Text version follows below references.
CityHallWatch has done many posts on MIRHPP and this particular rezoning. Below is a selection of the most recent ones.
Alma and Broadway rezoning (Public Hearing Oct 28): Financial analysis shows windfall profits for developer (Westbank). Posted on October 23, 2020
MEMORANDUM: Excessive costs of Moderate Income Rental Housing Pilot Program (MIRHPP). Posted on October 28, 2020
Interim Rezoning Policy for Kitsilano and West Point Grey (WPG) and how they apply to a major current proposal at Broadway and Alma, Posted on October 28, 2020
Controversy: Public Hearing 27-Oct-2020 (Tues) for 172 foot Westbank tower at 3701-3743 West Broadway (corner of Broadway & Alma), Posted on October 23, 2020
Six reasons to reject Westbank rezoning at 3701-3743 W. Broadway (& Alma): Christina DeMarco (former senior planner). Public Hearing Oct 27. Posted on October 25, 2020
TEXT VERSION OF MEMORANDUM
M E M O R A N D U M November 12, 2020
TO: Mayor and Council
CC: City Manager
Chief of Staff, Mayor’s Office
General Manager, Planning, Urban Design and Sustainability
FROM: Civic Finance Research Unit, CityHallWatch
SUBJECT: Correcting staff statements denying windfall profits at 3701 – 3743 West Broadway
On October 29, 2020, Vancouver City Council approved the rezoning of 3701 – 3743 West Broadway (and Alma) for a 14-storey tower proposed by Westbank Corp. (CEO Ian Gillespie) after three sessions of the Public Hearing (starting Oct 27) (link to related documents and video).
While Council has made its decision on this rezoning application, it is important to note that staff’s responses to certain questions from Council during the Public Hearing were misleading.
Accordingly, council may wish to reconsider its decision. Council is also encouraged to consider corrective actions with senior management in the relevant department to ensure that staff provide correct information for Council decisions in the future. Council may also wish to review the underlying assumptions of the MIRHPP program, which this case shows provide windfall profits to developers, subsidized by taxpayers.
- The Moderate Income Rental Housing Pilot Program (MIRHPP), approved by the previous City Council on November 28, 2017, was used by staff to justify its recommendation to approve the rezoning requested by Westbank for 14 storeys at 3701 – 3743 West Broadway.
- As it stands, there is no budgetary approval of subsidies for developers under MIRHPP, hence no effective public oversight of the subsidies. As our 28-Oct-2020 memorandum to Council states this represents a fundamental breakdown in corporate governance at the City.
- During the Public Hearing, responses regarding financial aspects (specifically, the profitability) of the application were provided to Council by Mr. Chin of the City’s Property Development group. He stated that from the City’s perspective, the land value for the property was set at the time the rezoning application was submitted. He further stated that the developer did not earn a profit beyond the “standard” 15% profit margin. The profit methodology Mr. Chin is using appears to be that used by the City in calculating Community Amenity Contributions (CACs), as in the City’s recently-published “Community Amenity Contributions Implementation Procedures” (https://vancouver.ca/files/cov/community-amenity-contributions-implementation-procedures.pdf).
- Council needs to be made aware that the approach used by the City’s planning staff to calculate the profitability of projects, and how they value land in their analyses, is not what happens in the real world. In the real world, the profit of a development project is based on the actual cost of the land (including carrying charges), not the value of the land at the time a rezoning application is submitted. It is undebatable that a developer’s income taxes as determined by the Canada Revenue Agency are also on an actual cost basis.
- Now, consider the numbers for this specific property. Assume the current assessed value of $17.4 million was also its value on the day the rezoning application was filed. It is publicly known that the developer acquired the land in 2011 for $9.4 million. Assessing profitability using actual cost ($9.4 million) demonstrates that the developer’s profit is actually $8 million higher than the calculation presented to Council by City staff, and the actual profit margin will also higher than the City’s “standard” 15%.
- The preceding point underscores the need for greater transparency from the City with respect to the need for subsidies and bonus density for developers to support the construction of “affordable” rental units. Staff and developers may argue that their proforma profit calculations contain sensitive information and cannot be disclosed, but the reality is that most, if not all, of the components of a proforma can be readily obtained from public sources. Key assumptions such as the capitalization rate used by the developer are not proprietary – they are market-derived. However, a developer may not want Council and the public to see that it is using a high cap rate in its calculations to generate a lower property value on paper, in order to avoid paying CACs.
- As noted in CityHallWatch post “Financial analysis shows windfall profits for developer” (23-Oct-2020), Westbank, the developer of 3701-3743 West Broadway, has a considerable cost advantage in terms of cost per buildable foot over the developer of 2538 Birch Street (rezoning for 28 storeys approved by Council July 21 2020, following Public Hearings on July 9, July 10 and July 14). Despite its cost advantage Westbank receives the same subsidies under the MIRHP program as any other developer participating in the program.
- Most importantly, in contradiction to Mr. Chin’s assertion, that cost advantage gives the developer a windfall profit in the real world, particularly when supplemented by the provision of subsidies via the waiver of Development Cost Levies (DCLs), CACs and reduced parking requirements, along with additional density.
- From the above, one can only conclude that as currently formulated and implemented, MIRHPP is indeed providing windfall profits to some developers, as a cost to taxpayers.
TO RECTIFY the situation, we recommend the following steps be taken.
- Council should either cancel or modify the MIRHP program to focus on seeing apartment buildings constructed at the lowest possible cost, with rents in all units in the buildings targeted at those earning moderate incomes (using the City’s definition of moderate income).
- Council should direct staff to either (i) discontinue the MIRHP Program or (ii) modify it to take into account the cost advantages certain developers may have as a result of, for example, lower land costs per buildable foot, or the ability to obtain benefits such as reduced parking requirements due to the proximity of public transportation, in order to avoid taxpayers providing either subsidies or bonus density which result in windfall profits for developers.
- Restating recommendations points from our Memorandum of October 28, Council should require City staff to present the amounts of these subsidies in a transparent fashion in the City’s financial statements, by accruing the revenue item and then recording the waiver of the development cost levies and CACs as an expense. The cost of the subsidy must be transparent to taxpayers, and Mayor and Council should have knowledge, control, and accountability for it, as part of their approval of the City’s annual budget.
- Council should require staff to compare the cost effectiveness of options. For example, it might be better NOT to waive DCLs and CACs (especially if the waivers result in windfall profits) and instead to receive those revenues, and use them to acquire land which can be leased to a non-profit or co-op, for better outcomes for a greater number of people.
Action is required by Council.
Thank you for your consideration. If you have questions or concerns, please do not hesitate to reach out to CityHallWatch at citizenYVR@gmail.com.