Thousands of purpose-built rental homes in Burnaby are at risk of being cancelled

Thousands of new safe purpose-built market rental homes in future Burnaby buildings are at risk of being cancelled due to a lack of financial viability.

According to the Urban Development Institute (UDI), upcoming legal revisions to the City of Burnaby’s inclusionary rental housing laws, which have been in existence for a few years, will make 100 percent rental housing developments difficult to pursue for private developers.

In a recent letter to Burnaby City Council, UDI president and CEO Anne McMullin suggests that requiring market rental housing to provide the same level of below-market affordable rental housing and density bonus expectations as market strata ownership housing, which has a significantly higher financial return and can cover more public benefits costs, is highly problematic.

“Some of our members have been informed that purpose-built rental projects will be assessed as if they were strata projects to determine the appropriate density bonus value,” she stated. “This approach presents a fundamental change to project economics, as those higher costs may not be able to be absorbed, rendering purpose-built projects (or the rental component of other projects) unviable. We understand that there could be a potential mechanism to offset the increased density bonuses such as a grant from the City; however, there is no clarity about whether such an approach has been adopted, or how it would be operationalized.”

The UDI and developers support the municipal government’s 20% inclusionary zoning policy, according to McMullin, because the allocated density increase of 1.1 FAR (additional floor area size of 1.1 times larger than the size of the lot) in strata floor space offsets the costs of the below-market rental homes, which cannot be achieved from a market rental housing project.

To solve this issue, it has been suggested that the municipal government offer cost offsets throughout the application negotiating process, but this, too, has its drawbacks, as it does not provide developers with confidence when purchasing a land for development purposes. Developers are more likely to build 100 percent purpose-built rental homes in jurisdictions that do not have this “lengthy and risky process,” according to the argument.

“The potential changes to the density bonusing approach are very consequential and will dramatically impact the economics of projects, with no clear path for mitigation aside from re-assessing and re-designing them,” said McMullin. “This would set project timelines back significantly, further impacting their viability and possibly resulting in the cancellation of in-stream purpose-built rentals, which would undermine the affordability of rental housing in Burnaby. The delivery of purpose-built rental represents a critical housing form to fulfill the needs of residents.”

There are concerns that the new policy changes will apply to applications that have already been submitted and are being reviewed by city personnel – long after cash commitments and locations have been secured.

McMullin particularly mentions two purpose-built rental housing projects — some of Metro Vancouver’s largest rental housing developments — that may not go ahead or will require considerable changes to the point where market rental houses will not be available.

She claims that Starlight Developments has hinted that its Lougheed Village project, which is located just west of the SkyTrain Lougheed Town Centre Station, is in jeopardy. They want to construct three infill towers on the property to create 1,200 new market rental houses while without displacing any of the existing 528 residents. Starlight purchased the seven-acre facility in 2015, and its expansion intentions were publicly announced as recently as December 2020.

Grosvenor Americas’ eight-acre expansion close to SkyTrain Burnaby Town Centre Station, where the developer planned to build 2,000 rental residences, is also in jeopardy. This property was purchased in January of 2020.

“Builders are proceeding with their developments and purchasing sites in Burnaby to build 100% purpose-built rental or include rental in their developments, and it appears that other than the two developers mentioned, the rest of the industry is unaware that there may be a significant change in the density bonusing approach,” she continued.

“They will have difficulty adjusting their financial commitments and may not proceed with their market rental proposals.”

UDI recommends that city council hire a consultant to examine and identify the fundamental economic differences between 100 percent purpose-built rental housing projects and strata developments, as well as make recommendations on whether the inclusionary zoning policy should apply to market rental housing projects and potential policy changes.

They also want the city to issue a bulletin outlining the density bonusing approach for purpose-built rental housing developments as well as voluntary market rental homes.

“Burnaby’s approach to market rental housing across multiple policies has been unclear. If changes in the City’s approach are occurring, it is critical that they be communicated to builders who are purchasing sites and developing proposals based on published policy,” said McMullin.

Next week, the city council is set to consider the UDI’s complaints and recommendations.

While there have been significant improvements in recent years, resulting in an increase in market rental housing supply, there is still a lack of market rentals throughout Metro Vancouver, resulting in low vacancies and rising rent pressure. Market rental housing is a vital housing tenure for middle-class households and working persons when ownership prospects become more difficult due to rising costs.

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