BOSA PROPERTIES SAYS BURNABY POLICIES MAKE PURPOSE-BUILT RENTAL PROJECTS “UNBUILDABLE”
At a time when cities across Canada are in desperate need of more rental homes, well-intentioned policies in the City of Burnaby are making purpose-built rental projects unviable, says Bosa Properties, one of British Columbia’s largest developers.
In a letter to Burnaby City Council dated July 2, Senior Director of Development Kyle Wright told Council that Bosa Properties had spent the past six months contemplating two 100% purpose-built rental projects — one in the Metrotown neighbourhood and one in the adjacent Royal Oak neighbourhood.
Regarding the Royal Oak project, Wright said Bosa had contemplated a “multi-phased complete community of 1,200+ rental homes anchored by walkable retail, in line with the vision and goals of the draft Royal Oak Community Plan.”
Wright said Bosa had made the decision to not proceed with acquiring the Royal Oak site, “as Burnaby’s current policy context means purpose built-rental (and even condo) is not economically viable for investment.”
“In the case of the Royal Oak site, it was a large 3ac site, acquired at a relatively low land price, with among the most permissive height allowances in the Community Plan, which facilitates the ability to mass significant amounts of density,” Wright said. “Despite the potential for significant density, the low land price, and our internal decision to underwrite below-market CMHC program interest rate assumptions, the project was not even close to meeting minimum return thresholds necessary to justify the investment. If our site wasn’t viable for investment, we’re certain the whole Community Plan is un-buildable without a policy change.”
As outlined by STOREYS this time last year, the City of Burnaby has been developing the Royal Oak Urban Village Community Plan, setting the stage for redevelopment, but a lot has changed since then, including the suite of new legislation introduced by the Province last fall that has resulted in widespread changes.
ACCs And DCCs
In his letter, Wright points to two of Burnaby’s policies as key reasons why purpose-built rentals aren’t feasible for developers, one of which is the recently-approved introduction of amenity cost charges (ACCs) and updates to development cost charges (DCCs).
The City began exploring the change earlier this year, as a result of the Province’s introduction of Bill 46, which resulted in numerous other developers voicing their concerns to the City, saying that the charges will likely add a significant amount to their costs, which would force developers to either pass those higher costs onto consumers or abandon projects altogether.
Wright said that Bosa Properties “inherently agree” with the changes, but that the City needs to reconsider levying these charges on affordable rental housing, “which is effectively a tax on affordable housing.”
“Although there is an ACC/DCC waiver mechanism (albeit a flawed one), private investors / builders are not eligible, which disincentivizes investment from professional landlords like Bosa Properties who want to build affordable housing in Burnaby,” said Wright. “This affordable housing is a public good and taxes should not make it harder to develop these much-needed rental homes.”
Wright went on to say that Bosa’s recommendation is that the City eliminate ACCs and DCCs for affordable housing, while recognizing that “there is likely little appetite at this time for reviewing the ACC/DCC charges” because the policy was just adopted last month.
Reached by STOREYS, Wright declined to share how much Bosa would’ve had to pay in ACCs and DCCs for the Royal Oak project they were contemplating, and also declined to comment on whether they explored other forms for the project, such as full strata or a mix of strata and rental. He also declined to share the address of the Royal Oak site they were considering acquiring.
Inclusionary Rental Requirement
The other key policy Bosa Properties pointed to was the City’s inclusionary policy that requires 20% of units in residential developments to be secured at 20% less than CMHC median rates — part of the City’s Rental Use Zoning Policy.
“While a 20% discount from CMHC median doesn’t sound like deep affordability, in the case of our Royal Oak site, the inclusionary affordable units are effectively 60% below market rents in the area,” said Wright. “60% below market rents may sound good for tenants, however this deeply discounted revenue means each affordable unit we build loses money. The cost to build each affordable unit was $350k greater than the value of the unit, which translated to a $90M loss over the entire phased development.”
He also added that because British Columbia has caps on rent increases, rental income will not be able to keep pace with operating costs, further discouraging new rental development.
Wright went on to say that Bosa Properties was recommending the City remove the inclusionary requirement on purpose-built rental projects, citing a study by UCLA that found that while inclusionary zoning produces affordable homes, it also reduces overall housing production.
“Removing the inclusionary requirement does not mean Burnaby will lose out on the potential for new affordable rental housing,” explained Wright. “Private developers like Bosa Properties, who rely on low-cost CMHC debt to finance construction, will likely still choose to voluntarily provide affordable housing to qualify for the federal loan. CMHC loan products ensure affordability by following a % of household income approach, which is more balanced than Burnaby’s discount from CMHC model.”
Burnaby’s Rental Use Zoning Policy was approved years ago, however, so a reasonable question is why the policy is an issue now.
“We do want to acknowledge that Burnaby has been a policy leader, particularly with its inclusionary zoning policy which has been successful in spurring new rental in recent years,” Wright said in an email to STOREYS. “But market conditions have changed as outlined in our letter, and challenges like increased interest rates and construction cost inflation, along with rising Development Cost Charges (DCCs), have made new rental construction economically challenging.”
“Burnaby is an important community for us – it is the original home of the company – and we remain committed to working with local government and partners to find solutions that serve the needs of the community and support the City’s OCP rental housing targets,” Wright added.
Currently, Bosa Properties is constructing a 35-storey, 295-unit rental tower at 5980 Kathleen Avenue, which is set to complete construction later this year and is around the corner from their 50-storey Solhouse 6035 tower that received final approval this year and is set to include 411 strata units and 68 below-market rental units.
Story by: Storeys
