Monday, November 28, 2011

What in the world are CAC's, and how are they determined?

Every once in a while during a commercial break on the CKNW Bill Good Show, I suggest that it might be a good idea to briefly discuss Community Amenity Contributions (CAC's) and how they are determined. In suggesting this, I know that in a matter of seconds, Frances Bula will reply that this is not something the public either understands or is interested in, and I know she's right. But I keep going on about the matter since it is something of great importance to every real estate developer or land owner who wants to rezone property in Vancouver, and an increasing number of neighbouring municipalities.

CAC's are how municipalities are financing growth. They are contributions made by developers who are successful in obtaining rezonings. The current city policy is that they be approximately 75% of the increase in land value upon rezoning. I think this is wrong, for reasons set out below.

I am not opposed to the city demanding money from developers who successfully rezone land. However, I believe the amounts should be predetermined, based on the cost of providing services, and what will be economically viable....to the extent that they are not so great that they disuade a developer from seeking a rezoning.

Why do developers seek rezonings? Because, and I say this advisedly.....the city oftentimes does not zone land for its most appropriate form of development, so that developers will be encouraged...that word should be in quotations....to come forth with rezoning applications, during which he/she and the city can negotiate the appropriate CAC. I refer to it as "let's make a deal".

While the City of Vancouver is confident that it is legally acceptable that CAC's be 'extracted' in return for rezonings, other jurisdictions are not. Therefore, they require the developer to sign a letter that says the CAC's are a voluntary 'gift', not an extraction! I'm not making this up!

So today, Brent Toderian, the very articulate and forceful Director of Planning spoke to the Urban Development Institute. There was a large audience. Prior to his talk, I suggested that I hoped he would include the topic of CAC's in his talk, and he assured me he would.

His presentation was very good, and when it was over, the moderator asked for questions. Not surprisingly, no one asked a question, so not surprisingly, I did. (In fact, Brent assured his table that I would be the first person to ask a question!)

I asked Brent why the city thought it was a good idea for CAC's to be based on appraised land lift, rather than related to the cost of providing services. (Had I had the time, and wanted to make a speech, I would have added that it is oftentimes difficult to determine the 'lift', and this creates much too much uncertainty for all parties.)

Michael, Brent replied, if the CAC's were tied to the cost of providing services, they would be much higher, and not affordable. A very cute answer!

So tonight I sent Brent an email, which I am reprinting below. I'll welcome any comments.

Brent, as I mentioned after your talk, I thought it was a very good presentation that you made to UDI today. I really look forward to comprehensive plans for the DTES and the city as a whole.
I do want to very briefly explain why I keep harping on the question of whether it's better to base CAC's on land lift, or a predetermined CAC that is both reflective of the cost of providing amenities, while still acknowledging the economics of new development.
Following the session, one of the city's appraisers who was in attendance sent me a note. He said (with a gleam in his eye) that he agreed with the city's position, noting that "if you get the right appraiser, the city's approach can work to the developer's advantage".
My response to him was that this was why I was so concerned. I don't want the city to continue to pursue a system, the success of which is partially dependent on who is the developer's appraiser!
As I mentioned to Larry Beasley following the session, sometimes it takes three appraisals before the city and developer can agree on the CAC amount. Larry said, well that's just an issue of 'process'. It isn't. It's a problem because in many of the situations being encountered with new rezonings, we really don't know what the fair market value of land is upon rezoning. As I asked Larry, what is the value on a square foot basis for a mid-rise building on Cambie Street? What is it? Do you know? We don't know. Grover Elliot doesn't know. Burgess Cawley doesn't know. Altus doesn't know. None of the appraisers really know, and won't know for a few years.
I will argue that this will also be a problem for the first back to back stacked townhouses on rezoned single family land in Mt Pleasant; street rowhousing off Dunbar; or coach houses for sale in various parts of the city. None of us really know what land will be worth for these specific uses upon rezoning. Indeed, in my West Van project I honestly don"t know if the coach houses are worth more per square foot than duplexes. And for what it"s worth, the appraiser doesn't really know either.
So that's why I don't think appraisals are really the way to go.
And as for my suggestion that the CAC's be based on the cost of providing services, I obviously wouldn't suggest that the entire cost be covered. Indeed, as we have discussed, if the CAC is too high, the land won't be rezoned. This nearly happened in West Van and is currently happening in Oakridge where I understand single family homes are proceeding on lands that should be multi-family.
So let's keep the discussion going. Cheers Michael

65 comments:

Anonymous said...

Dear Developer

If you pay me something I call "CAC" (which I will not define),
then I will support the rezoning of your land.
The more you pay me the better your chances
( My "vision" is that you will be making me a BIG payment which makes the price of housing rise but who cares)
And my "vision" is pretty bland so, as long as you really densify , no problem
The key is the size of the bribe and we pay lip service to community concerns or planning principles
Please tell your neighbours and friends that as long as we get a juicy bribe the WHOLE CITY is "in play"!!
So as not to fetter the discretion of Council I cannot tell you the amount of this bribe until after you spend lots of money
A public hearing or two should occur in about a year maybe 2 years
By then, we may be able to gouge you for more!
And, don't worry the bribe will remain a secret ( unless it helps us grind more out of others)!

Regards,
City of Vancouver

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