Land lift: How Vancouver zoning policy creates multi-million-dollar teardowns

B.C. teardown on the market for $10.5M This 4-bedroom Vancouver home is on the market for $10 million, but prospective buyers aren't allowed to look inside.

A $10.5-million teardown on West 41st Avenue near Oakridge mall is just one of many Vancouver properties on the market for several times what they "should" be worth in their current state.

The underlying reason for the sky-high asking prices is a phenomenon all Vancouverites are familiar with, even if they don't know the technical term: Land lift.

"Land lift" is the increase in property value that occurs when a lot is rezoned to accommodate more units. Essentially, a 700-square-metre (7,500-square-foot) lot like the one at 448 W. 41st Ave. is worth much more if it can be developed into thousands of square metres of living space across dozens of units than if it can only be used for a single, 200-square-metre house.

So, when the city rezones a property to allow more density, its value can increase many times over, basically overnight.

Vancouver acknowledges this dynamic in a variety of planning documents, and says its goal is to capture roughly 75 per cent of the increase in land value by requiring Community Amenity Contributions from developers, but one local expert says asking prices near Oakridge suggest the city isn't achieving that goal as well as it used to.

THE YALETOWN EXAMPLE

Patrick Condon is an urban design professor at UBC's School of Architecture and Landscape Architecture.

In an interview with CTV News, he said the City of Vancouver "pioneered" the Community Amenity Contribution model, repeatedly citing the redevelopment of Yaletown in the 1980s and '90s as an example of the city's approach working as intended.

CACs are monetary or in-kind contributions provided to the city by developers in exchange for rezoning allowing them to build denser housing. In theory, they also suppress land lift by imposing a substantial additional cost on any prospective developer looking to acquire land.

"The developer, knowing that that is a cost in the future, is not going to be able to pay 20 times the value – the current value – of the land," Condon said. "They're only going to be able to pay you twice or three times the current value of your land. And that's how Yaletown was equipped with community centres, daycare centres, to some extent housing for the poor, and the seawall and all the park infrastructure."

CACs are still a primary source of this kind of infrastructure in Vancouver. When CTV News asked the city for an interview with a planner about the phenomenon of multi-million-dollar teardowns in the Oakridge neighbourhood, the city said no one was available, instead providing a written statement from director of community planning Neil Hrushowy.

"The Cambie Corridor Plan has an extensive Public Benefits Strategy (PBS), informed by community engagement and technical studies by staff, on the full range of improvements necessary to support growth in the corridor, including, but not limited to housing affordability," the statement reads, in part.

The 2018 document containing that strategy anticipates $687 million worth of investment in community amenities along the corridor over 10 years. More than 85 per cent of that total, some $590 million, is forecast to come from developer contributions.

The document earmarks $161 million of the total for the creation of affordable housing in the plan area. Another $100 million is slated for investment in parks, $78 million for transportation and $64 million for community facilities. Nearly a third of the money – $211 million – is assigned to not-yet-defined "future priorities."

OAKRIDGE EXAMPLES

Clearly, CACs play an important role in the development of public infrastructure in Vancouver. But are they having the desired effect on land prices?

Not anymore, according to Condon.

He noted that the $10.5-million listing on West 41st Avenue featured in a CTV News story last week is one of "a host of similar properties" with city-identified rezoning potential in Vancouver.

"There's speculation occurring, technically: speculation that it will be that valuable, even though for its existing use, which is as a single-family home, it is certainly not that valuable," Condon said.

"This is going on in all parts of the city to one extent or another, and particularly where there's been a plan authorized by public officials that suggests or insists that there will be new density there. That immediately inflates the expected sale price of the land."

Properties two blocks away at 5629, 5609 and 5583 Ash St. all have similar lot sizes to 448 W. 41st Ave. and similar 18-storey-tower development potential. Each one is also being offered for $10.5 million.

These listings, and others like them, suggest to Condon that the city has dropped or loosened its commitment to capturing the 80 per cent of land lift that it did when Yaletown was being rezoned.

"The significance of this parcel on 41st, to me, is that it indicates strongly that the city is no longer doing that, or if they're doing that, they're not doing it very well," he said.

'DISCIPLINING THE LAND MARKET'

One key difference between Yaletown before it was redeveloped and Oakridge now is that Yaletown was largely an industrial area, while Oakridge is primarily residential.

The lots in Oakridge are, generally, smaller than the ones in Yaletown were. Many redevelopment projects in the area require land assembly – the purchase of multiple adjacent residential lots, often with different owners – to be viable.

The city, in its brochure for developers, says "there may be some recognition of the premium costs associated with land assembly" when negotiating CACs, but it stresses that that's the developer's problem, not the city's.

"To dampen speculation, which can result in overpayment for land, the city does not always recognize price paid as land value within the financial analysis," the brochure reads.

Condon told CTV News he sees the problem as a political one. The city, he said, needs to get better at what he called "disciplining the land market" by enforcing an environment of high CAC costs that make land speculation less viable.

"The developer doesn't care if the $10 million goes to the landowner or to the city, but the landowner needs to be convinced that he or she can only sell that land for $2 million, rather than $10 million," Condon said, citing a hypothetical example.

"As soon as they think that 'I can sell that for $10 million,' the city's attempt to capture 80 per cent of that land lift will fail. And it fails because no project will happen."

For a city perpetually in the throes of a housing crisis, this course of action would be politically dicey. Condon acknowledged that "disciplining the land market" would take time and require certain projects to go unbuilt, at least for a few years. A city council that attempted to do it could be seen as actively blocking new housing construction in a city where more affordable homes are always needed.

But new housing and affordable homes are not the same thing, and Condon believes land prices make it impossible to produce the latter in the current environment.

"There's certainly a lot of debate on that," he said. "My position is that it becomes impossible to create affordable housing. Just the creation of new density does not automatically lead to any affordability, and it's precisely because that new density value is captured by the landowner."