Monday, May 23, 2011

Hollyburn Mews: North Shore Outlook's Account of the May 16 Public Hearing

On Monday May 16, 2011, after almost five years of planning and deliberations, a revised proposal to put 9 smaller homes on 3 lots in Hollyburn went before West Vancouver Council at Public Hearing. As the new developer, I was pleased that the merits of this proposal one block from Marine Drive, next to the Seniors' and Community Centre, would finally be discussed at Public Hearing. However, I was concerned that a 'last minute' issue related to the appropriate determination of the amount of the Community Amenity Contribution payable by the developer might derail the Public Hearing. Sadly, I was right, and the Hearing has now been adjourned until Monday June 6th, 2011.

While each participant in this process may have a different perspective on the situation, here is how I see it. In setting out these observations, I must say that I have very much appreciated the dedication of District staff over the past 11 months while processing this application, and the high level of interest from the Mayor, other members of Council, and the broader West Vancouver community.

In a few Metro municipalities, it is becoming increasingly common to demand 'voluntary' payments from developers seeking rezonings to 'finance growth'. I say finance growth in quotes since in the case of this application, few are disputing that the resulting population from nine smaller units may be no greater than that from three larger houses, each with a legal basement suite.

Most developers do not object to paying fair Community Amenity Contributions or Development Cost Levies to finance growth. However, whereas most municipalities determine the Community Amenity Charge based on a cost per unit or per square foot of new development, the City of Vancouver and the District of West Vancouver have been determining the developer's payment as a percentage of the incresed value of the land upon rezoning. That's right. If the land is expected to go up in value, (and usually it does) the 'lift' in value is determined to be subject to a form of 'muncipal taxation', to the tune of 75% of the estimated increase.

Is this fair? Well, it depends on who you talk to. I personally think it is the wrong way to proceed for many reasons. Not only does it create uncertaintly for the developer, it may not be fair to the public, especially for small, low density proposals. In such cases, the value upon rezoning may not be any greater than the value prior to rezoning, or the price paid for the land.

This was the case for my late 1990's Balaclava Mews proposal on West 41st between Balaclava and Carnarvan. As part of the approval process, City staff requested copies of my Purchase and Sale agreements for the 7 lots I was proposing to rezone for new seniors' oriented apartments. In this case they compared the value upon rezoning with the price I paid for the properties. The conclusion? As then Real Estate Director Bruce Maitland told Councillor George Puil, the city would not be requesting any Community Amenity payment since I paid too much for the land!

In the case of Hollyburn Mews, a Letter of Opinion was requested from Vancouver appraiser Sandra Cawley in February 2010. At the time, she concluded that since there were no similar projects to compare, especially involving the sale of coach houses, and the very low overall density being sought...about 0.63 at the time, (similar to single family density in Vancouver) the 'lift' was negligible. However, the developer was asked to contribute approximately $50,000, and he agreed to do so.

I purchased the project from the original developer on the understanding this matter had been resolved. However, after buying the properties and concluding the public consultation process, the project was not able to proceed to Public Hearing since the District was undertaking a reveiw of its entire zoning by-laws. I therefore decided to use the delay to revise the plans, adding in-ground basements or cellars, something potential buyers were requesting. I also made other design changes to improve the design and 'neighbourhood fit'.

Prior to Council's consideration of the revised application, I was told that since I had added basements, the District thought this might increase the reezoned land value. Therefore, at the last minute, another Letter of Opinion was requested and submitted.

At first I was not concerned about the request for another appraisal since two very knowledgeable West Vancouver developers, and other realtors had told me the value of the property as single family lots had increased significantly and I might be better off financially selling the lots with their current zoning. Indeed, while I expected the project to be profitable, I did not expect to make any money on the 'land lift'.

However, the new Letter of Opinion increased the estimated lift to $595,000! Unfortunately, I did not have the opportunity to fully analyze the letter before it was presented to Council. However, once I did, I realize it under-estimated the holding costs. More specifically it allowed only 3 months for the rezoning, development and building permits. Yes, 3 months. In reality, it will likely take a year from the time I bought the properties to the time I actually start construction. And while I want to build as quickly as possible, construction will likely take at least 14 months, longer than allowed.

I also questioned the anticipated sales prices that were significantly higher than those estimated in February 2010, and more than I expected. More importantly, I thought the values as single family lots were underestimated, especially given the recent rise in prices, with many sales above asking prices.

Determining a land residual value can be very challenging. In addition to estimating future sales prices, the appraiser must estimate construction costs, interest rates, and other variables. In this instance, a potential builder asked if the appraiser's estimate made provision for the various sustainability features West Vancouver was seeking. I was told the construction cost assumed a good quality of construction, but it did not specifically account for better heating and insulation systems, dry-sprinklers, heat recover ventilation, etc. These costs alone can add 3 to 5% to the cost of a home and reduce the land value accordingly.

Similarly, the estimate did not include any provision for the required undergrounding of BC Hydro wires, (which is now estimated at $35,000 but could easily end up double this amount), and the cost of other off-site obligations.

When I pointed this out to staff, they agreed with my concerns and decided to request a third Letter of Opinion as of September 2010, when the consultation process had concluded and I was in a position to make my submission. At that time I theoretically had the choice of taking 8 weeks to obtain permits to build three new houses, or go through a rezoning process that would take longer.

Using revised assumptions, the anticipated 'lift' was reduced to $155,000, and the requested contribution was set at $116,000. Rather than delay the project, I agreed to pay this amount.

It should be noted that in addition to theCAC, I am also paying a Development Cost Charge of approximately $62,000, ($55,000 of which goes to West Vancouver) since I chose to consolidate the three lots into one to improve the design and future ongoing management. Had I not asked to consolidate the lots, this payment would not need to be paid to the District.

At the Public Hearing, approximately 47 people spoke to Council with the majority in support. This was quite remarkable in West Vancouver, which is generally known to be slow to change. However, since a couple of speakers questioned the disparity in the last two Letters of Opinion, the Public Hearing was adjourned so that the staff and appraiser could review with Council the rationale for the variations.

Hopefully, once the facts are better understood, Council will agree that CAC and DCC contributions totalling $171,000 is more than reasonable, especially since the prosal only increases the FSR by 4800 square feet. This equates to $36 a foot, higher than CAC/DCC's in other jurisdictions.

It should also be noted that while other municipalities charge CAC's based on 'land lift' or dollars per sq.ft., to the best of my knowledge no other municipality would require a CAC payment for a small, low density project such as this.

As you read the newspaper account below, you will note some rather outrageous claims by one person, a mathematician who often questions the calculation of Community Amenity Contributions in West Vancouver. At the Public Hearing, he referenced a nearby townhouse development for which he claimed the land value went from $2.8 to $6.8 milion. His information was both incorrect and ridiculous; so much so that I didn't know how to respond when asked by the reporter to comment on his calculations. One can only hope that the staff and Council will understand the situation and do what is fair.

As attested by dozens of speakers at the Public Hearing, this is a much needed development. The housing will not likely increase the population, and it is, in itself, a community benefit for those seniors who want to downsize and remain in the neighbourhod. As other speakers noted, this proposal is exactly what the committee studying community housing choices has been recommending. As one seasoned architect so elegantly said, "This proposal is re-inventing West Vancouver in a very positive way".

Lower Mainland municipalities need to change our current system of calculating CAC's and return to something that is more predictable and fair for all participants, including the Public. However, this is not likely to happen before June 6th when Council will resume the Public Hearing. Anyone may speak again. Hopefully, following public input and the appraiser's explanations, Council will approve this much needed proposal with a CAC and DCC that will allow the project to be built and sold at prices deemed fair and affordable, which was another of the issues repeatedly raised at the Public Hearing.
North Shore Outlook
Laneway housing project splits West Van residents
By Rebecca Aldous - North Shore Outlook

Published: May 18, 2011 1:00 PM
Updated: May 18, 2011 2:07 PM

If land re-zoning is allowed for the Hollyburn Mews proposal – which includes a duplex and a coach house on each of three lots – then the value of the land will increase. But by how much?
Submitted image

The district and the developer behind West Vancouver’s possible first carriage housing development are once again reaching for their calculators.

Michael Geller, a Vancouver-based architect and planner who oversaw developments such as the South Shore of False Creek, has drafted a nine-unit development on three lots in the 2000-block of Esquimalt Avenue. The proposal includes a duplex, ranging in size from 1,430 to 1,650 sq.ft., and a 1,150 sq.ft. carriage house on each lot.

Before Geller can break ground, the development needs an Official Community Plan (OCP) amendment and a re-zoning of the three parcels. District staff recommended the OCP amendment apply to the entire block to allow for similar infill projects on the remaining lots.

Three hours’ worth of speakers chimed in with their thoughts on the project, Hollyburn Mews, at Monday night’s public hearing. Ultimately what stole the show were questions regarding the project’s estimated dollar increase as a result the re-zoning. The re-zoning would allow for more units on the lots than the original designation, essentially increasing the value of the properties. This process is called uplift; three quarters of the new value is paid to the municipality as a community amenity contribution. Council uses that money for improvements throughout West Van.

The uplift for Hollyburn Mews was estimated to be $155,000 by real estate appraisers Burgess, Cawley, Sullivan and Associates. That’s down from a $595,000 estimate the company came to earlier in the year. The two vastly different figures raised eyebrows among the crowd.

Using the most recent estimate, if council waved its re-zoning wand, tripling the permitted number of units and increasing the permitted density by 75 per cent, the value of each lot would only increase by $52,000, West Vancouver resident George Pajari said. This simply doesn’t add up, he said. If the developer were to build the same number of units within the existing zoning, he would have to spend millions to buy sufficient land, he said.

“If you had to go out and buy six lots in West Van how far do you think $155,000 would get you?” Pajari asked council.

Councillors Michael Smith and Bill Soprovich suggested the development’s public hearing be adjourned to the next council meeting, on June 6, to allow councillors the opportunity to review the variance.

Since the hearing, the district and Geller have discussed using a formula which will more clearly define the uplift. One of the difficulties the district faces is there are no comparable developments when calculating its worth, said Bob Sokol, the district’s director of planning, lands and permits. In addition, the value difference is not based on the dollar increase of the property once the property is developed, he noted.

“You can’t just look at the sale price of the project,” Sokol said.

The new formula will likely have a payment to the municipality that is tied with the financial success of the project, Geller said.

People often assume nine smaller houses are worth more than three larger houses, but it is not always the case, he said, noting the profitability of the project doesn’t hinge on the uplift.

Many people are concerned about affordable housing within the region, yet the more the project will have to pay to the district, the higher the units’ prices will be, Geller said, adding Pajari’s figures are calculated using BC Assessment numbers which would distort the value of the land. Community amenity contributions are common; however they are usually paid to offset the cost of additional amenities for the increase in population, Geller noted.

“In this case the number of people living in nine smaller houses may be no different than the ones living in three larger homes,” he said.


Anonymous said...

City Hall(s) are continuously paying lip service to being ernest about finding ways to make housing more affordable, but their use of DCC's and internal inefficiencies are only serving to drive the prices up. These are taxes, plain and simple, that get passed on to the consumer. When will City Hall(s) get back to their job of providing basic services to our communities and being mindful of the bottom line?

Stephen Smith said...

So, this "lift" – do you think it would be fair to say that Vancouver essentially has a roughly 50-75% marginal tax rate on dense development? If so, that's truly incredible – can you imagine if the government tried to tax other industries like that?

AJ said...

Re: Stephen Smith's comment. The charge on the uplift may seem high, but a rezoning change which results in a change in land value is essentially a gift to the developer from the people of West Van - the developer didn't do anything to increase the land value, so really has no fundamental claim to this value - the developer makes profit on the building activity itself. In the reverse situation in which the city expropriates land, they are obligated to pay fair compensation for the loss in value, so why shouldn't it work both ways?

Anonymous said...

The City of North Vancouver doesn't compensate property owners when they appropriate land for lane right of ways. I had 10 feet of my lot taken as soon as I applied for a building permit for my house.

Stephen Smith said...

AJ – I guess you can think about it like that, but it's not like that land began its time on earth zoned that way. Around the turn of the century there were essentially no zoning rules at all, so at some point someone must have had their land downzoned without being compensated.

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