zoning district) could be a good indicator of low value under existing use (as the building is small compared to the permitted size of the building) in comparison to its value as a development site (land value), suggesting a property is financially attractive for redevelopment. It is practical to apply this criterion to all of the properties in the rental inventory data base, so we examined this indicator in detail.



Based on our case study analysis and demolition analysis, we found that the ratio of existing floorspace to permitted floorspace which indicates whether or not a property is financially attractive for redevelopment varies by:

1. Location, because land values and rental building values vary by municipality and neighbourhood.

2. OCP designation and zoning, because redevelopment economics and land values vary by permitted land use, structure type and permitted density.

3. Property size, because: small sites (less than 60 feet wide) have physical constraints to development (such as

inefficient parking on narrow sites – leading to reduced achievable floorspace) which can limit the ability to achieve the maximum permitted density. Therefore, small sites (that are not assembly candidates) can be less attractive for redevelopment so are at less risk of redevelopment. It is possible that a small site may need to have a lower ratio of existing to permitted floorspace to be at risk of redevelopment than a site without physical development constraints.

large sites (say more than 2 acres) often require on-site roads/circulation which reduces the achievable overall density (on the gross area) and often involve phased projects which results in holding costs (property taxes, interest payments) on the upfront land acquisition. A large site would likely need to have a lower ratio of existing to permitted floorspace than other smaller sites to be at risk of redevelopment.

Because our analysis of case study sites in each municipality produced a fairly wide range in the potential thresholds that indicate whether or not a property is a development candidate, we refined the estimated thresholds for each municipality and each type of redevelopment project (e.g., townhouse, woodframe lowrise apartment, concrete mid/highrise apartment). In some municipalities, we refined the thresholds for specific classes of property or neighbourhoods (such as waterfront properties in West Vancouver).

To do this, we completed sensitivity analysis14 on all case study properties and the demolition sites to estimate the thresholds which indicate whether or not an existing rental building is at risk of redevelopment by municipality and by type of redevelopment project (e.g. townhouse, lowrise apartment, concrete apartment, mixed-use).

14 We used the case study proformas (plus proformas we created for some of the demolition sites) to

estimate the amount of rental floorspace (and units) at each property that make the capitalized value of the rental income stream equal in value to the property’s land value as a development site. This break-even floorspace estimate provided an indication of the ratio of existing to permitted floorspace that makes the site a redevelopment candidate in each of the different municipalities and each of the types of redevelopment projects covered by the case studies.



Implications for Identifying Properties at Risk of Redevelopment

Based on our analysis of the 30+ case study rental buildings (see technical appendix report) and the examples of demolitions of rental buildings that we examined, we found that:

1. On its own, the age of a property is not a good predictor of whether it is a redevelopment candidate. Many older buildings are very valuable under existing use (because of location, condition, existing built density) and are not candidates for redevelopment.

2. It is possible that the physical condition of a property is an indicator of whether it is a candidate for redevelopment. However, the rental housing data base does not include specific information about the physical condition of a property. Therefore, we cannot use physical condition as an indicator for identifying properties in the rental database that are development candidates without input from other information sources.

3. The ratio of existing floorspace to permitted floorspace is a good indicator of whether a property is financially attractive for redevelopment and it is practical to apply this criterion to all of the properties in the rental inventory data base. We found that the ratio of existing floorspace to permitted floorspace that indicates whether or not a property is financially attractive for redevelopment varies by: Location, because redevelopment site land values and rental building values vary by

neighbourhood. OCP designation and zoning, because redevelopment economics and land values vary by

structure type and permitted density. Property size. Small sites (less than 60 feet wide) have physical constraints (such as

inefficient parking on narrow sites – leading to reduced achievable floorspace) to development which can limit the ability to achieve the maximum permitted density. Large sites (say 2 acres or more - although this depends largely on site depth) often require on-site roads/circulation which reduces the achievable overall density (on the gross area) and often involve phased projects which results in holding costs (property taxes, interest payments) on the upfront land acquisition cost.

Therefore, we estimated the thresholds of the ratio of existing to permitted floorspace which indicate an existing rental building is at risk of redevelopment by the type of redevelopment project (as indicated by OCP and zoning) for each municipality. We also completed separate estimates for smaller sites and larger sites. We used these ratios to identify properties that are at risk of redevelopment on a property by property basis.

A case study site in West Vancouver (see Case study 1 in Attachment 7 in the Technical Appendix) can be used to illustrate the process that we used to calculate the ratio thresholds:

The existing rental building is built to a density of 1.33 FAR on site zoned for 1.75 FAR. Therefore, its existing ratio is 0.76 (1.33 / 1.75 = 0.76).

The first proforma shows our estimate of the market value of the rental income stream. We estimate the rental value at $4,052,560.



The second proforma shows our estimate of the value of the property as a concrete apartment development site. We estimate the redevelopment land value is $4,042,250.

The estimated land value essentially matches the rental value indicating this property is attractive for redevelopment. Therefore, this case study indicates that, in West Vancouver, an existing to permitted floorspace ratio of 0.76 (rounded to 0.75) indicates that a property zoned for concrete apartment development may be at risk of demolition and redevelopment.

4. If a property’s improvements make a small contribution to overall property value, it is possible it could be a redevelopment candidate (the low improvements value could be due to a low ratio of existing to permitted floorspace).

We found that using the ratio of existing to permitted floorspace is the best indicator of risk of redevelopment in the municipalities where we completed detailed case study financial analysis. However, to get a rough sense of the number of rental properties at risk of redevelopment in the municipalities that are not analyzed in this study, the ratio of assessed improvements value to total assessed value is a useful indicator. These ratios are shown in Attachment 2.

Approach to Identifying Existing Rental Properties that are

Redevelopment Candidates

We identified properties that are redevelopment candidates by determining the ratio of existing to permitted floorspace that indicates a property is attractive for redevelopment. For example if a property is zoned to allow 1.5 FAR, but is developed at 0.5 FAR, the existing ratio is 0.33 (0.5 / 1.5 = 0.33). We used our case study financial analysis to estimate the ratio of existing to permitted that is the tipping point at which a property is more valuable as a redevelopment site than as rental apartment building.

For each municipality we divided the existing rental property into several categories based on the type of redevelopment project permitted under existing the OCP designation and zoning (e.g., townhouse, woodframe apartment, concrete apartment, mixed-use), location, and site size.

Determining the exact threshold at which a property becomes a redevelopment candidate involves judgment. Therefore, we have identified lower and upper bounds that we think (based on our detailed case study and sensitivity analysis) span the range of likely thresholds in each municipality for different types of redevelopment projects15.

For example, in West Vancouver we estimate that non-waterfront rental buildings on sites zoned for apartment development are at high risk of redevelopment if the ratio of existing to permitted

15 Our lower and upper bounds are rounded to the nearest 5 percentage points.



floorspace is about 0.65 or less. The property is at moderate risk if the existing ratio is between 0.65 and 0.75. If the ratio is above 0.75, the rental building is at low risk of redevelopment. The thresholds used in our analysis can be interpreted as follows:

If the ratio for a property falls below the lower threshold, our analysis indicates that the property is at high risk of redevelopment (that is, it is almost certainly a redevelopment candidate).

If the ratio for the property falls between the lower and upper thresholds, there is a moderate to high likelihood the property is a redevelopment candidate, so it is possibly at risk.

If the ratio is above the upper threshold, there is a very low risk that the property is at risk of redevelopment.

Over time the number of rental properties that are attractive redevelopment candidates will increase if land values for strata development sites increase at a faster pace than the value of rental apartment buildings, which has been the long term trend in Metro Vancouver.

Therefore, for each municipality, we provide a projection of the change in the number of rental properties at risk of redevelopment in 10 year or so based on potential changes in land values and apartment building values over the next 10 years.

To forecast future changes in land values and rental apartment building values, we examined historic trends in the main drivers of land and apartment building values: strata unit sales prices, construction costs, and apartment rental rates in Vancouver over the past 15+ years16. Based on our review of long term trends we would expect:

Strata unit prices to increase at 4% per year (the long term trend has been of 5% to 6% per year, but to be conservative we assume strata unit sales price growth slows somewhat).

Construction costs to increase at about 3.5% per year (similar to the long term trend). Operating costs at apartment buildings to closely track CPI, an increase of about 2% per year

(similar to the long term trend). Apartment rental rates to increase at about 3% per year on average (or 1% over CPI). The

maximum permitted increase under Provincial legislation is 2% over CPI, but historic trends in Metro Vancouver rental rates indicate that many properties do not achieve the maximum permit rent rate increases each year.

16 The sources of data for our historic analysis were as follows:

The trend in strata unit sales prices is based on the Greater Vancouver Real Estate Board’s benchmark housing price index for apartment units in the City of Vancouver between 1992 and 2011.

The trend in construction costs is based on Statistics Canada residential and non residential construction price indices and RS Means construction price index for Vancouver between 1992 and 2011.

Rental apartment rental rate trends are based on information from the CMHC Rental Market Reports from 2000 to 2010.

The trend in inflation is based on Statistics Canada’s CPI for Vancouver from 1992 to 2011.



We completed sensitivity analysis on several of our case study properties to determine how land values and apartment building values will change over the next ten years or so based on these projected changes in rents, construction costs and strata sales prices. We then used our analysis to estimate how the projected changes in land and apartment building values would affect the ratio of existing to permitted floorspace that indicates whether or not a property is a redevelopment candidate.

Our case study analysis indicates that the risk thresholds would increase by between 5 and 10 percentage points, depending on the municipality, OCP/zoning district, and type of redevelopment project (townhouse, lowrise, mid/highrise, mixed use).

By applying our projected ratios to the rental database we estimated the number of properties and the number of existing rental units that will be redevelopment candidates in 10 years for each of the six municipalities that are the focus of the detailed risk analysis.

For some municipalities, we identified a large share of rental buildings as being at risk of redevelopment. However this does not mean these buildings will be demolished in the short term. Most of these buildings are probably not at risk of demolition until the existing owner chooses to sell to a developer. This could take many years as most rental owners are interested in holding their rental building for the long term, particularly given the potential capital gains taxes that many owners could face upon sale of their building. Many owners prefer the reliable income stream generated by the rental building to any potential capital generated by a sale.



Attachment 2: Supplemental Data Ratio of Assessed Improvements Value to Total Assessed Value

If a property’s improvements make a small contribution to overall property value, it is possible it could be a redevelopment candidate (the low improvements value could be due to a low ratio of existing to permitted floorspace). Therefore, to get a rough sense of the number of rental properties at risk of redevelopment in the municipalities that are not analyzed in this study, the ratio of assessed improvements value to total assessed value could be used as a rough indicator.

However, it should be noted that our case study analysis and review of the assessment data indicates that the assessed improvements data may not be a reliable indicator on a property-by-property basis for the following reasons:

1. Assessments can be appealed by a property owner if the owner thinks that the assessed value overstates market value. Therefore, the assessment process includes a correction mechanism to ensure that assessed values are a good reflection of market value. However, assessment appeals typically focus on the total assessed value of a property, not on the split between land and improvements (because taxes are based on total assessed value). Therefore, the split between the assessed value of the improvements and the assessed land value can be less accurate than the overall assessed value of a property.

2. The assessment data included in the database in from 2009 (which is based on mid-2008 market values). Therefore, the assessment information in the database is more than 3 years out of date.

Therefore, the accuracy of the assessed improvements value in the database is uncertain so it may not be a reliable indicator of whether a property is a redevelopment candidate, particularly on a property-by-property basis. The assessment information should only be used to get a general sense of the potential scale of the number of properties at risk of redevelopment in a municipality.

The rental database includes the 2009 property assessments divided into assessed improvements value and assessed land value. Properties with a low assessed improvements value may be at increased risk of redevelopment. Based on our case study financial analysis, we found that most properties that are at risk of redevelopment (in the six municipalities we examined) had a 2009 ratio of assessed improvements to total assessed value of 15% or less. However, a few of the at risk case study sites had a higher ratio of assessed improvements to total assessed value.

The following exhibits summarize the rental stock by the ratio of assessed improvements value to total assessed value for all Metro Vancouver municipalities (excluding the City of Vancouver). Assessment data is not included in the database for many of the properties in Coquitlam, Port Coquitlam and Port Moody so these properties are not included in the exhibit.



Rental Housing Inventory by Ratio of Assessed Improvements to Total Assessed Value

Municipality

Ratio of Assessed Improvement Value to Total Assessed Value (2009)

0% to 4.99%

5% to 9.99%

10% to 14.99%

15% to 19.99%

20% to 29.99%

30% to 39.99%

40% to 49.99% 50%+ Total

Burnaby Properties 10 5 8 6 26 75 91 142 363 Units 86 125 89 79 687 1,708 2,119 6,321 11,214

Coquitlam17 Properties 1 2 3 2 5 11 18 17 59 Units 22 127 101 66 402 444 1,058 987 3,207

Delta Properties 0 0 0 11 16 9 7 18 61 Units 0 0 0 93 132 296 195 763 1,479

Langley (City) Properties 1 0 0 0 0 0 0 36 37 Units 8 0 0 0 0 0 0 1,538 1,546

Langley (Township) Properties 0 1 0 1 0 0 2 17 21 Units 0 4 0 4 0 0 8 195 211

Maple Ridge Properties 1 0 0 0 0 1 2 38 42 Units 4 0 0 0 0 84 21 945 1,054

New Westminster Properties 6 11 4 9 47 39 34 198 348 Units 46 180 22 48 265 408 661 7,605 9,235

North Vancouver (City)

Properties 11 10 25 22 48 60 45 9 230 Units 114 305 553 476 1,126 1,653 2,110 493 6,830

North Vancouver (District)

Properties 12 2 8 2 4 10 1 2 41 Units 656 38 186 20 101 176 10 19 1,206

Port Coquitlam Properties 4 2 1 0 1 1 3 2 14 Units 42 40 4 0 51 24 30 69 260

Port Moody18 Properties 0 1 1 0 4 3 2 0 11 Units 0 200 37 0 53 60 59 0 409

Richmond Properties 4 0 5 2 6 8 2 0 27 Units 264 0 735 34 515 580 131 0 2,259

Surrey Properties 2 6 8 4 8 7 11 43 89 Units 76 103 142 16 46 500 851 3,613 5,347

West Vancouver Properties 14 2 7 6 6 0 0 0 35 Units 671 163 338 463 229 0 0 0 1,864

White Rock Properties 3 11 13 13 8 3 1 0 52 Units 23 327 440 227 168 14 45 0 1,244

UEL Properties 11 1 0 0 0 2 0 1 15 Units 145 220 0 0 0 22 0 11 398


Properties 80 56 84 76 179 228 219 523 1,445

Units 2,157 1,853 2,653 1,519 3,759 5,965 7,298 22,559 47,763

17 2009 assessment data for four Coquitlam properties is not included in the database. Therefore,

Coriolis included the 2012 assessment data for these four properties for this summary table. 18 2009 assessment data for one Port Moody property is not included in the database. Therefore,

Coriolis included the 2012 assessment data for this property for this summary table.



Share of Rental Housing Inventory by Ratio of Assessed Improvements to Total Assessed Value

Municipality

Ratio of Assessed Improvement Value to Total Assessed Value (2009)

0% to 4.99%

5% to 9.99%

10% to 14.99%

15% to 19.99%

20% to 29.99%

30% to 39.99%

40% to 49.99% 50%+ Total

Burnaby Properties 3% 1% 2% 2% 7% 21% 25% 39% 100% Units 1% 1% 1% 1% 6% 15% 19% 56% 100%

Coquitlam Properties 2% 3% 5% 3% 8% 19% 31% 29% 100% Units 1% 4% 3% 2% 13% 14% 33% 31% 100%

Delta Properties 0% 0% 0% 18% 26% 15% 11% 30% 100% Units 0% 0% 0% 6% 9% 20% 13% 52% 100%

Langley (City) Properties 3% 0% 0% 0% 0% 0% 0% 97% 100% Units 1% 0% 0% 0% 0% 0% 0% 99% 100%

Langley (Township) Properties 0% 5% 0% 5% 0% 0% 10% 81% 100% Units 0% 2% 0% 2% 0% 0% 4% 92% 100%

Maple Ridge Properties 2% 0% 0% 0% 0% 2% 5% 90% 100% Units 0% 0% 0% 0% 0% 8% 2% 90% 100%

New Westminster Properties 2% 3% 1% 3% 14% 11% 10% 57% 100% Units 0% 2% 0% 1% 3% 4% 7% 82% 100%

North Vancouver (City)

Properties 5% 4% 11% 10% 21% 26% 20% 4% 100% Units 2% 4% 8% 7% 16% 24% 31% 7% 100%

North Vancouver (District)


Port Coquitlam Properties 29% 14% 7% 0% 7% 7% 21% 14% 100% Units 16% 15% 2% 0% 20% 9% 12% 27% 100%

Port Moody Properties 0% 9% 9% 0% 36% 27% 18% 0% 100% Units 0% 49% 9% 0% 13% 15% 14% 0% 100%

Richmond Properties 15% 0% 19% 7% 22% 30% 7% 0% 100% Units 12% 0% 33% 2% 23% 26% 6% 0% 100%

Surrey Properties 2% 7% 9% 4% 9% 8% 12% 48% 100% Units 1% 2% 3% 0% 1% 9% 16% 68% 100%

West Vancouver Properties 40% 6% 20% 17% 17% 0% 0% 0% 100% Units 36% 9% 18% 25% 12% 0% 0% 0% 100%

White Rock Properties 6% 21% 25% 25% 15% 6% 2% 0% 100% Units 2% 26% 35% 18% 14% 1% 4% 0% 100%

UEL Properties 73% 7% 0% 0% 0% 13% 0% 7% 100% Units 36% 55% 0% 0% 0% 6% 0% 3% 100%





Attachment 3: Maps of Rental Housing Inventory

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Attachment 3: Map of Rental Buildings by Age in Burnaby/New Westminster Sub-region

Metro VancouverRegional Housing Built Before 1960 [280 buildings/3,061 units]!(

Built 1960 to 1980 [447 buildings/17,623 units]!(

LEGENDRapid Transit LineFrequent Transit Network

Rapid Transit Station$

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N1 0 10.5 Kilometers

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mond

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Attachment 3: Map of Rental Buildings by Age in Delta/TFN Sub-region

Metro VancouverRegional Housing Built Before 1960 [0 buildings/0 units]!(






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Attachment 3: Map of Rental Buildings by Age in Northeast Sector Sub-region







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Vancouver

Electoral Area A Burnaby

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North Vancouver District

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Attachment 3: Map of Rental Buildings by Age in North Shore Sub-region

Metro VancouverRegional Housing Built Before 1960 [92 buildings/1,127 units]!(






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Richmond

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Richmond City Centre

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Attachment 3: Map of Rental Buildings by Age in Richmond Sub-region







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Attachment 3: Map of Rental Buildings by Age in Ridge-Meadows Sub-region







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Attachment 3: Map of Rental Buildings by Age in Surrey/White Rock Sub-region






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!(!(!(!(!(!(!( !(!(!(!(!(!

!(!(

Vancouver

Electoral Area A/UEL

Lower Lynn

Metro Core

Oakridge

Langara

Oakridge

King Edward

Marine Drive

Olympic Village

Joyc

e

Robs

on

Rupe

rt

Renfr

ew

Nana

imo

Burra

rd

Lons

dale

Broa

dway

Yalet

own

29th

Ave

VCC/

Clark

Gran

ville

Comm

ercial

Water

front

Main St-Scien

ce World

Attachment 3: Map of Rental Buildings by Age in Vancouver/UEL Sub-region


Built 1960 to 1980 [1 buildings/220 units]!(





Metro Vancouver Purpose-Built Rental Housing: Inventory ...€¦ · Analysis of actual rental demolitions and redevelopment projects to identify the sorts of buildings that have been

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