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CITY OF VANCOUVER ADMINISTRATIVE REPORT |
Date: |
August 27, 2004 | |
Authors: |
John Madden/
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Phone No.: |
604-871-6659/
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RTS No.: |
04233 | |
CC File No.: |
8106 | |
Meeting Date: |
September 16, 2004 |
TO: |
Standing Committee on City Services and Budgets |
FROM: |
Director of Current Planning, in consultation with the Director of City Plans, the Director of the Housing Centre, the Director of Real Estate, Director of Social Planning, the General Manager of Parks and Recreation, and the Director of Finance |
SUBJECT: |
Downtown South Development Cost Levy: Rate Update |
RECOMMENDATION
A. THAT the Development Cost Levy (DCL) rate for Downtown South be increased from $6.18 per square foot ($66.52 per square metre) to $9.50 per square foot ($102.26 per square metre) to reflect a portion of the inflation in land and construction costs since the last rate increase in 1993;
B. THAT Council provide a grace period of one year from the date of Council approval before this rate increase comes into effect – i.e., September 15, 2005;
C. THAT the Director of Legal Services be instructed to amend the necessary by-law in time to implement the proposed rate increase;
D. THAT staff report back with a review of the identified public benefits package for the Downtown South Development Cost Levy area;
E. THAT Council approve new consulting and related expenditures associated with the review of the public benefits strategy, as described in this report, of $15,000, to be funded from the 2005 operating budget without offset; and,
F. THAT staff take the necessary steps to notify the development industry and affected stakeholders upon Council approval of the DCL rate increase.
GENERAL MANAGER'S COMMENTS
The General Manager of Community Services recommends approval of the foregoing.
COUNCIL POLICY
On March 21, 1989, The Vancouver Charter was amended to permit the City to charge development cost levies where new development contributes to the need for new parks, day care facilities, replacement affordable housing and engineering infrastructure.
On July 30, 1991, Council approved the rezoning of Downtown South to allow high-density residential and mixed-use redevelopment.
On January 7, 1992, Council adopted an area-specific Development Cost Levy of $6 per square foot (for most uses) to finance a portion of the capital projects to serve future growth.
On January 5, 1993, Council increased the DCL rate to $6.18 per square foot particularly in order to reflect inflation in construction costs.
On June 24, 2003, in dealing with the Financing Growth report, Council resolved to make DCL rates subject to periodic rate review (e.g. every 3 years), taking into account inflationary factors affecting construction costs and land values, and other relevant factors.
SUMMARY AND PURPOSE
This report recommends an increase in the rate for DCLs in Downtown South from $6.18 to $9.50 to reflect inflation related to land and construction required to deliver the Council-approved public benefits strategy to this growing community. The public benefits strategy, approved in 1992 focuses on the delivery of parks and day care spaces as well as a one-to-one replacement strategy for the loss of affordable housing. An economic consultant’s study commissioned by the City concluded that this rate increase could be absorbed by the market without displacing or deterring development, or affecting housing affordability. Staff also recommend that a review of the current public benefits package, now a decade old, be undertaken to ensure it reflects Council’s and the community’s objectives for Downtown South to emerge as a liveable, high-density, residential neighbourhood.
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BACKGROUND
In 1991, Council approved a new zoning for Downtown South that allowed high density residential uses close to a newly consolidated employment core within the central business district. In 1992, Council approved a Development Cost Levy to help provide residential amenities and offset the impacts from new development on the low-income residents. To achieve this, funds from the DCL were to be allocated based on projected needs for the future emerging neighbourhood. Spending allocations were targeted toward the provision of replacement housing (47.25%), new parks (45.35%), and day care spaces (7.4%).
The DCL rate was originally set at $6.00 per square foot, with a lower rate for day care and exemptions for social housing and for renovations not involving additional floor space. This rate was set as a result of an assessment of the area’s identified needs (i.e. public benefits package) and an economic analysis of the rate’s potential impact on the market. The DCL rate was increased once in 1993 (from $6.00 to $6.18) to reflect inflationary costs related to increased construction expenses.
DISCUSSION
Staff recommend a two phase process: first, an update of the Downtown South DCL rate; and second, a review of the public benefits package in consultation with key stakeholders. The inflation of land and construction costs is diminishing the City’s ability to deliver the remaining public benefits that were originally approved by Council. Revenues collected since the early 1990s have been allocated toward the delivery of park space and affordable housing. Seven non-market housing projects have been completed (and another in process), adding 660 low-income units, and the first phase of Emery Barnes Park at Davie and Richards has been completed (Note: a status report of the Public Benefits package is included in Appendix “A”). However, there is still more to do to achieve the intended public benefits package, including additional replacement housing units, completion of park acquisition and development, and provision of day care facilities. Since the introduction of high-density residential zoning in the area in 1991, the Downtown South has grown to a population of 12,000 residents, exceeding original projections and placing increased demands on community amenities. For these reasons, both a rate increase to reflect inflation, and a public benefits package review to reflect the growing population are needed.
DCL Rate Increase to Reflect Inflation
The rationale for the DCL update is to address the rising costs for delivering the identified public benefits. There are two major cost components to delivering replacement housing, parks and day care: land and construction.
(a) Inflation in land and construction costs
The City hired Coriolis Consulting to determine how much inflation in land and building construction costs has occurred since the last rate increase in 1993, and to check the market impact of a rate increase that would be in line with inflationary increases. The consultant’s findings on inflation are shown in Figure 1. A copy of the consulting report has been filed with the City Clerk’s Office.
Figure 1: Downtown South DCL Rate in Comparison to other Costs
(b) Market Impact
As part of the study, Coriolis undertook a market impact review of the possible DCL rate increases within the range identified by the inflation indicators. If the DCL rate increase is too high the rate increase could deter or displace development, or affect housing affordability. The consultant concluded that a DCL rate of $9.50 would be appropriate.
In reaching his conclusion, the consultant considered a number of factors, including:
· the increase in land and construction costs for developers and the City since 1993;
· the rate in comparison to land costs;
· the DCL rates in other downtown areas ($9.36 in Triangle West, $6.00 in City-Wide);
· how the rate will be regarded by the development industry;
· realization that land values in the Downtown South have been rising faster than housing unit prices, thus shrinking the normal profit level; and,
· acknowledgement that if rate increases had occurred more regularly, the land values in the area would not be as high as they are presently.
The recommended rate of $9.50 accounts for some, but not all, of the increase in land and construction costs so as to minimize the impact on the financial performance of Downtown South development, while addressing the increased costs to the City to deliver the public benefits package. The consultant advised that setting the rate higher may result in a temporary slowdown in the rate of development, shift development to areas outside Downtown South, and create a negative reaction from the development industry.
(c)Timing of the Rate Increase
The consultant recommends a one-year grace period for this increase to the DCL rate in order for developers and land-owners to appropriately adjust. One year will allow development projects already in the permit processing system at the time of the rate increase to get through the City approvals system without being affected by an unforeseen rate increase. For this reason, it is recommended that the DCL rate increase take effect one year from date of Council approval (i.e. September 15, 2005).
Public Benefits Package Review
The second phase of work will include a review and update of the public benefits package. The rationale for this review includes the following:
· the area has already exceeded the original 2016 population target of 11,300 people and is expected to reach 20,000 by 2021;
· there have been changes in senior government funding programs which affect the City’s ability to deliver social housing and day care; and
· there have been changes to the area’s population profile which may result in different amenity requirements.
The review will take into consideration the role of DCLs in providing the identified amenities and the cost and the appropriate revenue allocations for those amenities. The review will assess the anticipated public benefit requirements and determine the proportion of total costs that the DCL will provide. This review may result in a recommendation for an additional rate increase. In addition, the review will look at the current allocation of the DCL funding among parks, replacement housing, day care and infrastructure and may recommend changes where necessary (e.g. the allocation percentages may change).
As most of the review can be undertaken with existing staff resources (i.e. Central Area Planning in coordination with the Financing Growth Planner), the cost of the review is estimated to be approximately $15,000. This budget includes provision for an economic review by a consultant, a survey, and public consultation. The Housing Centre may require some additional staffing to conduct a review of replacement housing; however, these costs will be included in the Housing Centre’s 2005 budget submission.
SOCIAL IMPLICATIONS
The Development Cost Levy for Downtown South is intended to help meet the social needs of new development by providing part of the social infrastructure including parks, day care spaces and replacement of affordable housing.
COMMUNICATIONS PLAN
Staff have notified the key stakeholders and met with the Urban Development Institute to discuss the DCL rate review and recommended changes. Further notice was provided by way of an information bulletin to developers and landowners. Consultation with stakeholders including the Downtown South community and the development industry will be sought as part of the second phase which will review the overall public benefits package.
CONCLUSION
Downtown South is expected to reach a population of 20,000 by 2021 placing increased demands for public amenities. The DCL is a tool for funding public benefits and addressing the loss of low-income housing in step with this anticipated growth. Staff recommend that the rate for Downtown South DCL be increased from $6.18 to $9.50 to reflect the inflationary costs associated with delivering public benefits. A consulting study determined that this rate could be implemented without significant economic impact on the development market.
Staff also recommend a follow-up study be undertaken to review the existing public benefits package to better understand the emerging population profile and confirm the amenity requirements of the area’s present and future occupants.
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