SUPPORTS ITEM NO. 1
CS&B COMMITTEE AGENDA
JUNE 19, 1997
POLICY REPORT
URBAN STRUCTURE
Date: May 28,1997
Dept. File No. 3430
C.C. File No. 4656-1
TO: Standing Committee on Planning & Environment
FROM: Manager of the Housing Centre, in consultation with
the Director of Central Area Planning
SUBJECT: Payment-in-Lieu - Major Project Non-Market Housing
RECOMMENDATION
A. THAT Council adopt the following additional policies for
non-market housing in the major projects:
1) In future major project rezonings, air-space parcels for
non-market housing are to be avoided wherever possible,
and where they cannot be avoided should be restricted to
parking podia.
2) If senior government funding is not available for
non-market housing sites that are air space parcels
within larger market projects, when the market components
are ready to proceed, Council is prepared to consider
alternative affordable housing options or payment-in-lieu
to allow the whole project to be developed at the same
time.
3) For non-market sites that are air-space parcels,
payment-in-lieu will be calculated as if senior
government funding for non-market housing were available
for the project.
4) If senior government funding is not available for
non-market housing sites that are not air-space parcels,
they are to be held in reserve, pending future senior
government funding, at Council s discretion.
B. THAT the Director of Central Area Planning and the Manager of
the Housing Centre explore options to expand the capacity for
non-market housing in the major projects, and in particular
Concord Pacific Place, with the intent to maintain to the
extent possible the objective of 20% non-market housing.
GENERAL MANAGER'S COMMENTS
The General Manager of Community Services RECOMMENDS approval of A
and B.
COUNCIL POLICY
Council requires that 20% of the units in the major projects be
designated for non-market housing, with a priority for core-need
households, and requires that the non-market sites be made available at
a price that allows the projects to be developed within the maximum
budgets established by senior government non-market housing programs.
This policy has been relaxed for major projects whose economic
feasibility does not permit the full 20% to be achieved.
Council policy is to consider affordable housing proposals not
subsidized through senior government programs, or payment-in-lieu, for
non-market sites that were submitted for senior government funding and
did not receive it, or if there is little likelihood of funding
forthcoming.
SUMMARY
There are a number of non-market sites that are air-space parcels
located on podia. Some podia consist of only underground parking, but
others also include at grade retail and second storey commercial space.
When these sites were set aside for non-market housing, there was
sufficient funding to expect that funding would be available when the
integrated project was ready to proceed. Unfortunately, federal funding
is no longer available and provincial funding is limited. The result is
that funding may not be available for some non-market projects, in
particular those intended to serve households without children; funding
is very limited for non-family projects.
This is a particular problem for the non-market sites located on podia.
To minimize this problem, it is recommended that in future major project
rezonings, sites on podia be avoided where possible, and if they cannot
be that they be restricted to parking only. If funding is not available
for a podium non-market site when the rest of the project is ready to
proceed, Council must consider whether to hold non-market sites in the
hope that funding will be sometime in the future, or consider other
options. For the sites that are on podia holding them will not always
be feasible. It is much more expensive and disruptive to return to a
partially completed project to continue construction. It may not even
be possible in some cases. It is recommended that Council be prepared
to consider alternatives to holding the non-market sites that are on
podia.
Non-market sites that are not on podia can be held, without impeding the
progress of the overall development, until funding is available or
Council chooses to do something else with the sites, though developing
the housing sooner rather than later is generally preferred. It is
recommended that Council adopt the policy to hold such sites in reserve
pending future senior government funding.
Payment-in-lieu, whereby the developer pays the City the subsidy that
would have gone into the non-market housing, is one option for dealing
with the non-market sites that cannot be held and for which senior
government funding is not available. This will reduce the percentage of
non-market housing in the major project below the City s 20% target. To
minimize the loss of non-market capacity, the report recommends
increasing the capacity of the remaining non-market sites. A review of
the sites indicates that there is potential to increase the non-market
capacity.
PURPOSE
This report addresses the circumstance when funding is not available for
non-market housing sites integrated within market projects when the
market projects are ready to proceed. It recommends policies for
dealing with this circumstance when it occurs, and policies to minimize
its chances of occurring. It recommends that increasing the non-market
capacity in Concord Pacific Place be explored to ensure the objective of
20% non-market housing is achieved to the extent possible.
BACKGROUND
In August 1988, in developing the False Creek Policies, Council
established the objective of 20% core-need housing in the major
projects. The 20% core-need objective was based on the senior
government programs of the day which restricted eligible households to
those in core-need, households that would have to pay more than 30% of
their gross income to rent a unit in Vancouver. At the time an
estimated 20% of the households in the Vancouver region were in
core-need and 23% of the households in the City s development on the
south shore of False Creek would have been in core-need if they were not
in non-market housing. The policies require that at least half the
non-market housing had to be designed for families.
The major project developers have to make the non-market sites available
at a price that works within the budgets set under senior government
non-market housing programs. To the extent that this value is less than
market value the developers provide a subsidy for the non-market
housing.
In 1992 the provincial government established the Commission on Housing
Options to review its role in housing in the face of declining federal
funding. Federal funding for new non-market housing ceased in 1993.
The Commission recommended that the Province maintain its funding, and
that the Non-Profit Rental Housing Program be revised to serve market
renters as well as core-need renters, and that families have priority.
In response to these changes, Council in April 1993 amended its 20%
objective. Core-need households were to continue to have priority,
under a requirement that 20% of the units be designated for non-profit
housing. Council reserved the right to consider alternative affordable
housing programs not subsidized by senior governments, and in the
absence of feasible alternatives payment-in-lieu, if funding was
unavailable or unlikely to be forthcoming from provincial or federal
non-market housing programs.
The City's 20% non-market housing policy has created a capacity for
2,760 units in the major projects across the City. 705 units have been
built or funded, leaving a unfunded capacity of 2055 units. These are
located in the downtown major projects around False Creek and along Coal
Harbour, with the majority of the unfunded units, 1,300, in Concord
Pacific Place.
The Province maintained its funding for non-market housing until last
year when it reduced the units funded from 900 to 600. As well, the
program was revised to require seniors projects to include substantial
equity. The scarcity of senior government non-market funding, in
particular for non-family housing, led the City to give approval in
principle to an alternative affordable housing proposal for the
Roundhouse non-family site and to convert the non-family non-market site
in the first phase of Marathon's Coal Harbour project to family
non-market housing.
DISCUSSION
The first request for payment-in-lieu has now come forward for two
non-family non-market sites in the Quayside Neighbourhood of Concord
Pacific Place. The review of the proposal raised several general policy
issues. These are the use of air-space parcels for the non-market
sites, how payment-in-lieu is to be calculated, and the potential to
increase the capacity of non-market housing in the major projects, and
in particular in Concord Pacific Place.
Air-Space Parcels
In the high density major projects around False Creek and along Coal
Harbour, many of the non-market housing sites are air-space parcels.
These include two non-market sites in the waterfront portion of the
Quayside Neighbourhood of Concord Pacific Place, which have been
referred to public hearing, future Quayside projects north of Pacific
Blvd., the non-market sites in Bayshore and the non-market sites in
International Village. They are components of larger market projects,
and are located above an underground garage that provides parking for
market condominiums along with their own parking, and sometimes above
one or two floors of commercial space.
There are several reasons for air-space parcels. The market projects
are higher density than the non-market projects and have a higher
parking requirement per unit. This means that several floors of
underground parking are required which can be very expensive.
Non-market projects are lower density and have a lower parking ratio
with the result that a smaller underground garage and less excavation is
required. It is more efficient to equalize the excavations, and to
build some of the condominium parking under the non-market housing
projects. In some cases, commercial space is located under non-market
housing located on the arterials and other streets where the zoning
requires retail at grade. These tend to be the non-family non-market
projects. The provincial programs do not fund commercial space within
non-market projects, and consequently these are also air-space parcels
with the market developer responsible for the commercial component.
Non-market housing projects located above condominium parking and
commercial space have successfully been developed in the major projects.
Two projects in CityGate and one in Concord Pacific Place located above
shared parking and a floor of retail. A project is now under
construction in Coal Harbour that includes a floor of commercial
parking. In all these cases the senior government funding for the
non-market housing was available when the larger project, within which
the non-market housing was integrated, was ready to proceed. With
declining funding, at least in the near term, it is unlikely that
funding will always be available when it is time to develop a non-market
site, in particular a non-family project integrated within a larger
project.
If funding is not available when the larger project is ready to proceed,
the City could hold the site until funding is available, which would
mean returning after the market components are completed to build the
non-market component. This would require that the podium for the
non-market component be built, including lobbies, the required parking,
vertical circulation and other services, in advance. This is not
impossible, for instance the Four Seasons Hotel was built after the
Pacific Centre was completed, but it should be avoided. Building codes
and housing programs can change with the result that the podium would no
longer to usable without a retrofit. Even if the podium was still
suitable, the disruption to the residents and commercial business
occupying the completed portion of the project could be serious, and
there would be a substantial increase in the construction costs because
of the constricted site once the market components are built. As a
result, if funding is not available for the non-market component of an
integrated project when the market component is ready to proceed, in
most cases it will be unreasonable to leave the non-market components
undeveloped.
Given the limited senior government funding for non-market housing, at
least in the near term, it is recommended that in future major project
rezonings, air-space parcels for non-market housing be avoided wherever
possible. It may not be possible to avoid shared parking garages
because of site conditions, but non-market air-space parcels integrated
into commercial and market residential projects can be avoided. Shared
parking garages, as long as they are underground, can be capped and the
infrastructure for the future non-market component installed.
For those non-market sites that are air-space parcels integrated within
larger projects, it is recommended that Council be willing to consider
ways to ensure the non-market component can be developed at the same
time as the rest of the project if senior government funding is not
available when the market components are ready to proceed. These
options could include the conversion of non-family non-market housing to
family non-market housing, if funding for the former is not available
but funding for the latter is, as was the case with Coal Harbour;
affordable housing proposals that are not subsidized by senior
government programs; or payment-in-lieu.
Calculating Payment-in-Lieu
The April 1993 report set out the method for calculating
payment-in-lieu. In essence, payment-in-lieu is the difference between
the market and non-market value of a site. The market value is the
value of the residential space developed as condominiums. The
non-market value is determined by the senior government housing
programs. These are based on the typical price of land in the region
which is often lower than the market value of the land in the major
projects.
The difference between the market and non-market values is the subsidy
the developer is putting into the project, which the City can take as
payment-in-lieu if the developer is allowed to convert the project to
market housing. The subsidy will vary from major project to major
project, and from site to site, as market land value will vary by
location but the non-market value will not. For better located sites
the subsidy will be higher. In some cases the market and non-market
value of a site could be the same, in which case the subsidy would be
zero. The 20% policy does not require a subsidy, only that major
project developers make sites available at the non-market land value.
Air-space parcels integrated into larger market projects complicate the
payment-in-lieu calculation. If senior government funding were
available for the non-market component, when the market components of a
larger project were ready to proceed, the project would be built out as
a piece avoiding the significant construction costs and disruption if
the non-market component had to built later. Payment-in-lieu, in the
absence of senior government funding, allows the major project
developers to escape these additional costs. The question is whether the
City should share in these savings, and whether payment-in-lieu should
be calculated as the difference between the market and non-market values
for a site plus some portion of these savings.
These savings could be larger than just the construction savings. The
City holds 80 year options on the non-market sites and the City can
require developers to hold them until funding is available. The
developers are required to pay taxes but the sites offer little
opportunity to generate a return until non-market funding is available.
In present value terms, the longer the sites have to be held the lower
their non-market value today.
The City could take the position that it should share in the
construction cost savings and that the non-market value of the site
should be discounted to reflect the risk that senior government funding
may not be available for many years. This would increase the
payment-in-lieu amounts for non-market sites and increase the subsidy
the major project developers would be paying for non-market housing.
The major project developers have consistently argued, since the 20%
policy was revised in 1993, that they should not have to pay for the
reduction in senior government funding for non-market housing. The
80-year options the City holds on the non-market sites have as much to
do with the uncertainty with how fast the market development would
proceed as it did with any uncertainty over funding for non-market
housing. Requiring that developers discount the value of a non-market site and
share in the cost savings from building out a project, including the
non-market component, as a piece, would complicate the payment-in-lieu
negotiation. There is no formula to determine what the discount in
value should be, as it is not clear how long a site would have to be
held, and it is difficult to determine the cost savings from building
out the site, as it is not possible to predict what the changes in codes
and non-market housing programs will be. What portion of the savings or
discount should be the City's and what portion the developers would be
an open question.
It is important that the major project developers have an incentive to
negotiate payment-in-lieu. The method of calculation payment-in-lieu as
the difference between the market and non-market values of the site
remove any windfall. Allowing the developers to keep the construction
savings would provide them with the necessary incentive.
Whether or not to consider payment-in-lieu is up to the City, so the
City can always choose to hold an air-space parcel site for the future.
It is recommended that the City adopt a policy to calculate
payment-in-lieu as if senior government funding would have been
available, and not to require a share of the potential construction
savings or a discount in the non-market value of a site.
In return for considering alternative affordable housing proposals or
payment-in-lieu for non-market sites that are air-space parcels within
integrated projects, if non-market funding is not available when the
market components are ready to proceed, it is recommended that
payment-in-lieu or alternative affordable housing proposals generally
not be considered for non-market sites that are not air-space parcels.
These can be built independently of adjacent market development, and
should be reserved for future senior government funding at the City s
discretion.
The major project developers would prefer to see these sites developed
as soon as possible to complete the projects and realize the sites'
non-market value. The City would also like to see the neighbourhoods
completed and the housing built, and in all likelihood would not want
the non-market sites that are not air-space parcels to remain
undeveloped for many years. The longer a site remains vacant the more
difficult it will be to develop as nearby residents become accustomed to
views and open space. However, the scarcity of funding for non-market
housing, in particular non-family non-market housing, may not be
permanent. If the federal deficit is eliminated as fast as recent
reports imply, the federal government may within 5 or 10 years fund
non-market housing, as it did before, or increase transfers to Provinces
so they can fund it. Council could still consider alternatives to
non-market housing funded through senior government programs, but there
would have to be a clear public benefit.
Achieving the City's objective of 20% non-market housing in the major
projects may be difficult, but it should not be compromised more than
necessary. Without senior government funding, alternative affordable
housing has a very limited ability to accommodate core-need households,
and payment-in-lieu reduces the total percentage of non-market housing
in the major projects. These may be necessary for air-space non-market
sites, but for those that are not, the priority should be senior
government funded non-market housing.
(NOTE: Payment-in-lieu for non-market housing was applied to the
International Village rezoning approved in December 1995. However, the
circumstances were very different. In that case the whole of
International Village was rezoned to convert commercial space, in
particular a hotel, to residential use. This generated an increased
requirement for non-market housing which could not be accommodated
within the project. Payment-in-lieu was not required because senior
government funding was unavailable, but because of a lack of sites. The
value of the payment-in-lieu was not the difference between the market
value and non-market value of a site, but a share of the increase in
value generated by the overall rezoning. This was sufficient to provide
funds to buy a site nearby for non-market housing and funds to buy park
land.)
Increasing Non-Market Capacity
It can be expected that over the next few years alternative affordable
housing or payment-in-lieu will be required to deal with non-market
housing sites integrated into larger market projects, in particular for
non-family non-market sites that are air-space parcels. This would
result in some erosion of the City s 20% objective for the major
projects.
It may be possible to minimize this erosion by increasing the capacity
of the non-market housing sites that remain. This would involve
increasing the number of units allowed in the major projects but
restricting the increase to non-market housing. A rezoning would be
required, and the potential to increase the non-market housing capacity
would have to be evaluated on a case by case basis. However, in the
case of Concord Pacific Place at least, there appears to be some
opportunity to increase capacity without compromising the integrity of
the overall plan for the project. In most cases, the density allocated
to the non-market sites was not based on the maximum the sites could
support as determined by urban design and land use planning principles,
but on the need to create projects not so large that they could not get
funding through non-market housing programs. In the case of the
non-market non-family housing, this meant projects of 100 units or less.
The full density potential of these sites may not have been realized.
It would be worth reviewing these sites to see if they could support
higher densities. There are several benefits if they can. One is the
recovery of any non-market housing lost due to payment-in-lieu. It would
also increase the value of the sites, if they need to be converted to
payment-in-lieu. The major project developers would receive the same
price for the site as they would under the existing density; any the
increase in value due an increase in density would be the City's. If
developed as affordable housing outside of senior government funding,
larger projects would increase the internal subsidies available so that
more households or lower income households could be subsidized. The
major project developers should be supportive if it makes the sites more
competitive, because of the lower land cost per unit, and it may also
make alternatives to senior government funded projects more viable.
It is recommended that Council instruct the Director of Central Area
Planning and the Manager of the Housing Centre to explore the potential
to increase the non-market housing in the major projects, for report
back to Council early in 1998.
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