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An investigation of the reasons for and impact of rental apartment demolitions in Vancouver's Kerrisdale… Ho, Danny 1989

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A N I N V E S T I G A T I O N O F T H E R E A S O N S F O R A N D I M P A C T O F R E N T A L A P A R T M E N T D E M O L I T I O N S IN V A N C O U V E R ' S K E R R I S D A L E N E I G H B O U R H O O D , 1989 By Danny Ho B . A . , The University of British Columbia, 1982 Post-Baccalaureate Diploma, Business Administration, Simon Fraser University, 1987 A THESIS S U B M I T T E D IN P A R T I A L F U L F I L L M E N T O F T H E R E Q U I R E M E N T F O R T H E D E G R E E O F M A S T E R O F A R T S IN T H E F A C U L T Y O F G R A D U A T E STUDIES The School of Community and Regional Planning We accept this thesis as conforming to the required standard T H E U N I V E R S I T Y O F BRITISH C O L U M B I A December 1989 © Danny Ho,1989 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my writtem permission. Danny Ho School of Community and Regional Planning The University of British Columbia 6033 Memorial Road Vancouver B . C . V 6 T 1W5 December 1989 © Danny Ho Abstract This study investigates the impact of intense development pressures on the low-rise rental stock in Vancouver's Kerrisdale neighbourhood. In a neighbourhood which has changed little over the last twenty years, Kerrisdale changed rapidly during 1988 and 1989. Starting in late 1988, the neighbourhood has been inundated with new luxury condominium projects. In the process, 17 rental buildings have been or will be demolished to make room for the new condominium and over 300 tenants (many elderly) will be evicted. This study analyzes why this is happening and investigates what impact the demolitions and evictions have had on the displaced tenants. The case is especially interesting because forced evictions do not generally take place in a city's exclusive neighbourhoods. The study also examines the rationale for the demolitions, the key players involved, and the city and provincial government's response. The impact of the redevelopment pressure has been primarily social. Social impact refers to loss to self-esteem, uncertainty, anxiety, loss of control, and stress. Although there is a perception that Kerrisdale residents are very wealthy, tenants tend to be less well off. A n analysis of Statistics Canada income data show that more than 40% of the tenants in the low-rise rental stock earned less than $20,000 per year in 1985. Ironically, it is the tenants in the low-rise buildings who tend to be the least able to cope financially who are the most at risk of eviction. It is the low-rise stock which is the target of redevelopment pressures. While still relatively early in the eviction process (only 7 of 17 buildings have been demolished), this study found that evicted tenants moved to all parts of the Lower Mainland. Younger tenants tended to moved further while the elderly tended to stay nearby. The study found that more than 65 percent of the elderly were able to stay in the neighbourhood. Evicted renters who found places in Kerrisdale generally paid more rent for the same space. Many had no choice but to seek accommodation in the more expensive high-rises. Due to the fixed income of many of the elderly, it is unclear how many would be able to withstand another round of rent increases. A n analysis of the development economics of construction in Kerrisdale indicates that the primary rationale for the demolition of the rental stock is economics—there is a much greater profit margin in developing luxury condominiums than there is for maintaining or constructing rental housing. Strong demand from Eastern, local and off-shore investors combined with a severe lack of land zoned for multiple residential development has increased the incentive to demolish the low-rise stock. Two thirds of the developers currently pursuing luxury condominium projects in Kerrisdale are from off-shore and are new players in the Vancouver market. The remaining developers have are from Vancouver. It is the local developers who are developing the majority of the units proposed. They are also the later entrants into the Kerrisdale market. This study has found that the sale of the new luxury condominium units in Kerrisdale will be promoted in both local and off-shore (particularly Hong Kong) markets. Many of the projects have been designed with the off-shore buyer in mind. The provincial government's response to the Kerrisdale situation has primarily been to avoid market intervention. The city's response has been to slow the rate of change. This has been accomplished by implementing demolition delays, amendments to current building by-laws, rental demolition fees, and the creation of a Vancouver Land Corporation ( V L C Properties Limited) with a mandate of building affordable rental housing as a replacement for stock lost throughout the city. The success of these strategies can only be determined over the long term. The results of this study suggest that the rental housing sector is unlikely to improve without substantial subsidies from third parties or from government. Citizens need to be aware that there is a cost to be paid for the status quo. One fact to consider is that there is tremendous demand to live in Vancouver, yet more than 70% of it is zoned low-density. In order to relieve some of the pressure for demolitions, selected rezoning to higher densities is required. At the same time, municipalities need to look at improving transportation access so that new land can be made available to accommodate growth. iv Table of Contents A B S T R A C T ii T A B L E O F C O N T E N T S iv L I S T O F F I G U R E S vii A C K N O W L E D G E M E N T S ix C H A P T E R O N E : I N T R O D U C T I O N 1.1 Purpose 1 1.2 Rationale 2 1.3 The Context 3 1.4 Scope 5 1.5 Methodology and Organization 5 C H A P T E R T W O : L I T E R A T U R E R E V I E W : R E S I D E N T I A L D I S P L A C E M E N T 2.1 Introduction 8 2.2 The American Experience 8 2.3 The Canadian Experience 11 2.4 Summary 13 C H A P T E R T H R E E : I M P A C T O N K E R R I S D A L E 3.1 Introduction 18 3.2 Census Profile of Kerrisdale Residents 20 3.3 Profiles of Tenants in Kerrisdale R M 3 Apartment Zone 3.31 Age Mix of Kerrisdale Tenants 20 3.32 Occupation/Income Characteristics 20 3.4 Description of Rental Housing Stock 22 3.5 Property Assessments and Tax Increases 24 3.6 Condominium Projects Currently Planned in Area 26 3.7 Impact of Redevelopment on Tenants 27 3.71 Who and How Many People are Impacted? - 27 3.72 Tenant Incomes 30 3.73 Where Did Displaced Tenants Go? 31 3.74 Financial Impact of Evictions: Affect on Rents Paid 32 3.75 Social and Psychological Impact of Evictions 34 3.8 Summary 40 V C H A P T E R F O U R : P R O F O R M A A N A L Y S I S — T H E E C O N O M I C S O F R E N T A L V E R S U S C O N D O M I N I U M I N V E S T M E N T 4.1 Introduction . 43 4.2 Where are Private Rental Units Being Built? 44 4.3 Where are Non-Market Housing Projects Being Built? 45 4.4 The Housing Market in the Kerrisdale Apartment Area 46 a) The Luxury Condominium Market 46 b) The Rental Housing Market 48 4.5 Development Economics in Kerrisdale 50 4.6 Economics of Rental Versus Condominium Investment 52 a) Scenario 1, Buy Rental and Continue to Operate 53 b) Scenario 2, Analyis of Profits: Buy 1983; Sell 1989 55 c) Scenario 3, Build Hi-Rise Apartment and Rent Today 57 d) Scenario 4, Build Apartment and Sell as Condominium 57 e) Scenario 5, Analysis of Further Risk of Kerrisdale Land 60 4.7 Summary 63 C H A P T E R F I V E : T H E K E Y P L A Y E R S 5.1 Introduction 65 5.2 Details of Apartment Transactions 67 5.3 The Developers 70 5.31 Extent of Flipping 71 5.32 Mortgage Financing 72 5.4 The Previous Owners 72 5.5 Summary 74 C H A P T E R SIX: P O T E N T I A L D E M A N D 6.1 Introduction 77 6.2 Supply of Apartment-Zoned Land 77 6.3 Where is Demand Coming From? 78 6.4 Who is Driving the West-Side Housing Market? 82 6.5 How Deep is the Kerrisdale Condominium Sub-market? 87 6.6 Summary 89 C H A P T E R S E V E N : T H E CITY'S R E S P O N S E and P O L I C Y OPTIONS 91 7.1 Introduction 91 7.2 The City's Response 93 a) Demolition Delay 93 b) Vancouver Land Corporation 94 c) R M 3 Amendments 94 d) Rental Demolition Fee Requirement 95 vi 7.3 Demand S ide Options: 7.31 Rent Control 98 7.32 Demolition Control 99 7.33 Ownership and Speculation Taxes 99 Supply Side Options: 7.34 Increase Capacity by Rezoning Low-Densisty Areas 100 7.4 Other Options 7.41 Require Developers to Pay for Affordable Housing 101 7.42 City Helps Seniors Buy Building in Kerrisdale 102 7.5 Summary . 103 C H A P T E R E I G H T : C O N C L U S I O N 106 A P P E N D I C E S : Appendix 1 Impact on Kerrisdale 109 la. Evicted Tenants Characteristics and Relocation Distribution 110 lb. Evicted Tenants Characteristics and Relocation Distribution 111 Appendix 2 Potential Demand/Offshore Marketing 112a 2a. Real Estate agent's letter of solicitation on behalf of Hong Kong Buyers 113 2b. Newspaper Advertisement for Kerrisdale Condominium in Hong Kong 114 2c. Advertisement of Vancouver Properties in Hong Kong 115 2d. Investment Analysis in Foreign Exchange 116 2e. Commercial Bank Lending Rates, Selected International Countries 117 Appendix 3 Policy Response II 7a 3a. Letter to Kerrisdale Resident from Rita Johnson on Provincial Policy 118 3b. Details of City's Demolition Delay Requirements for Developers in Area 119 3c. By-Law 6515, R M 3 Amendments, April 4, 1989 121 3d. By-law 6539, Demoliton Fee requirement, August 1, 1989 122 3e. Letter from Real Estate agent urging Home-owners to oppose R M 3 Amendments 123 3f. Kerrisdale RS-1 Rezoning Policy, 1980 (resistance to upzoning) 125 R E F E R E N C E S 126 v i i List of Figures Chapter 3 P. Figure 3.1 Kerrisdale R M 3 Apartment Area Map 15 Figure 3.2 Map of Apartments Currently Planned for Redevelopment 16 Figure 3.3 Addresses and Unit Breakdown of Apartments Currently Planned 17 Figure 3.4 Demographic Profile, Kerrisdale and City of Vancouver 20 Figure 3.5 Annual Income Chart of Kerrisdale Forum Participants 21 Figure 3.6 Privately-Owned Apartment Vacancies in Vancouver C M A , 1989 22 Figure 3.7 Rental Stock Inventory in Kerrisdale apartment area, 1986-1989 23 Figure 3.8 Rental Apartment Buildings Sold in Kerrisdale, 1980-1989 24 Figure 3.9 Historical Tax Information on Properties with applications for redevelopment 25 Figure 3.91 Private Households by Area, By Household Type, by Household Maintainer Age, by Income and By Tenure in Kerrisdale R M 3 Apartment area 28 Figure 3.92 Renter to Owner Household Comparison in Kerrisdale R M 3 area, 1986 29 Figure 3.93 1986 Median Household Income Characteristics of Residents in Hi/Lo-Rises Structures in Kerrisdale 30 Figure 3.94 Monthly Safer A i d Allowances for Single People 33 Figure 3.95 Social and Psychological Impact of Eviction on Elderly Renters 35 Chapter 4 Figure 4.1 Apartment Condominiums and Private Rental Units Under Construction, June 1989 45 Figure 4.2 Social Housing Inventory by Area in City of Vancouver 46 Figure 4.3 Recent Kerrisdale Concrete Condominium Completion Statistics 47 Figure 4.4 Historical 1 Bedroom Rent Levels in Kerrisdale and City, 1985-1989 48 Figure 4.5 CPI Change for Owner and Renter Expenses, 1985-1989 49 Figure 4.6 Percentage Price Increase For Luxury Condominiums by Area, Apr. 88-Apr. 89 50 Figure 4.7 Median Luxury Condominium Prices, Vancouver, April 1988-April 1989 51 Figure 4.8a Proformas, Scenario 1: Continue to Maintain Rental Investment 54 Figure 4.8b Scenario 2, Profit Performance of Rental Investment, 1983-1989 56 Figure 4.8c Scenario 3, Build New Hi-Rise and Rent in Today's Market 58 Figure 4.8d Scenario 4, Build a Condominium and Sell 59 Figure 4.8e Degree of Risk for Further Redevelopment (Based on Developer's Budget) 61 Chapter 5: Figure 5.1 Summary of Developers Having Applications for Condominium Development in Kerrisdale Apartment Area, As of September 1989. 66 Figure 5.2 Portfolio of Kerrisdale Developers in Other Areas in City 71 Figure 5.3 Amount Paid for Land for Condominium Projects Currently Planned 73 Figure 5.4 Owner and Property Details of Apt. Buildings Planned for Demolition 76 List of Figures Chapter 6 P. Figure 6.1 Net Population Movement into B .C . : International and InterProvincial, 1987, 1988 79 Figure 6.2 International Immigration to B . C . by Source 81 Figure 6.3 Weekly Real Estate Activity Synopsis, Jan.-June 1989 83 Figure 6.4 Median Residential Price Points, Vancouver West, Jan-June 1989. 83 Figure 6.5 Significant Players in the Condominium Pre-Sale Marketing Process, Spring 1989 86 Chapter 7 Figure 7.1 The City's Response: Timeline of Significant Events, January-August 1989 96 Figure 7.2 Development Permit Application Process for Developers Using R M 3 By-laws and Amendments Current to August, 1989 97 i x Acknowledgement This study can not have been accomplished without the assistance of many individuals. I am especially grateful to both my thesis advisors, Ted Mitchell (Co-ordinator of Economic Analysis and Planning) at C M H C B . C . Region and David Hulchanski (Director, Centre for Human Settlements) at U . B . C . Both these individuals provided helpful comments and guidance throughout this study. On the data collection, I would like to thank Alex Ning, President, Edgewater Associates for taking the time to help me, and to share with me information which may not be so obvious at first. I would also like to thank Lucia Su, Market Analyst at C M H C Vancouver and Georgia Whiten, Head Resource libriarian at B . C . Central Credit Union for providing me with detailed and well-organized data on the housing market. At the City of Vancouver, I would like to thank the many people who helped me with this research, especially Neil Bailey, Rick Michaels, Penny Bruin, Rob Jenkins, Paul Raynor, Bruce Maitland, and Rick Scobie. At the Urban Development Institute, Pacific Region, I would like to thank Maureen Enser for her comments with respect to developers active in Kerrisdale. I would also like to thank all those members of the Kerrisdale Concerned Citizens for Affordable Housing for providing me with support and information throughout this research. Without these peoples' assistance, this study would not have been possible. Finally, I am grateful to Canada Mortgage and Housing Corporation for providing financial assistance for this study through a C M H C University Scholarship. 1 1.0 Introduction 1.1 Purpose The purpose of this study is to investigate and document the impact of redevelopment pressures on the rental housing market in Kerrisdale. The focus is on why demolitions are happening and what their impacts are. A n important factor is that many of the evicted tenants in Kerrisdale are elderly. The major research questions this study addresses are divided into three parts: 1. Social: • Who are the tenants being affected by the redevelopment pressures? • How are they being affected in the short and long term? • Where are displaced tenants going? • How much are they paying for this new accommodation? 2. Market: • Who are the key players redeveloping the older apartments? • T o what extent are these investors and developers local or from off-shore. • What is the profit potential of condominium construction for developers in Kerrisdale? • Who are buying the new condominiums? • How many buildings are being planned for redevelopment? • How many rental units are anticipated to be lost? • What areas are at redevelopment risk in Kerrisdale and in other parts of the city? • Is the pressure for redevelopment likely to continue? 3. Political: • What are some policy options for government? • What has been the response from the three levels of government? 1.2 Rationale A study of the impact of redevelopment pressures on the private rental housing in Kerrisdale illustrates that given the right economic conditions this market sector cannot survive. A n analysis of who is developing the properties, and why these properties are being redeveloped suggests that it is simply a matter of economics. During a period of economic prosperity, the unprofitable nature of a private rental housing market becomes clear. A study of the impact of redevelopment pressures on the rental housing market is important because it shows that the rental housing market cannot respond to those sectors of the population who can be outbid by others. The case of Kerrisdale is significant because it shows that evictions happen not only in poorer parts of the city, but can also occur in the most expensive parts. The private rental housing market is in serious trouble, particularly at the lower end of the market. According to the last census in 1986, the City of Vancouver had a population of about 431, 100. Approximately 58% of households rented. If the people renting illegal suites are counted as well, that number becomes closer to 60% renters. 1 Because little rental stock is being built, the loss of any existing rental units makes finding rental accommodation more difficult. The demolition of existing rental apartment buildings in Kerrisdale is a result of demand exceeding supply. Many want to live in Kerrisdale. However, there is very little zoned multiple residential land in Kerrisdale. More than 70% of the city's residential land is zoned single-family. There is, therefore, very little land zoned for apartments. When demand becomes strong and supply is constrained, it becomes economic to demolish and redevelop to more modern structures. This is not good news for the renter. The rental housing sector is being depleted from a number of fronts. A primary cause is demolition and condominium conversion. Canada Mortgage and Housing 1. B a s e d on City of V a n c o u v e r 1986 C e n s u s data; R e n t a l H o u s i n g Trends: Citv of Vancouver. D a v i d Hulchanski, U B C Cen t r e for H uman Settlements, T h e University of B.C. A p r i l 1989. T h e c e n s u s likely m i s s e d s o m e of the huge illegal suite s egment of the rental market in the city. 3 Corporation ( C M H C ) , the federal agency which surveys rental housing, 2 estimates that in 1987 and 1988 there was a loss of 3750 units in the Vancouver Census Metropolitan Area ( C M A ) due to conversion or demolition. In the city of Vancouver, between 1981 and 1988, a total of 1850 apartment units were approved for conversion to Condominium. 3 These losses, while not large in comparison to the total existing stock, is significant because there is little being built to replace lost units. There are few private rental apartment starts without government assistance. In 1988, there were only 315 rental units starts in the city, approximately one fifth the numbers of condo starts. There is also an ambitious City of Vancouver campaign to eliminate some illegal suites. The city estimates that there are approximately 26,000 suites which provide affordable accommodation. A l l these factors— the demolition and conversion of units, the reluctance of developers to build additional units, and the campaign to eliminate illegal suites ~ contribute to a pessimistic outlook on the availability of affordable rental housing. 1.3 Context Vancouver is a very attractive place to live. When a buoyant economy is combined with the mild climate the city has attracts a substantial increase in inter-provincial and international migration. In 1988, net migration into B . C . was 46,579 persons, 16,696 of which are international migrants, and the remainder being from the other provinces. This compares with a total net migration of 31,386 in 1987. The influx of people has meant that vacancy rates for rental accommodation continue to be low. In Apri l 1989, for example, the vacancy rate in Kerrisdale was 0.2 percent. This means that out of a total inventory of approximately 2300 apartment units, only five were found to be available for rent. The demand for housing remains strong in the city, and accommodation is becoming more expensive. In 1989, the average rent of a one bedroom apartment costs $611 in Kerrisdale compared to the city average of $526. Housing remains a growing concern for city politicians. The rental market is extremely tight with near-zero vacancy rates. The value of land has increased in many 2. T h e C M H C Surv e y includes all p urpose built rental projects containing 6 or more rental units. 3. T h e s e l o s s e s (ie, 5,600 units) represent 5 % of the C M H C meas u r a b l e stock, a c c o r d i n g to C M H C B.C R e g i o n O f f i c e S t a t i s t i c s . parts of the city, especially on the west side. Standard 33 ft. lots with bungalows which use to sell for $260,000 in April 1988 were selling for $450,000 in Apri l 1989.4 The supply of land for new housing remains limited. Over 70% of the residential land is zoned for single-family residences. And , city council is continuing its crackdown of illegal suites in the city. The housing situation for renters is bleak given the tight vacancies, and the losses to the rental stock. The cost of housing is becoming expensive for home-owners as well as renters. Affordability remains a major concern for many first-time homebuyers. Despite the fact that M L S sales of homes are breaking many records, very few of these homes are being bought by young people. Rather, the majority of purchasers are experienced buyers who have some equity and who have bought three or four times in their lifetime.^ Another concern which has surfaced is the construction of big homes and the destruction of large trees. While not specifically related to Rental housing, there is some feeling that Asians (notably from Hong Kong and Taiwan) are responsible for wreaking havoc in the South Granville and Kerrisdale neighbourhoods. The new house "spec" market on the South Granville and Kerrisdale area has been extremely active in 1988, and the earlier part of 1989. New home sales in these areas have almost been exclusively from off-shore investors and landed immigrants from Hong Kong. Rapid change in the physical character of westside neighbourhoods and large tax increases in residential assessments have created a backlash against Asians and off-shore investment among some residents. The market, however, remains relatively free of rent controls or of special speculative taxes of any kind. 4. B a s e d on M L S listings and records kept by Var i o u s R e a l estate firms. 5. R o y a l L e P a a e H o m e Buying Survey. February 1989, R o y a l L e P a g e R e s i d e n t i a l R e a l E s t a t e S e r v i c e s . 5 1.4 Scope This study examines the apartment demolitions in the Kerrisdale area which began in the Fall of 1988. It is a social impact and market analysis of the area. Two objectives of the study are to: (1) discover the degree and extent of impact of evicted residents; and (2) to investigate the key players and examine the various factors which have created this situation. Other instances of forced relocation for condominium redevelopment in other parts of the Vancouver area are becoming more common. These other examples are not specifically examined but only referred to. This study is restricted to apartment demolition activity within the R M 3 zone in Kerrisdale bounded by West Boulevard to Larch, and from West 38th to West 45th Avenue. 1.5 Methodology and Organization 1.51 Methodology This research is based on a case study of events which began happening in the Fall of 1988. A case study method is used because the inquiry involves a contemporary incident which cannot be studied through traditional library research. In addition, the topic requires a multi-disciplinary approach and multiple sources of evidence are used. 6 These include intensive interviews and participant observation. A n important consideration of cases studies is that result may not necessarily be generalized to the greater population. However, if enough case studies are researched, the evidence can be generalized to theoretical propositions.7 The principal means of data collection was by interviewing experts in the real estate industry and by interviewing and talking to residents in the Kerrisdale area. Information regarding the effect of evictions on tenants was summarized based on numerous conversations with affected tenants, a city health nurse, and various other concerned residents. In addition, the literature on "relocation stress" is examined. Information 6. Yin, Robert K. C a s e Study R e s e a r c h . A p p l i e d R e s e a r c h Methods S e r i e s , V o l . 5, S a g e P u b l i c a t i o n s , Newbury Park, C a l i f o r n i a , 1984. 7. Like s i n g l e s c i e n t i f i c experiments, single c a s e s t u d i e s c a n not be g e n e r a l i z e d b e c a u s e e a c h c a s e has slightly different conditions. However, if enough c a s e s or experiments are done, a n d if results are repl i c a t e d , certain p r i n c i p l e s c a n be ge n e r a l i z e d . 6 regarding the whereabouts of evicted tenants were determined by personal contact with residents over the phone and with the assistance of building spokespeople who knew where their neighbours moved. While there were some problems tracking down some previous residents of the buildings, conversations with previously evicted tenants, several building managers, and a couple of shop owners helped as additional checks on the accuracy of the findings. In order to understand the impact that redevelopment was having on the neighbourhood, weekly meetings held by the Concerned Citizens for Affordable Housing were attended. This organization was formed to lobby for affordable housing in the neighbourhood. This contact with the group proved useful— I became known among the members, and they in turn trusted me. They provided access to any information required. Information regarding the market aspects of this study is obtained through informed sources in the industry. Market velocity and sales data are obtained from the Greater Vancouver Real Estate Board's VanDat and through the M L S weekly Sales/Listing catalogues. Key properties are checked against B . C . Assessment records for accuracy. Property tax assessments are obtained from the City's Treasury Department upon special request. The extent of demolition activity is obtained through perusal of architectural drawings of the proposed developments. Compilation of the extent of re-development is obtained through development building applications, with the assistance of personnel from Planning and Permits and Licenses departments of Vancouver City Hall. The profiles of developers active in the demolition of apartments in Kerrisdale were determined through land title and company searches. In addition, a number of industry experts (eg., the Urban Development Institute) and various companies active in real estate were asked about the developers in question. 7 1.52 Organization Chapter 2 examines the literature on residential displacement. There has been very little written on the eviction of tenants in middle and upper-middle income neighbourhoods. This is because this occurrence has been relatively rare. The displacement literature has primarily dealt with examples of gentrification and neighbourhood revitalization in American inner cities. Chapter 2 describes the various impacts that displacement has had on residents in the United States. Chapter 3 describes what is happening in Kerrisdale with respect to the apartment demolitions. This examination includes establishing a profile of residents in the area, documenting the tenant response, investigating the degree and extent of impact on residents, and investigating where displaced tenants went. Chapter 4 analyses the economics of Housing. The first part examines some of the factors behind the thrust for redevelopment in older established neighbourhoods. To a large extent, supply and demand is key. Demand and supply factors are analysed. The second part of this chapter looks at the costs of building rental versus condominium units. Detailed proforma analysis are presented for several properties. Chapter 5 identifies the key players involved in redeveloping land in Kerrisdale. This discussion reveals who they are and what other kinds of properties they are developing. In addition, this chapter describes the target markets of condominiums and the condominium marketing process. Finally, there is a discussion on the how much longer pressure for redevelopment will last. Chapter 6 analyses the public policy response from the three levels of government. Chapter 7 summarizes the major findings, and explains why apartment demolitions are occurring in Kerrisdale. A number of supply and demand options are presented and corresponding short and long-term costs and benefits of each is explained. 2.0 Literature Review: Residential Displacement 2.1 Intrcxluction Within the displacement literature (most of it American), the focus has been almost exclusively on the revitalization and gentrification of older, inner-city neighbourhoods which are close to central business districts. In the United States during the 1960s, many people were displaced from their homes as a result of public actions such as urban renewal and highway construction. In the 1970s and more recently, displacement has occurred primarily because of private re-investment in inner city neighbourhoods by middle class professionals. Typically, such re-investment result in the displacement of low-income groups which include ethnic minorities, the elderly and the working class who could not compete in the housing market. The incidence of residential displacement in middle-income areas such as Vancouver's Kerrisdale has been rare and is a relatively new occurrence. Consequently, there has been few studies dealing with this type of situation. However, even though tenant displacement in middle and upper-middle income residential neighbourhoods has not been common, the reason for dislocation is the same as in poorer neighbourhoods— economics. Redevelopment pressures occur when the economic incentive for new uses or more intense development of a similar use greatly exceed the existing ones. Forced displacement occurs when owners of a property have the economic power to force another less powerful group (tenants) out of that property. This chapter reviews the relevant displacement literature to determine what is known about the extent and consequence of displacement in other areas. 2.2 The American Experience Literature dealing with displacement in the United States has been sparse and research results have been contradictory. Displacement results are sometimes unreliable because researchers have a difficult time time tracking down displaced residents to interview them. In addition, there are many local and personal factors which can affect the extent of hardship caused by displacement. For example, some landlords may discriminate against Blacks and families further restricting their choice of accommodation after 9 displacement. During the mid-late seventies, different researchers estimated that displacement could range from the thousands1 to the millions. 2 2.21 Methods Used to Study Displacement Social scientists have generally used two approaches to obtain a sample of displaced households. The first one involves taking a random sample of all households in an area to learn who has moved in some given period and why. The best example of this type of work is from the City of Seattle's Office of Policy Planning. In 1979, they took a random sampling of 1,269 households in the city and found that 100 households had been displaced. 3 The second approach to studying displacement involve focusing on known areas of revitalization. The researcher would then determine the households who had left and attempt to interview these households in their new neighbourhoods. The largest and best known study of this type was conducted by a US Department of Housing and Urban Development (HUD) - sponsored agency in 1975. The agency, National Institute for Advanced Studies (NIAS) traced households that had moved from San Francisco's Hayes Valley between 1975 to 1980.4 Although the agency was well funded by H U D , of a total sample of 1,700, the agency was only able to successfully interview 185 households (a response rate of 11 %). The low response rate was due to the fact that as time elapses it becomes more difficult to track residents down. Also the questions the agency wanted to ask unnecessarily took a great deal of time; hence, many households refused to co-operate. 2.21 The Magnitude of the Problem There are no good estimates of the precise magnitude of the displacement problem. Depending on the source, estimates can range from a few thousand a year to several 1. Newman, S a n d r a a n d M i c h a e l Owen, "Residential Displacement in the U.S., 1970-1977." P a p e r prepared for the U.S. Department of H o u s i n g and Urban Development, Of f i c e of P o l i c y D evelopment a n d R e s e a r c h , 1980 in M i c h a e l S h i l l and R i c h a r d P. Nathan, Re v i t a l i z i n g America's C i t i e s : N eighbourhood Re-investment and Displacement. St a t e University of New York, Albany, N.Y. 1983. 2. Hartman, Chester, "Comment on "Neighbourhood Revitalization and Displacement: A R e v i e w of the E v i d e n c e " in A m e r i c a n P l a n n i n g A s s o c i a t i o n J o u r n a l . Oct. 1979. 3. S e a t t l e O f f i c e of P o l i c y P l a n n i n g , P h y s i c a l P l a n n i n g Di v i s i o n , S e a t t l e D i s p l a c e m e n t Study, (Seattle: O f f i c e of P o l i c y Planning) O c t o b e r 1979 in S h i l l and Nathan, 1983: 54. 4. Nati o n a l Institute for A d v a n c e d Studies, "Market G e n e r a t e d Displacement: A S i n g l e City C a s e Study" Draft Report prepared for the U.S. Department of H o u s i n g and Urban Development (Washington, D.C: Nationa l Institute for A d v a n c e d S t u d i e s , 1980) in S h i l l and Nathan, 1983: 55. million. A l l researchers agree, however, that the trend toward continued displacement will continue as redevelopment pressures on scarce land in urban residential areas continues. 2.22 Characteristics of Displaced Households Results from the Seattle and NIAS studies indicate that displaced households are likely to have completed fewer years of formal education than those households who moved voluntarily. In addition, female-headed households with children had a higher displacement rate than other types of households. Findings from the studies also suggest that low-income families are hardest hit by displacement caused by re-investment.5 2.23 Changes in Rent and Destination of Displaced Households In both the Seattle and NIAS studies, it was concluded that displaced households who were forced to move did not pay substantially higher rents than before. Residents who were displaced tended to relocate nearby. In the San Francisco study, 25% of displaced residents remained in the neighbourhood, another 25% moved to an adjacent area. In another study by Owen and Newman (1970), researchers found that an overwhelming majority of those displaced remained within central cities.6 2.24 Response of residents to Involuntary Displacement The response to displacement varied. For example, 52% of the displaced residents of the Seattle study indicated that their new neighbourhoods were better than their previous one. On the other hand, other studies indicate that residents are very attached to their neighbourhoods. In a famous relocation study of Boston's West end in the 1960s, some resident's reactions were of intense grief. As one resident commented: "I felt as though I had lost everything, " "I felt like my heart was taken out of me," "I felt like taking the gas-pipe," "I lost all the friends I knew," "I always felt I had to go home to the West End and even now I feel like crying when I pass by " 7 . 5. Nathan a n d S h i l l , 1983: 57. 6. S a n d r a J . N e w m a n and M i c h a e l S. Owen, "Residential Displacement in the U.S., 1970-1977." P a p e r pr e p a r e d for U.S. Department of H o u s i n g and Urban Development, Office of P o l i c y Development and R e s e a r c h , 1980, in Nathan a n d S h i l l , 1983:59. 7. Fried, M a r c " G r i e v i n g for a Lost Home" in L e o n a r d J . Duhl, M.D. The Urban Condition. B a s i c Books, New York 1963. 11 Because of the heterogeneous nature of neighbourhoods it is difficult to generalize on the effects of forced displacement on residents. Clearly, whether impact is negative or positive is dependent on a person's age, and other personal, and economic factors. However, if no choices or options are given to displaced residents, the chances are they will be bitter and unhappy. 2.3 The Canadian Experience: Kitsilano, Vancouver, B . C . Displacement activity occurred in Canada as in the United States with Urban renewal in the 1960s. In the 1970s, displacement due to private redevelopment pressures intensified as rental apartments were increasingly threatened by condominium conversions and by the construction of new condominium buildings. In the 1970s, the Kitsilano district of Vancouver, an inner city neighbourhood, began experiencing redevelopment pressures. This section reports on the findings of a survey of tenants displaced by three condominium projects in 1974 and 1975.8 2.31 Displaced Residents Characteristics Out of a total of 90 displaced households, 36 were located and interviewed. Tenants in Kitsilano were generally young and single, and were white-collar workers with low to moderate incomes which ranged from $3500 to $4500 per year in 1975. The demographic breakdown was: 47% singles, 19% married without children, 14% single parents, 11% married with children, and 8% were living common-law. 9 2.32 Changes in Rent and Destination of Displaced Households Responses from the 36 households indicate that in nearly every case rents increased after displacement for equivalent or inferior accommodation. Before displacement, only 12 of the 36 respondents paid 35% or less of their income towards rent. After displacement, however, 21 of the respondents paid more than 35%. Single parents were hardest hit by displacement because of the lack of rental units which accepted children and because of the general discrimination which families with children faced in the housing market. 8. Stobie, P e t e r "Private R e d e v e l o p m e n t in the Inner City", 1979 U n p u b l i s h e d M.A. Th e s i s , Department of G e o g r a p h y , T h e University of British C olumbia. 9. Jbid. p.88. About one third of the sample of displaced residents stayed in Kitsilano while the other two thirds had to relocate outside the neighbourhood. Most stayed at least on the West-side. A l l respondents who moved out of the neighbourhood expressed the fact that they would have stayed if they had the choice. Affordability was the predominant response as to why they left the neighbourhood. 1 0 2.33 Response of Residents to Forced Displacement Responses from the sample of 36 households indicated that 83% were more happy with their previous dwellings than their present accommodation. The reasons cited included the affordability of those units, and the friendly relations with their neighbours. It is interesting to note that 3 of the 4 households who expressed a greater satisfaction with their present homes had bought their own places after displacement. While residents of Kitsilano had a strong attraction for the area, there was no evidence that residents displaced were as intensely saddened as those displaced residents in Marc Fried's 1963 study of displaced tenants in Boston's West End. In fact, the most common reaction of Kitsilano respondents to displacement was anger directed at rent increases. Fried (1963) had argued the degree of displacement impact is dependent on how attached one is to the local area. For some groups of people, notably the working class, "the residential area is the region in which a vast and interlocking set of social networks is localized.... the physical area has considerable meaning as an extension as home" 1 1 . Fried argues that the meaning of local area and local social networks is not as important to the middle class because they have more extensive relations outside the area. Another group greater at risk is the elderly. Because of their reduced mobility, reduced income, and reduced capability to adapt to change, it is likely that this group will be more adversely affected than younger groups. 10. Stobie, 1979: 94. 11. Fried, 1963:154. 2.4 Summary There is very little literature related on residential displacement in middle and upper income neighbourhoods such as in Kerrisdale. This is because forced displacement of this group of people is a recent phenomena. Most of the literature is American and deals with the displacement impact of gentrification in low-income neighbourhoods in the inner-city. The issue of displacement is not new. Widespread displacement was a common occurrence in the 1960s when public urban renewal projects were built. More recent displacement has been caused by private re-investment. Displacement occurs when the economic return for new uses and more intense development greatly exceed profits from present uses and densities. From a methodological perspective, studying the extent and degree of impacts on displaced residents has been difficult for researchers. Studies which were done in the 1970s showed wide ranging estimates of the extent of annual impacts from several thousand to 2.5 million people. Obviously, these estimates are in the extreme. Results of two American studies indicate that most people who were displaced moved close to their previous neighbourhoods. In addition, the studies showed that those displaced did not pay substantially higher rents (there was no mention of size of new accommodation or quality). In general, researchers do agree that there is a trend toward increasing displacement as private re-investment increases redevelopment pressures. Tenants and low-income households are the most likely groups at risk. In Canada, a 1975 study done on Vancouver's Kitsilano showed that displaced tenants paid more for their accommodation after they were forced to move. Before displacement, one third of a sample of 36 (12) displaced residents indicated that rents accounted for 35% of income. After displacement, two thirds of the sample (21) indicated that they now paid more than 35% of income. Respondents of the Stobie study were displaced by the construction of new condominiums. Although all the respondents have been affected negatively, single mothers were found to be the hardest hit because there were few affordable rental units available, and because there was more discrimination against this group in the housing market . About one third of the displaced respondents managed to stay in the neighbourhood. Those who left cited affordability and the lack of alternatives as the primarily reasons why they left the area. Though, Kitsilano respondents indicated that they were attracted to the area, there was no evidence to suggest profound grief as to a lost of a home as was found in Marc Fried's 1963 study of Boston's West end. Respondents who had moved away from the neighbourhood stated that they changed their shopping and and bank-use. However, these changes did not appear to be a serious imposition. 1 2 12. Stobie, 1979: 100. K E R R I S D A L E R M 3 A P A R T M E N T Z O N E Date August 1989 Drawn Danny Ho School of Community and Regional Planning, The University of B.C. Scale mulK.T. 1000 2 kilonil'IfOR Figure 3.2 16 Condominium Projects Currently Planned in Kerrisdale Involving Low-rise Apartment Building Demolitions, 1989 • 1-3-TIT) Tr ny ! 3 1 117 H i - -• » • M • U • V f • y. • » • n a n 1® j VR :&cv j • p a » • n ' » ^ . n • T H I R T Y - E I G H T H ! A V E . j i it 8 T H I R T Y - N I N T H A V E . 1 n 1 • 11 j / f l / I ; " ' V I V. H I 1 0 4 * •<•! F O R T I E T H A V E . l i i i 4't 5 . . T = 5~ 1 • , at ' i I ' - :.!.UI 'f 1 4 '! F O R T Y - F I R S T A V E . • J i ! : i j I • • » • « • u • V • 11 • TO « n • ? i •j * l i a a f« :.? •„ --- _ :• • ?] a aw S " » n ™* 1 * | 1 • • :t • o a 13 i i * i i..««-— 1 V a • :o , -. — 1 j it * if"?"?-'-.! • ! . ! . : . ; - ! • • • ; = Li- - ^-f -- - © S i 3 F O R T Y - T H I R D A V E . « t —: <a 4; i ' i 1 . : r h * * 1 ! • "| - ,»». | | | | | | | | ; ; ; • , w • • n • 7/ a f* « n a a « ii ta 1 — : J I O . • a ! ! i : j t l ! 1 4 ! ! a » " 11 • yi a /* ' J. " ' - " - 1 / a ' .1 ^ - • J s« i . F O R T Y - S E C O N D s I T ; : t , , . | f ! i • i. u. Li . i . i J F O R T Y - F O U R T H A V E . wsmm W PTN. (5, ! E PH"N. ^ 1 2 f 1 I • : • i • t F O R T Y - F I F T H A V E . Figure 3.3 Apartment Buildings Currently Planned for Redevelopment Project Address Existing Rental Units Proposed Condo Units 1. 2110 and 2148 W. 38th Ave. 65 41 units 2. 2121 W. 38th Ave. 26 13 units 3. 2256,2278,2294 W. 40th Ave. 41 26 units 4. 2226 W. 40th Ave. 15 10 units 5. 5890 Balsam St. 20 10 units 6. 5850 Balsam St. 37 20 units 7. 6020 Yew St. 12 7 units 8. 2116 and 2130 W. 43rd Ave 18 11 units 9. 5752, 5774, 5790 Vine St. 28 20 units 10. 2120+2170 W. 44th Ave 97 64 units Total (Known to date) 359 222 units. * Demolition Completed renin lo la&ucu A l l others in approval process Updated to December 1989 3.0 Impact of Redevelopment on Renters in Kerrisdale's RM3* District 3.1 Intrcxluction Kerrisdale, a neighbourhood in the west side of Vancouver, has traditionally been regarded as one of the more affluent areas of the city. Starting in late 1988, developers began submitting plans to the city for the replacement of older apartment buildings with condominiums. While redevelopment and the eviction of residents are not new in the city, residents in the Kerrisdale neighbourhood have never been forced to leave their homes. This chapter discusses the impact of redevelopment pressures on tenants and on the rental housing market in the area. A profile of tenants is first established. This is followed by a description of the number of buildings being affected. Finally, there is a discussion of how people are being affected and where they have gone. The study area is located within the Kerrisdale district and is bounded by West Boulevard to Larch St., and from West 38th Ave. to West 45th Ave (a district known in the zoning by-law as the Kerrisdale R M 3 apartment area). 3.2 Census Profile of Kerrisdale Residents A problematic feature of the Kerrisdale apartment area in terms of using census data is that it intersects two Vancouver local areas, Kerrisdale and Arbutus-Ridge. Therefore, census data on Kerrisdale will give us characteristics of the residents in the smaller R M 3 apartment area and information about residents outside the apartment area. Since there is no practical way of delineating data for just the Kerrisdale apartment zone, it is necessary to choose one of the two areas for some general census information. In the Kerrisdale neighbourhood as a whole, residents are relatively wealthy. According to Census Canada data, the median household income was $59,474 in 1986 compared to the city average of $24,661.1 The highest median household incomes were in * T h e Term "RM3" is a designation used by the City of V a n c o u v e r Planning Department to mean a n a r e a z o n e d for multiple-family dwellings. For a full definition and more details on R M 3 zoning, s e e appendix. 1. C e n s u s C a n a d a 1986 figures, a s p u b l i s h e d in Vancouver Local Areas, City of V a n c o u v e r P l a n n i n g D e p a r t m e n t , J u n e 1989. Shaughnessy ($96,034) and the lowest in Strathcona ($16, 115). In Kerrisdale, median male incomes were $30,534, and median female incomes were approximately half, $14,482. Compared to the rest of the city, Kerrisdale has a much smaller proportion of poor people. In 1986, the Census found that 10.3% of the households in Kerrisdale had low incomes compared to 25.5% for the city average. The "low income" households designation apply when more than 58.5% of gross household income is necessary to pay for the basic essentials of food, clothing, and shelter. About 38% of the residents of Kerrisdale rent their accommodation. Tenants paid more for shelter costs as a percentage of their income than did owners. O f tenants, 31.8% paid more than 30% of their gross income on an average rent of $755 per month. By contrast, only 7.3% of owners paid more than 30% of their gross income on shelter and operations. Kerrisdale residents, however, still fared better than other people living in other areas of the city. There has been a net loss of population in Kerrisdale of 1055 between 1971 and 1986. Since 1981, the area has had positive population growth, but these numbers still do not equal the numbers in 1971. Most of the gain in population appears to be younger people (20-44 age), and the number of individuals in the 55+ group appears to be declining. Residents tend to be more stable than average. According to 1986 figures, 60.4% of the population in Kerrisdale stated that they did not move within the last five years. In the city of Vancouver, only 48.5% of the population were able to say this. Finally, the ethnic mix has changed. In 1971, 92.4% of the population stated English as their mother tongue. By 1986, only 85.9% of residents claimed English as their first language. The second most common language is Chinese. In 1971, only 0.7 of the residents claimed Chinese as their first language. By 1986, 5% of Kerrisdale residents had Chinese as their mother tongue. 3.3 Profiles of Tenants in Kerrisdale R M 3 Apartment Zone 3.31 Age Mix of Kerrisdale Tenants A range of age groups can be found among the Kerrisdale apartment zone tenants. Certain buildings are inhabited by mostly retired residents while others tend to have younger residents. Census data for the larger Kerrisdale area shows that the proportion of residents in the younger group ( 20-44 age) is approximately equal to the more mature group ( 55 and over). In addition, the Census data also shows that from 1971 to 1986 , there has been a gradual decline of individuals in the older age grouping while there has been an increase of individuals in the younger age grouping. Conversations with residents in the apartment area of Kerrisdale confirm that these gradual age shifts are occurring in the apartment area. There has been a marked inflow of younger apartment dwellers particularly in the last 5 years. 2 3.32 Occupation and Income Characteristics of Kerrisdale Tenants Available 1986 census information in the larger Kerrisdale area show that residents were primarily engaged in white-collar professional occupations. Most were employed in one of the following industries: (1) finance, insurance, real estate, (2) business services, (3) education, and (4) health services. Compared to the city average, Kerrisdale also has twice as many self-employed entrepreneurs, 20% vs the city's 10%.3 Even though the median incomes for Kerrisdale are among the top three in the city, there are residents within the apartment zoned area who are less wealthy and on fixed incomes. Seniors and women are often disproportionately represented in this group. They are also the same group of people who tend to be renters. According to the 1986 census, 10.3% of residents paid more than 58% of income on shelter and food. In addition, women made approximately half the incomes of their 2. T h e r e s e a r c h e r h a d a s k e d many apartment dwe l l e r s about the age c o m p o s i t i o n in the apartment area. W hile s e n i o r s are predominant, there is an inc r e a s i n g number of young residents moving i n — e s p e c i a l l y within the last 5 years. 3. P l a n n i n g Department, City of Vancouver. "Vancouver L o c a l A r e a s 1986, 2 0 % d a t a from C e n s u s C a n a d a , J u n e 1986. Figure 3.4 Demographic Profile, Kerrisdale and City of Vancouver Selected Statistics,1981,1986 20 < Population 20-44 group 55 + group Marital Status Population, 15 yrs + Single Married(includes separated) Divorced Widowed Mother Tongue: 100% English Chinese German K E R R I S D A L E 1971 13410 3505 4235 10,800 2,770 6,560 225 1,245 92.4 0.7 1.9 1981 12170 3785 4160 10,310 2,735 6,090 370 1,120 86.9 4.9 1.7 1986 12355 4255 3940 10, 510 2, 880 6,145 475 1,005 85.9 5.0 2.1 1986 432, 385 278, 655 109. 490 371,935 129, 540 190,380 30,275 21,735 66.1 13.8 2.6 OCCUPIED PRIVATE DWELLINGS Owned Rented 62.6% 37.8% 62.6% 37.3% 61.4% 38.5% 42.4% 57.6% INCOME 1986 (20% data) Household Income Average Median Individual Income Male: Average Median Female: Average Median: K E R R I S D A L E (1986) $59, 474 $41,978 " $46, 277 $30,534 $19,607 $14, 482 C I T Y O F V A N C O U V E R ( 1 9 8 6 ) $32, 403 $24, 661 $22, 485 $16, 159 $14, 509 $11,013 LOW INCOME Total population in private households Persons in low-income households 12,240 1,255 100% 10.3% 420, 000 107,415 100% 25.5% INCOME BY SOURCE From employment From government transfer payments From other sources 66.5% 6.2% 27.3% 73.5% 11.6% 14.9% BY SHELTER COSTS Tenants: Incidence Gross rent>= 30% of household income Average gross rent (monthly) Owner occupied: Incidence Owner's payment>=30% of hhld income Owner's average major payments (monthly) 31.8% $755 7.3% $730 38.5% $545 13.9% $518 BY MOBILTY STATUS total population 5 years and over Movers Non-Movers 11,705 (100%) 39.6% 60.4 403, 950 (100%) 51.5% 48.5% NOTES: • Low Income: is defined on the basis of Statistics Canada's low-income cutoffs. These are set at income levels where 58.5 percent of gross income goes to the essentials of food, clothing, and shelter. For Vancouver, the 1985 low-income cutoff ranged from $10, 233 for one person household to $29, 155 for a seven person household. • Shelter costs: refers to the costs of occupying dwellings, including utilities, taxes, and mortgage payments or rent. • Income By Source: Employment income refers to earned wages and from self-employed earnings. Government transfer payments include all transfer payments from government, but exclude family allowances, old age pensions, Canada Pension benefits, UIC benefits, — these are included in the "other" category. The latter category includes income from retirement pensions, dividends, and interest payments. • Mobility Status: indicates whether respondent was in the same place of residencein 1986 as in 1981 (5 years) Source: Data from Census Canada, 1981, 1986. Vancouver Local Areas 1971-1981, August 1985, Vancouver Local Areas 1986, October 1988, Vancouver Local Areas 1986 (20% data), June 1989, City of Vancouver Planning Department. male counterparts. This is especially important because the majority of renters being impacted tend to be both women and seniors. In terms of income, these groups earn the least in society. In a separate and more recent survey conducted by the Concerned Citizens for Affordable Housing in February, 19894 organizers found that respondents had a mix of incomes. Almost half (44%) of the people who came out to the forum, had incomes of less than $20,000. Fifteen percent indicated that their incomes fell in-between $36,000-$50,000 and four percent said that they had earnings of more than $50,000. In addition,the survey forms indicated that the majority of respondents were seniors. Over 88% of those surveyed were 50 years and older. This indicates that even though there are a mix of ages among the tenant population, it is the seniors who appear to be most affected. Figure 3.5 Annual Income of Forum Audience February 26, 1989 44% of respondents earn less than $20,000 per year. 4.51% 11.28% • Under $20,000 m $21-$35,000 M $36-$50,000 m Over $50,000 • No Response 21.05% Source: Kerrisdale Concerned Citizens, February 1989 Census 1986 tract data obtained for the Kerrisdale Apartment zone indicate that renter-household incomes vary substantially. Renter-household incomes tend to be either low (below $20,000) or Higher ($30,000+). Renter households who live in apartments 4. O n Februar y 26, 1989, T h e C o n c e r n e d C i t i z e n s for Affordable Housing, a group of c i t i z e n s c o n c e r n e d about the v a r i o u s rumours that had s p r e a d about evict i o n s o r g a n i z e d a o p e n forum with invited politicians a nd c o n c e r n e d residents. Income figures quoted here are b a s e d on the r e s p o n s e s g i v e n by individuals who thought would be affected. less than 5 stories tend to have lower incomes than those tenants living in high-rises (over 5 stories). Information from the two census tracts that make up the Kerrisdale apartment zone (Arbutus-Ridge and Kerrisdale), was in agreement with the findings of the Concerned Citizen's Survey that showed that about 50% of the renters earned less than $20,000 per year. Information from the two Census tracts indicate that 1045 out of 2150 renter households earned less than $20,000 in 1986.5 (See figure 3.93 ) 3.4 Description of the Kerrisdale Rental Housing Stock and Market, and Its Impact from Redevelopment In the R M 3 multi-family district in Kerrisdale bounded by West Boulevard to Larch and West 38th Ave to West 45th Ave., there are approximately 2300 rental units.6 Most of these units are post W W II buildings with the majority constructed in the late 1950s and early 1960s. The rental situation in Kerrisdale, as in the rest of Vancouver, is extremely tight. The vacancy rate in Apri l for the area was 0.2% which means that C M H C surveyors were only able to find 5 apartment units available for rent at the beginning of April. Figure 3.6 Distribution of Vacancies in Apartment Units, Privately Owned Vancouver CMA, April 1989 Number of Vacant units, all types WEnd S. Granville Kits Kerrisdale Marpole E. Hastings Rest/city Source: CMHC Vancouver, Rental Market Survey Report, Vancouver CMA, April 1989 5. C u s t o m 1986 C e n s u s C a n a d a printout, "Private H o u s e h o l d s by Structural Type, H o u s e h o l d Income, T e n u r e and S h e l t e r C o s t s " U s e r - S p e c i f i e d Areas, C e n s u s C a n a d a 1986 Tapes, City of V a n c o u v e r P l a n n i n g Department, Nov. 1988. 6. T h i s number is r e p r e s e n t s only t h o s e units in buildings with six or more units. B a s e d o n the v a c a n c y s u r v e y s that C a n a d a Mortgage and H o u s i n g Corporation c o n d u c t s twice a year. C M H C V a n c o u v e r Branch. April 1989 average rental rates by bedroom size were as follows: 1 bedroom: $611; 2 bedrooms: $926; and 3 bedrooms: $1271. These figures compare to average Vancouver rates of $526, $801, and $1054 for the same sized accommodation in the city as a whole. A significant trend in the rental housing market is that the number of rental units have been steadily declining. Data compiled from C M H C the City of Vancouver shows that there has been a net loss of rental apartment units between 1986 and 1989. During the past three years, and assuming that pending development applications are approved for new condominium projects, it is estimated that approximately 425 rental units would be lost. This number represents about 20% of the existing rental stock in their area. Figure 3.7 Rental Stock Inventory in the Kerrisdale RM3 Apartment Area (in buildings with 6 or more rental units) 1986 1987 1988 1989 Total Stock 2623 2631 2557 2373 ** *** Deletions/additions* 8 (74) (184) (175) Remaining Stock 2631 2557 2373 2198 NOTES: * Deletions are due to demolition or condo conversion. ** Some of these units will actually be demolished in 1989. If a building is empty, CMHC takes off survey. *** Projected number based on applications for redevelopment. Source: CMHC Vancouver Branch, City of Vancouver Permits and Licenses The situation does not look optimistic for renters in Kerrisdale. There is substantial interest among developers in redeveloping the area with condominiums. There are several existing luxury high-rise condominium projects in the area, and the majority of them have been built within the last 5 years.7 A n analysis of the market velocity for purchase and sale of rental apartment buildings indicates that apartment sales have surged dramatically in 1988 and in the first 6 months of 1989. During the early and mid 1980s, sales of rental 7. T h e s e include: 5 4 2 5 Yew, 5 9 3 9 Yew, 5 3 8 9 Vine, 2350 West 39th., 2 1 1 5 West 40th. apartments have been modest. This was primarily because the economic incentive for owners to sell was not there. By 1988 and early 1989, however.the market became extremely active. In 1988, a total of 17 rental buildings sold; this represented more than 5 times the volume of sales in 1987 and more than the sales of the previous three years combined. Figure 3.8 Market Velocity for Rental Apartment Buildings Sold in the Kerrisdale Apartments RM3 Area, 1980-1989 1989 Buildings Sold l s t 6 months only yr. 80-84 yr 1985 yr 1986 yr 1987 yr 1988 yr 1989 3.5 Property Assessments and Tax Increases The numerous sales of apartment properties in 1988 had affected the assessed values of land in the Kerrisdale apartment area. Like most areas on the west-side of the city, the assessed value of land had increased substantially. A n examination of the land values of several recently sold apartment properties shows that values have increased an average of 20 percent from 1986 to 1988. However, land assessments over the next 2 year cycle increased even more. Assessments of land for 1989-1988 ranged from a low of 45 Figure 3.9 Historical Tax Information, Condominiums in 1986 Roll Number Address Land Improvements Total Assessed Value 153-742-081-67 2121 w. 38th 686850 258450 945300 153-742-081-74 2110 w. 38th 606100 128600 734700 153-742-081-64 2148 w. 38th 1397350 254150 1651500 153-747-079-84 2226 w. 40ih n/a n/a n/a 153-747-079-52 2256 w. 40ih 320750 391750 712500 153-747-079-32 2278 w. 40th 313250 394950 708200 153-747-079-22 2294-96 w. 40th 315700 378700 694400 159-078-750-56 5850 Balsam 1245450 254750 1500200 159-078-750-92 5890 Balsam 619650 116700 736350 159-757-081-46 2170 w. 44th 1573500 410300 1983800 159-757-081-76 2120 w. 44th 1677050 411250 2088300 159-757-081-06 6020 Yew 252200 126000 378200 159-079-750-36 5790 Vine 287200 222900 510100 159-079-750-26 5774 Vine 215400 161700 377100 159-079-750-20 5752 Vine 193850 185650 379500 159-755-081-86 2116 w. 43rd 113700 174600 288300 159-755-081-80 2130 w. 43rd 354850 74950 429800 1988 Roll Number Address Land Improvements Total Assessed Value 153-742-081-67 2121 w. 38th 824220 324500 1148720 153-742-081-74 2110 w. 38th 727314 202850 930164 153-742-081-64 2148 w. 38th 1676820 326900 2003720 153-747-079-84 2226 w. 4oth 404000 302000 706000 153-747-079-52 2256 w. 40th 384878 404900 789778 153-747-079-32 2278 w. 40lh 375901 424300 800201 153-747-079-22 2294-96 w. 40th 378845 406650 785495 159-078-750-56 5850 Balsam 1494528 277200 1771728 159-078-750-92 5890 Balsam 743576 118300 861876 159-757-081-46 2170 w. 44th 1888181 403000 2291181 159-757-081-76 2120 w. 44th 2012437 385550 2397987 159-757-081-06 6020 Yew 302659 139900 442559 159-079-750-36 5790 Vine 344656 244950 589606 159-079-750-26 5774 Vine 258492 161050 419542 159-079-750-20 5752 Vine 232642 177050 409692 159-755-081-86 2116 w. 43rd 128850 186850 315700 159-755-081-80 2130 w. 43rd 425840 74950 500790 1989 Roll Number Address Land Improvements Total Assessed Value 153-742-081-67 2121 w. 38th 1201850 100450 1302300 153-742-081-74 2110 w. 38th 1060550 122450 1183000 153-742-081-64 2148 w. 38th 2445850 137250 2583100 153-747-079-84 2226 w. 4oth 648350 59550 707900 153-747-079-52 2256 w. 4<Xh •* 689650 183450 873100 153-747-079-32 2278 w. 40th 673550 216050 889600 153-747-079-22 2294-96 w. 40th** 678800 190850 869650 159-078-750-56 5850 Balsam 2179950 107500 2287450 159-078-750-92 5890 Balsam 1084300 53200 1137500 159-757-081-46 2170 w. 44th 2754150 157500 2911650 159-757-081-76 2120 w. 44th 2935400 151850 3087250 159-757-081-06 6020 Y e w " 542300 30350 572650 159-079-750-36 5790 Vine** 617550 34800 652350 159-079-750-26 5774 Vine** 463150 25250 488400 159-079-750-20 5752 Vine** 416850 139400 556250 159-755-081-86 2116 w. 43rd** 231700 172350 404050 159-755-081-80 2130 w. 43rd** 894350 38150 932500 Source: Treasury Department, City of Vancouver Properties to be Redeveloped as Kerrisdale, 100% Sample Total Taxes Improvements to Land Ratio Notes: 10791 37.63 1) In 1989, properties 8240 21.22 with ** had taxes capped 18523 18.19 n/a n/a 2) Yr 1987 is not listed. 7990 122.14 yr 1988 is appro*, indicator 7942 126.08 7787 119.96 16825 20.45 8464 18.83 22248 26.08 23440 24.52 4242 49.96 5721 77.61 4229 75.07 4287 95.77 3320 153.56 4996 21.12 Total Taxes Improvements to Land Ratio 1988 to 1986 land values 1988 over 1986 taxes 13987 39.37 120.00 130 11173 27.89 120.00 136 24070 19.50 120.00 130 8491 74.75 n/a n/a 9486 105.20 119.99 119 9611 112.88 120.00 121 9435 107.34 120.00 121 21282 18.55 120.00 126 10558 15.91 120.00 125 27521 21.34 120.00 124 28824 19.16 120.00 123 5316 46.22 120.01 125 7082 71.07 120.01 124 5040 62.30 120.01 119 4936 76.10 120.01 115 3879 145.01 113.32 117 6191 17.60 120.01 124 1 Taxes Improvements to Land Ratio 1989 to 1988 Land values 1989 over 1988 13009 8.36 145.82 93 11645 11.55 145.82 104 25427 5.61 145.86 106 6968 9.18 160.48 82 7905 26.60 179.19 83 8084 32.08 179.18 84 7882 28.12 179.18 84 22517 4.93 145.86 106 11402 4.91 145.82 108 28662 5.72 145.86 104 30410 5.17 145.86 106 5095 5.60 179.18 96 5804 5.64 179.18 82 4345 5.45 179.17 86 5059 33.44 179.18 102 3 825 74.38 179.82 99 7928 4.27 210.02 128 Page 1 Danny Ho, UBC, August 1989 percent to a high of 110 percent over the last taxation cycle 8 (see next page). A good example of the hefty land assessments is the property at 2130 West 43rd Avenue. In 1988, the land on this property was assessed at $425, 840 . In the next assessment cycle in 1989, that land assessment had increased to $894,350 representing a 110 percent increase. The large increases in land values were accompanied by supposed large tax hikes. However, taxes were capped if land values increased by more than 45%. The net effect of this capping was that taxes only rose slightly compared to the last cycle. According to B . C . Assessment appraisers, the land in Kerrisdale is worth far more than the buildings. Whereas buildings on individual lots accounted for 20 percent or more of property values in 1987-1988, those same buildings were assessed at about 5 percent of property values in 1989. Strong demand for land in the area, accompanied by low rates of return for existing buildings mean that there is tremendous economic incentive for existing owners to sell. 3.6 Condominium Projects Currently Planned in the Kerrisdale R M 3 Area The strong sales of older rental apartment properties in 1988 and 1989 reflect the fact that developers are assembling land to build luxury condominiums. As of August 1989, Planning department records, show that 17 rental apartment buildings are scheduled to be replaced by 10 luxury condominium projects. In the process, 359 older existing rental units will be replaced by 222 luxury condominium units. A l l 17 of the rental apartment buildings were bought within the last year. Given the extremely high land and construction costs associated with the new condo projects, it is unlikely that any of the current tenants will be able to live in the new units. In general, the new units will be marketed to local retirees (Kerrisdale and Shaughnessy) and to off-shore markets^. Target buyers will be in the upper middle to high income range. 8. I would like to thank P e n n y Bruin a n d her staff at the T r e a s u r y Department, City of V a n c o u v e r for her a s s i s t a n c e with obtaining this data. P r o p e r t i e s are a s s e s s e d o n two y e a r c y c l e s in B.C., 1989 re p r e s e n t s the first y e a r of a two y e a r c y c l e . 9. A c c o r d i n g to d i s c u s s i o n s with various real estate agents. T h i s information is a l s o c o n f i r m e d by vari o u s R o y a l L e P a g e marketing studies. A common feature of all the new units is that they will be large. Typical units will be from 1500 sq ft. and up. with at least 2 bedrooms. Many of the units will take up the entire floor of the building. When planned earlier in the year, developers were expecting to sell the exclusive units for $500 per sq. ft. (eg. a 2,000 sq. ft. unit will cost $1,000,000). If the market softens it is unlikely that buyers will pay that price. Nonetheless, because of the high land prices in Kerrisdale, it is unlikely that developers will sell the units for less than cost (eg. $250 per sq. feet, or $500,000 for a 2000 sq. ft. unit). 3.7 Impact of Redevelopment on Tenants The scheduled demolition of 17 rental apartment buildings within several months of each other will mean that existing tenants will have to move quickly. Under provincial legislation, owners of a property are legally compelled to give at least 2 months notice for eviction. The Vancouver city council have extended that period of notice to 6 months so that tenants can have more time to seek other accommodation. This section documents which group of tenants are the most likely to be adversely affected by displacement. It also examines where people have gone or will go, and how much more or less displaced renters are paying for their new accommodation. In addition, a number of personal accounts of impact are described to supplement the statistical picture. 3.71 Who and How Many People are Impacted? Intense redevelopment pressures in Kerrisdale have thus far affected primarily renters who have no security of tenure in their homes. When redevelopment pressures intensify for property, tenants are the first to be displaced. With 359 rental units scheduled to be demolished (79 units have already been taken down as of September), this current wave of demolitions will have a direct affect on at least 400 individuals. 1 0 However, it is not only the current group of evicted renters who should be concerned about this situation. A l l renters in the area, particularly those who live in the low-rise buildings, should be concerned. The reason for this is that the economics for apartment owners are no longer as attractive in comparison to options such as condominium redevelopment ( see chapter 5). And, when the real estate market heats up, the cheaper low-rise buildings will be the first to go down. 10. T h i s is a co n s e r v a t i v e estimate a s s u m i n g that a l l 3 5 9 rental units w ere pr e v i o u s l y o c c u p i e d , a n d that s o m e s u i t e s had more than o n e occupant. Figure 3.91 PRIVATE HOUSEHOLDS BY AREA, BY HOUSEHOLD TYPE BY HOUSEHOLD MAJNTA1NER ACS. BY INCOME AND BY TENURE ARBUTUS-RIDGE ARBUTUS-RIDGE Apt leas than 5 storeys Total Owned Rented % Rented Apt more than 5 storeys Total Owned Rented1 % Rented Total Household type 1260 130 1130 90 Total Household type 1025 355 670 65 less than $10,000 255 25 230 20 less than $10,000 75 25 55 8 10-14,999 190 0 195 17 10-14,999 120 50 70 10 15000-19999 145 30 115 10 15000-19999 100 25 75 11 20-24999 125 25 105 9 20-24999 70 45 35 5 25-29999 135 0 135 12 25-29999 110 35 70 10 30-39999 155 0 150 13 30-39999 115 35 80 12 40,000 • 245 40 210 19 40,000 • 435 145 290 43 KERRISDALE KERRISDALE Apt less than 5 storeys Total Owned Rented % Rented Apt more than 5 storeys Total Owned Rented % Rented Total Household type 1270 250 1020 80 Total Household type 465 60 405 87 leas than $10,000 200 45 155 15 less than $10,000 105 10 95 23 10-14,999 240 35 210 21 10-14,999 55 0 40 10 15000-19999 165 25 140 14 15000-19999 25 0 20 5 20-24999 125 25 100 10 20-24999 50 0 40 10 25-29999 90 25 70 • 7 25-29999 15 0 15 4 30-39999 175 25 145 14 30-39999 60 10 50 12 40,000 • 270 65 210 21 40,000 • 160 25 140 35 ARBUTUS-RIDGE ARBUTUS-RIDGE Apt leas than 5 storeys Total Owned Rented % Rented Apt more than 5 storeys Total Owned Rented % Rented 1 person hshld 65*, 470 55 420 89 1 person hshld 65*, 375 135 240 64 less than $10,000 145 20 120 29 less than $10,000 55 20 35 15 10-14,999 135 0 135 32 10-14,999 75 35 45 19 15000-19999 45 15 30 7 15000-19999 45 0 40 17 20-24999 40 0 30 7 20-24999 30 15 15 6 25-29999 50 0 45 11 25-29999 40 25 20 8 30-39999 40 0 40 10 30-39999 25 0 15 6 40,000 • 20 0 20 5 40,000 + 110 40 70 29 ARBUTUS -RIDGE ARBUTUS -RIDGE Apt less than 5 storeys Total Owned Rented * Rented Apt more than 5 storeys Total Owned Rented % Rented 2 person hshld 65*, 200 40 160 80 2 person hshld 65*, 220 75 145 66 leas dun $10,000 0 0 0 0 less than $10,000 0 0 0 0 10-14,999 0 0 0 0 . 10-14,999 15 0 15 10 15000-19999 25 15 15 9 15000-19999 10 0 0 0 20-24999 15 0 0 0 20-24999 25 0 15 10 25-29999 30 0 30 30 25-29999 25 0 20 14 30-39999 30 0 30 19 30-39999 40 15 25 17 40,000 + 90 10 75 47 40,000 • 105 35 60 41 KERREDALE KERRISDALE Apt less than 5 storeys Total Owned Rented % Rented Apt more than 5 storeys Total Owned Rented % Rented 1 person hshld 65*, 400 115 285 71 1 person hshld 65*, 220 20 200 91 less dun $10,000 120 40 80 28 leas man $10,000 80 10 75 38 10-14,999 125 25 105 37 10-14,999 30 0 25 13 15000-19999 45 10 35 12 15000-19999 10 0 10 5 20-24999 75 20 55 19 20-24999 25 0 25 13 25-29999 0 0 0 0 25-29999 0 0 0 0 30-39999 15 0 0 0 30-39999 20 0 20 10 40,000 • 15 0 10 4 40,000 • 45 0 40 20 KERRISDALE KERRISDALE Apt less than 5 storeys Total Owned Rented % Rented Apt more than 5 storeys Total Owned Rented % Rented 2 person hshld 65*. 100 30 65 65 2 person hshld 65*, 105 30 80 76 leas than $10,000 0 0 0 0 less than $10,000 0 0 0 0 10-14,999 20 0 10 15 10-14,999 15 0 15 19 15000-19999 15 10 0 0 15000-19999 0 0 0 0 20-24999 0 0 0 0 20-24999 10 0 15 19 25-29999 10 0 10 10 25-29999 0 0 0 0 30-39999 10 0 10 15 30-39999 20 10 10 13 40,000 • 35 15 20 31 40,000 + 45 10 35 44 Source: Private Households by Structural type, Household Type, Household Income, Showing Tenure and Shelter Costa, Danny Ho, UBC, 1989 User-specified Areas, Census 1986 Canada Tapes, City of Vancouver Planning Dept., Nov. 1988 Note: The Kerrisdale RM3 Apartment zone is found within Arbutus Ridge and Kerrisdale. The use of both Census tracts is highly accurate . since almost all the apta in both tracts are only found within the Kerrisdale RM3 area. "Some figures may not add to 100% due to rounding. According to the 1986 Census, there are about 3200 households who rent apartment units in the the Kerrisdale R M 3 apartment area. Two thirds of these households rent in low-rise buildings. It will be these approximately 2100 households who would be at risk for eviction in the long run if demand continues (with supply of land constrained). Figure 3.92 Renter Households to Owners Households in the Kerrisdale RM3 Apartment Zone, 1986 T O T A L O W N E D R E N T E D % R E N T E D Arbutus Ridge: A p t . L e » t b m R v e s u r e . 1260 130 1130 90 Arbutus Ridge: A p t . M o n s t t a s s u . f c . 1025 355 670 65 Kerrisdale: Apt. u » t t a n R v e s < * i c i . 1270 250 1020 80 Kerrisdale: A p t . M a n : t h a n F i v e S t o r i e s 465 60 405 87 Total : 4020 795 3225 Notes: The Kerrisdale RM3 apartment area stretches accross two Census divisions. Arbutus -Ridge and Kerrisdale (Tracts 9, 22). The Arbutus-Ridge portion represents the north part of the Kerrisdale apartment zone while the Kerrisdale Portion represents the south part of the apartment zone. Together these two areas make up the Kerrisdale RM3 Apartment area. Source: 1986 Census Canada Tapes, User-specified areas on Private Households by Area, by Tenure, by Income, by Shelter Costs. City of Vancouver Planning Department, November 1988 Even though there has been more younger individuals moving into the Kerrisdale apartment area, the age mix of residents is still heavily skewed toward an older population. Census statistics, for example, indicate surprisingly that about 1595 of the 3225 renters living in the area are 65 years or older. Renters who are seniors also tend to make up the majority of residents in low-rise apartments. Residents in condominiums are also over-represented by seniors. O f the condominium stock, two thirds of the residents are over 65 years old. These numbers show that a number of seniors live in the Kerrisdale apartment zone, and many are renters - 1 1 11. 1986 C e n s u s C a n a d a U s e r - S p e c i f i e d A r e a s , Private H o u s e h o l d s by Structural Type, H o u s e h o l d Income, S h o w i n g T e n u r e and S h e l t e r C o s t s , C e n s u s C a n a d a tapes, City of V a n c o u v e r P l a n n i n g Department, Nov. 1988. 3.72 Income Characteristics of Tenants In 1986, Census Canada reported that median household incomes in the larger Kerrisdale area was $59,474. 1 2 This figure represented the third highest median income from Vancouver neighbourhoods. On the surface, this would suggest that Kerrisdale residents are wealthy. In fact, median household incomes in the Kerrisdale apartment area vary substantially. In general, there appears to be two patterns. Median incomes tend to be clustered at either the bottom or at the top. Renters who are poorer tend to live in the low-rise apartment stock while renters who have bigger incomes tend to occupy the high-rise stock. According to the 1986 statistics, in high-rise buildings (5 stories or more), 33 percent of renters earned less than $20,000 and 43 percent earned more than $40,000. On the other hand, in low-rise buildings, 48% of renter households earned less than $20,000 and only 19 percent earned more than $40,000. Figure 3.93 1986 Median Renter Household Income Characteristics in Lo-rise and Hi-rise Buildings in the Kerrisdale Apartment Area Below $20,000 Over $40,000 Source: 1986 Census, Private Households by Structural Type, Income, Showing Tenure and Shelter Costs, City of Vancouver Planning D e p a n m e n t . Nov. 1988 Lo-Rise Hi-Rise 12. 1986 C e n s u s figures in V a n c o u v e r L o c a l A r e a s , 1986 C e n s u s D a t a , City of V a n c o u v e r P l a n n i n g Department. The fact that that more than 40 percent of the renter households in the low-rise apartment stock earn less than $20,000 per year again confirms the accuracy of an earlier described survey which estimated that 43 percent of residents earned under $20,000. Moreover, the fact that lower-income renter households are concentrated in the low-rise stock will mean that they will the group who will be at the greatest risk, and the group with the least financial resources to cope if eviction should occur. The following section deals with how tenants who have been evicted have been impacted. There is a greater focus on the impact of elderly tenants because it is felt that they will be the most adversely affected. Some of the information is based on the personal accounts of some tenants, and may not be necessarily generalizable. Because of the difficulty in tracking down tenants and getting their co-operation to help with the research, no attempt was made to obtain a 100% sample. Information which was gathered was cross-referenced with seniors familiar with the researcher for "reasonableness". A full assessment of the impact of eviction is not possible at this early date because only 6 of the 17 rental buildings have been demolished. 3.73 Where Did Displaced Tenants Go? Based on information provided to me by apartment building managers, and by some of the tenants, it appears that evicted renters have moved to areas throughout the Metropolitan Vancouver. Some examples of the new locations are: North Vancouver, West End, South Granville, Marpole, Kitsilano, Richmond, White Rock, Surrey, and Langley. In general, the final choice for a new home is dependent on the displaced person's age, mobility, place of work, friends, and income. Several tenants (who were still working) in one building moved to the West End because it was closer to work. One couple moved to Richmond because they had some friends there. Finally, some tenants were known to move to the Eastern suburbs. But, these were younger tenants. According to one tenant, "they were going to buy a home out there anyhow. The evictions simply accelerated the process." For seniors, on the other hand, there is a tendency to stay in the area at all costs. This is confirmed by the fact that at least two thirds of the evicted seniors opted to stay and found places in Kerrisdale (see tables on next page). When the researcher asked one older displaced resident whether moving out of the area was an option, he replied that the area was his home and he did not want to move out. Another resident commented that the "Kerrisdale area was like a little village where one feels safe, and that there were few parts of Vancouver that offered this secure type of atmosphere." In addition," the shopping and the doctors are nearby." Therefore, it is interesting to note that when people did move, the destinations tended to be nearby, to Marpole or to South Granville. Nobody was found to relocate to the East-side of the city. Contrary to the belief that people have been forced to move out of the area, it appears as though the majority of seniors directly affected by eviction have not been forced to do so yet. 3.74 Financial Impact of Evictions: Effect on Rents Paid The decision to stay in Kerrisdale is not without compromise. Seniors who want to stay in the area generally will pay more for their shelter. The Kerrisdale area already has one of the highest rents in the city and one of the lowest vacancy rates. In Apri l 1989, average one bedroom rents were $611 per month in Kerrisdale (compared to $526 for the city average) and the vacancy rate was .2 percent. 1 3 Together, these two factors make apartment hunting extremely difficult. This difficulty in finding accommodation is confirmed by the fact that many of the displaced tenants had found their new apartments in Kerrisdale only by word of mouth through networking after months of looking around. 1 4 Tenants who have been displaced from the cheaper low-rise renter stock have in many cases had to move to the more expensive high-rise concrete apartment buildings because few of the cheaper low-rise units are available. For example, one 78 year old female tenant who moved to a high-rise had to pay $775 per month compared to $565 per month previously. This new rent had increased by 37 percent, and it now accounted for 55 percent of her total income. In one Kerrisdale building, tenants who had to move had to face either paying more for rent, living in less space, or moving out of the area. Few chose to move out of the area, and most took what they could get in the Kerrisdale rental market. Based on the 13. April 1989 V a n c o u v e r V a c a n c y Survey, C M H C V a n c o u v e r Branch. 14. S o m e of the d i s p l a c e d residents b e g a n looking for apartments when rumours started to ci r c u l a t e that their buildings w e r e so l d or were s c h e d u l e d to be demolished. T h e re s e a r c h e r is aware of s e v e r a l i n s t a n c e s where the availability of suites were not advertised. D i s p l a c e d tenants were a d v i s e d of v a c a n c i e s through the g r a p e v i n e (through friends and other contacts). known data from one building, the range of rents ranged from a decrease of 21 percent to an increase of 48 percent in rents. In a second building, two tenants (both seniors) had indicated that they have moved to South Granville. One of them paid less than before but was getting less space, and the other tenant indicated that he was paying $100 dollars more. Everybody paid more as a result of the move, unless they chose to rent a smaller space or they move out of the area, or both. In another study, one commissioned by the Vancouver City Social Planning department, the results were similar. Although no data was collected about the size of accommodation before and after eviction, the researcher found that almost all tenants had to pay higher rents as a result of the eviction. These new rents accounted from between 25 to 67 percent of the tenants' incomes. 1 5 Government programs such as the Shelter A i d for Elderly Renters (SAFER) is of little benefit for seniors in the Kerrisdale area because the program will not subsidize rents that are more than $475 per month . 1 6 The following table shows that few if any Kerrisdale tenants can be helped from this program. Figure 3.94 M O N T H L Y S A F E R AID A L L O W A N C E S F O R S I N G L E P E O P L E Income per month Rent Level per month $200 $250 $300 $350 $400 $450 $602 $17 $62 $107 $152 $197 $242 $763 $18 $63 $108 $153 $198 $898 $24 $64 $104 $144 $1046 $24 $59 $93 $1194 $24 $53 $1342 $12 $1490 $1 Source: Ministry of Social Services and Housing 1989 15. Marcoux, R o n e e n , "Tenant R e l o c a t i o n Study", S o c i a l P l a n n i n g Department, City of Vancouver, August 1989. 16. S h e l t e r A i d for Elderly R e n t e r s Brochure #81134, Ministry of S o c i a l S e r v i c e s a n d Housing, P r o v i n c e of B.C. Although rents are continually going up, there is a limit in the terms of how much seniors can pay. Many seniors had sold their homes sometime in the past, and had believed that they could live off the interest from the money for the rest of their lives. In hindsight, several displaced renters had commented that they should have bought. But, they could not have predicted that rents would have increase so steeply. Unfortunately, because of inflation and steep rent increases, the interest earnings off seniors' savings are not covering their expenses, and many seniors are having to withdraw from their principal. This dwindling of the nest-egg is a major concern for many seniors . The rent situation does not look good in Kerrisdale. If the census data is correct in stating that approximately 40 percent of the renter households in low-rise apartments in Kerrisdale earn less than $20,000 per year, then all these people are already paying more than than 30 percent of their income towards rent (assuming the average C M H C $611 per month rent for an one bedroom unit). In fact, they are paying 37% of their income. In order to meet C M H C ' s 30% income/shelter expense rule, a renter household renting for $611 per month must be making at least $24, 500 per year. On the other hand, if a renter must pay $795 per month for rent (as in the case of one 78 year old lady), she should be making at least $2650 per month or $32,000 per year . The demolition of low-rise rental apartments has impacted tenants because it has reduced the supply of less expensive apartment units. Seniors are especially affected because moving out of the area is not an option for many. It is unclear how much longer some seniors will be able to stay in Kerrisdale given the increasing cost of housing. 3.75 Social and Psychological Impact of Evictions Evictions generally have an economic impact on all tenants. However, it is the social and psychological impacts which are affecting the seniors the hardest. That involuntary relocation for older people is disruptive, stressful, and potentially debilitating is strongly supported in the gerontology literature.1 7 17. F o r example: Ald r i c h , C. & Mendkoff, E. "Relocation of the a g e d a n d d i s a b l e d , a mortality study", J o u r n a l of A m e r i c a n G e r i a t r i c s Society. 1963, 185-194. Figure 3.95 The Social and Psychological Impact of Eviction on Elderly Renters in Kerrisdale Eviction Notice: (Forced Relocation) Little time for tenants to react. Meaning of "Home" Before Notice Personal Control Aspects • Comfortable: a place to relax. • Familiar; grown old with me; has my things. • My own home, is mine; gives me independence and identity • Affordable; gives me security Social Function Aspects • Allows me to socialize; Close to friends and family Social and Psychological Impact STRESS • Loss of Control Powerlessness • Fear of Uncertainty • Loss of Identity • Loss of Independence • Loss of Self-esteem (degrading) • Fear of social isolation (disruption of Social Networks) • Fear of being forced out of area. Potential for Health Problems Source: Adapted from Rutman, Deborah and Jonathan L. Freedman, "Anticipating Relocation: Coping Strategies and the Meaning of Home for Older People" in Canadian Journal of Aging, Vol. 7, No. 1, 1988. The various impacts of displacement were obtained through conversations with evicted tenants, and confirmed with a city health nurse who works closely with the Kerrisdale seniors. While certain individuals may have slightly different experiences, on the whole, these reactions seemed to be shared by the majority of displaced seniors who spoke with the researcher. One of the greatest losses of old age is the loss of choice. A n older person does not have the economic power nor often the physical ability to make as many choices about his/her life as was possible in earlier years. When a individual loses the freedom to exercise choice, that individual loses self-respect and dignity. And , as one gets older, the need to stay in familiar surroundings, the need to maintain social networks, and the need to stay in one's own home (whether rented or owned) becomes more precious. 1 8 The primary impact of the recent and planned apartment demolitions in Kerrisdale has been stress. Because of the rapid rate of change in Kerrisdale, and the seemingly futility of preventing tenants' homes from being demolished, many of the displaced seniors are feeling that they are no longer in control of their future. They are fearful of the future because they do not know what will happen to them. Seniors, like everyone else, want to to be able to control their own destiny. This is one reason why buildings even rumoured to be demolished empty out far in advance of an formal eviction deadline. These seniors seek to find another place as quickly as possible to reduce anxiety and uncertainty, and to avoid the risk of eviction at a moments notice. Security of tenure is extremely important to seniors because it ensures them that they will not have to worry about losing their homes at any moment. Unlike younger people, seniors, due to age, frailty, and income, are unable to cope with change and relocation as readily. Therefore, the idea of being forced to leave one's home without recourse is particularly upsetting. For many seniors, the demolition of apartments in Kerrisdale is seen as a destruction of home and community. To understand this, it is necessary to be aware of the special meaning of "home" to to seniors. Rutman et al (1988). for example, found that seniors in general attached great importance to their homes (see diagram on next page). In a study of the effects of relocation, respondents in her study indicated that their present homes "meant" comfort, security and independence. Home was a place and a space that individuals could feel was theirs—that they "owned." 1 9 One's home was an area in which an individual could exercise some control and be secure. The home also symbolized one's 18. H a s s e l k u s , Betty R i s t e e n , " R e l o c a t i o n S t r e s s and the E l d e r l y " in T h e A m e r i c a n J o u r n a l of O c c u p a t i o n a l  Therapy. November-December 1978, Vol. 32, No. 10. 19. Rutman, D e b o r a h L. a n d J o n a t h a n L. Freedman, "Anticipating R e l o c a t i o n : C o p i n g S t r a t e g i e s and the M e a n i n g of Home for Older P e o p l e " in C a n a d i a n J o u r n a l of Aaina. Vol. 7, No. 1, 1988. independence and individuality. In addition, for some, the home had a social function. It was a place to socialize, entertain, and be close with friends and family. 2 0 In another study, Fried (1963) found that displaced tenants considered the physical areas near their living quarters also had meaning, as an extension of home. According to Fried (1963): It is the sense of belonging someplace, in a particular place which is quite familiar and easily delineating, in a wide area in which one feels "at home". This is the core of meaning to the local area. A n d this applies for many people who have few close relationships within the area. Even familiar and expectable streets and houses, faces at the window, and people walking by, personal greetings and impersonal sounds may serve to designate the concrete foci of a sense of belonging somewhere, and may provide special kinds of interpersonal and social meaning to a region one defines as "home".21 In Kerrisdale, it is precisely the familiar shops, streets and people that give the area a comfortable feeling—as though it were home. The greatest fear that displaced seniors have is being forced out of the area. Many of the seniors have lived in Kerrisdale for many years, and have established routines in their daily lives. If seniors are forced to move, it is difficult for them to change. Loss of continuity and the potential disruption of social networks and contacts are significant impacts. Although an estimated 65 percent of the evicted tenants have found places in the neighbourhood, it would appear that the social impact remains substantial. According to one tenant: "In the older 3 storey apartments, the physical arrangement facilitated social-interaction—people got to know their neighbours." He added, "And, even if some residents were not that sociable, their faces were familiar. It was a warm type of place, like they were all one family." In another building, one young lady stated in conversation that some of the seniors in her building often invited her for tea, and that she was very impressed with this even though she did not really know them well. By contrast, in some of the high-rises where many of the displaced tenants moved, there were few opportunities to know their neighbours. The physical form of the buildings tends to be different and there are many more apartments. One displaced senior commented, "I moved five blocks away, but its different. I don't see the same people 20. Rutman and Freedman, 1988. 21. Fried, M a r c " G r i e v i n g for a Lost Home" in Leonard J , Duhl, M.D., T h e Urban Condition. B a s i c Books, New York, 1963. anymore." Thus, even though many seniors were able to stay in the neighbourhood, the effect of the move may have been no different if they had moved out of the area. A n involuntary change in one's social and physical environments need not be dramatic to to stressful. A move away from one area of the neighbourhood may require individuals to establish new patterns of shopping, transportation and other aspects of daily life. These changes, particularly for the older person can be disruptive. Difficulties with adjustment will in turn affect life satisfaction and morale. Some of the displaced seniors were not happy with their new apartments. Even though apartments were rented, many seniors felt that their homes were their castles. The apartments were "theirs" and many took great pride in decorating them. One couple who moved had a difficult time making their new apartment look like their old apartment. The new apartment was dirtier, smaller and they had to pay about $100 more in rent. Seemingly little things like carpet spots and finding enough room for their paintings suddenly became very important. The retired couple told the researcher that they had never had to look for an apartment for 40 years since they were first married, and that having to do it now was a horrendous experience. Another important impact of the evictions was that it was very humiliating for those people who received them. Many seniors felt that they have contributed to society, and have made it what it is today. By evicting the long-time residents of Kerrisdale, there is a great injustice. One senior told the researcher that she felt very degraded and worthless (like disposable trash)when she received her eviction notice. Another said that "the people doing the evicting are like dictators who have total control." "How can a stranger suddenly come into your lives, hand you an eviction notice and force you to move out of your home?" "It is the same as oppression." "And, we are helpless." "There is nothing we can say or do that can influence them to stop." Although the effects of relocation stress are not easily quantified, the psychological and emotional impacts are very real. It is difficult to generalize about the impact of evictions because different people may have different coping abilities. A n d , many observations are subjective . But, people familiar with those seniors who have been displaced or are about to be displaced have noticed that some individuals who have been evicted have become less enthusiastic about life, that depression and mood swings became more prevalent. In other cases, seniors became less social, were not as eager any longer, and became sick more often. 2 2 One 85 year old widow, for example, was having a terrible time adjusting. Before she had moved to her present high-rise apartment, she was paying $550 for rent; she is now paying $750 per month (not including utilities) out of the $1000 per month income she gets from pensions and from interest earnings. Because she is using her principal savings now to pay her rent, she is very worried about another round of rent increases. Previous to moving earlier this year, this woman was relatively happy; she enjoyed tending her garden outside her low-rise apartment, and she enjoyed baking, and enjoyed shopping in nearby Kerrisdale shops. She does not do these things anymore because of painful arthritis which she believe have been exacerbated by the the stress of moving. This woman indicated that it had come to a point where it did not matter anymore because the stress and the worry had become some painful. She said that" one more move and that may be the end for her." Several month ago, in Apri l , the newspapers reported on the relocation stress of Mrs. Ivy Burford, a 83 year old widow who had been evicted from her apartment. Three months after, Mrs Burford had died. After being evicted in Apri l , Mrs Burford moved a short distance away to another apartment in Kerrisdale where she paid $625 per month (compared to $450 per month in the old apartment). 2 3 Mrs Burford was typical of the many elderly renters in the area. Before her husband died 18 years ago, he sold their home for $33,000 and set her up in a rental apartment ( condominiums were uncommon then). The intention was that the interest off the savings would be able to take care of her forever. Unfortunately with inflation and the increases in rent, most of the nest-egg had been diminished. Like some of the other displaced tenants, Mrs Burford expressed sentiments of powerlessness and despair. "How will I go about finding a home. How do I get rid of these carpets. Do I need to take the drapes? It's like I am in a fog and nobody will help me. Unless the good lord takes me, I don't have an answer." 2 4 Helplessness and despair are functions of a lack of choice for displaced seniors. Stress, while perhaps not the sole cause of mortality in some grieving tenants, certainly has some significant impacts on the well-being of individuals. In general, researchers agree 22. F o r example, a community health nurse, an apartment manager, a n d other s e n i o r s at a community centre have c o m m e n t e d o n the d e c l i n i n g spirit a nd health of tho s e d i s p l a c e d . 23. T h i s information w a s p a s s e d along by s o m e c o n c e r n e d tenants in M r s Burford's new apartment. 24. Hamilton, G o r d o n "Apartment Demolitions Haunt Tenant, 83" in the V a n c o u v e r S u n Newspaper. April 6, 1989 p.1. that impact and stress can be considerably be reduced if: (1) change takes place gradually, (2) the change between new and old environments are not drastic, and (3) affected tenants are consulted and given a choice and function in decision-making. The more control and predictability residents have of their new environment, the less negative the affects of the relocation. 2 5 3.8 Summary This chapter has discussed the impact of redevelopment pressures on tenants and on the rental housing market in Kerrisdale. The chapter outlined a profile of residents of the area, and described how the rental stock has or will change in the short run with 17 rental apartment buildings scheduled to be demolished. In addition, the chapter has covered how displaced tenants, particularly seniors have been impacted economically, socially, and psychologically from the current situation, and where they have gone. The study area (known as the Kerrisdale apartment R M 3 area) is bounded by West Boulevard to Larch St., and from West 38th Ave. to West 45th Ave. While the incomes of the larger Kerrisdale area is one of the highest in the city, incomes within the R M 3 apartment zone within Kerrisdale vary considerably. According to a survey by the Concerned Citizens for Affordable housing, about 43 percent of the renter population in the area earn less than $20,000 per year. Statistics from the 1986 Census confirm this, and indicate that poorer tenants tend to live in low-rise buildings (those which are the most at risk for demolition) and the more affluent residents tend to live in the high-rises. Due to strong demand from local and off-shore markets, there has been substantial interest among developers to demolish and redevelop in the area. The strong demand resulted in strong sales activity for rental apartment buildings in 1988 and 1989. Sales in 1988 alone exceeded the total number of apartments sold in the area in the last 3 years combined. Developers who have bought older rental buildings in the area (all within the last year) are planning to demolish 17 buildings containing 359 rental units. These units are to 25. S c h u l t z , R i c h a r d and G a i l Brenner, "Relocation of the Aged: A R e v i e w and T h e o r e t i c a l A n a l y s i s " in J o u r n a l of Gerontology. V o l . 32, No. 3, 1977, and H a s s e l k u s , Betty R i s t e e n , " R e l o c a t i o n S t r e s s and the E l d e r l y " in T h e A m e r i c a n J o u r n a l of O c c u p a t i o n a l Therapy. November-December 1978, V o l u m e 32, No. 10. be replaced by 222 luxury apartments. Strong demand and low vacancy rates have meant that the rental housing market is tight in Kerrisdale. And, units are continually being lost. In the Apri l Vacancy survey, out of 2300 rental units in the area, C M H C found only 5 suites available for rent (.2 percent vacancy rate). Data from the government housing agency also suggests that the area is losing rental units. C M H C estimates that over the last three years, the area have and will lose about 400 units in total— with most of the units being lost in 1988 and in 1989. Because it is still relatively early (only 6 of the 17 buildings have been demolished), it is difficult to assess the full impact of this wave of demolitions. If all 359 apartments are demolished, a conservative estimate will be that at least 400 individuals would be affected. However, other tenants should also be concerned. Assuming strong demand continues and the supply of available land is limited, those renters living in older low-rise rental stock is also potentially at risk. According to the 1986 Census, about one half of the renter households are seniors. Furthermore, the Census shows that 44 percent of renter households in low-rise apartments earn less than $20,000 per year. If this finding is correct, and if we assume that these tenants are renting at the average price for a one bedroom unit $611 (in Apri l 1989), then everybody in this group is already paying more than 30 percent of their income towards rent. Data gathered also indicates that some displaced renters are paying over 50 percent of their fixed incomes on rent. Although there are exceptions, it is the seniors groups who will have the most difficulty in moving. Contrary to the belief that many seniors have been forced out of the area, data collected indicates that a majority of those evicted (about 65 percent) stayed in the area. For displaced tenants who moved within the area, rents increased in every instance. Incidences of rent decreases occurred when displaced tenants opted to move out of the area or into smaller accommodation outside Kerrisdale. Although seniors have been impacted economically, it is the social and psychological impact which have affected all seniors. The biggest impact of evictions have been the stress. A major fear of many seniors was being forced to move out of the area. Other reactions were: loss of choice (powerlessness), loss of independence, loss of self-esteem, and fear of uncertainty. The health of some displaced tenants appeared to worsen after the move. Although not scientific, they believed that the decline in health was due in part to increased stress. Several people who had been evicted had also died recently after their move. While it cannot be proven that mortality was caused by stress, their feelings of hopelessness and despair before the moves were good indicators of potential adjustment problems. In general, researchers agree that the best methods for reducing relocation stress especially among seniors, are to: (1) slow the rate of change, (2) ensure that old and new environments are not too drastic, (3) ensure that affected tenants are consulted and given some choice. If seniors know they are in control, they will have less fear, and the negative effects of relocation are reduced. The abrupt apartment evictions in Kerrisdale violated all these principles. 4.0 The Costs of Building Rental Versus Condominium Apartments 4.1 Introduction New rental housing production is increasingly becoming rarer and rarer. In 1982, private rental starts in the city of Vancouver accounted for 47% of the total starts. B y 1988, the total number of private rental starts had fallen to a mere 5% of the total starts. 1 The rental housing market is experiencing tremendous demand for more units to be added to the existing stock. However, instead of additions to the stock, the rental housing inventory is being diminished because of several different factors which include: conversions from apartment to condominium, demolition of existing suites, and a crackdown on illegal suites in single-family houses. The principal reason why few rental units are being built is because it is financially unattractive. In the short term, it is much more profitable to build condominiums than rental apartments because the return is quicker and more predictable. In addition, for the investor, the trend towards stronger tenant rights legislation, increased taxes on capital gains, and increasing property management fees make rental housing investment less desirable than other ventures. Real estate investments, however, still tends to be good investments most of the time due to leverage. Leverage is the act of making as much as possible with as little as possible. In real estate, profits are obtained quickest when property is bought with a view of selling it shortly. This rapid buying and reselling process is commonly known as a "flip". In order to make more profits, the less one invests in the venture, the more one makes. For example, the investor who invests $50,000 and sells the property shortly for $55,000 cash earns a profit of 5%. However, if that same investor invests $5,000 for the same project, and sells it for the same price, his profit now becomes 100% since the return on the initial investment is doubled. Rental projects may be viable depending on the owner's motivation to stay in for the long term, his required capitalization rate (return on investment), the expected rate of capital appreciation, and various tax laws. In general, developing property is a very risky 1. C M H C V a n c o u v e r Branch, Market Activity S u r v e y s 1982-1988. business. The profitability of any development is dependent on a number of variables. Generally, the price of land, the cost of financing.the zoning, and the market demand for the final product are significant factors to consider. Because most real estate developments are highly leveraged (much of development costs are borrowed), any increase in interest rates will have a significant impact on the profitability. In addition, delays in the completion of construction due either to political process or a softening in market demand will affect profitability. This section discusses why very few private rental units are being constructed in the city, and outlines where they are being built. In addition, there is an analysis of apartment vs condominium profitability using proforma analysis in Kerrisdale. Five scenarios are presented: (1) Build an apartment and sell as Condominium, (2) Build an apartment and rent, (3) Buy an apartment today and rent, (4) Analyse the profit of an Apartment investor who bought seven years ago and sold recently, (5) Discuss the potential for further redevelopment of land in Kerrisdale. 4.2 Where are Private Rental Units Being Built? Without government subsidies, there have been very few private rental starts in the city. Despite the removal of rental controls in 1983, there has not been a increase in private rental accommodation. This is primarily because the returns for rental investment is not as attractive as other investments. Since 1984, private rental starts accounted for an average of 5.6% of annual housing stock 2 . In the first six months of 1989, C M H C figures show that only 526 private rental apartment units are under construction, compared to 4856 apartment condominiums in the Vancouver C M A . Much of the current rental stock that is being built is situated in areas where the cost of land make such projects financially viable. Rental housing construction has been most active in the outlying areas. For example, Surrey, Richmond, and Langley municipalities account for over 43% of the units under construction so far this year (as of June). In the City of Vancouver, private rental construction has generally remained in the eastside of the city. Rental construction in this area represents about a third of the 296 units that are actually being built in the city. Marpole accounts for another third, and the north shore of False Creek (downtown peninsula) accounts for the remaining third. The downtown units, 2. S t a t i s t i c s from C M H C V a n c o u v e r Branch. however, are aimed primarily for the upper end of the rental market. There are no private rental units being built on the west side of the city. Figure 4.1 Apartment Condominiums and Private Rental Apartments Under Construction in Vancouver City as of June 1989 A R E A Apt Condo Units Apt Rental Units West end 553 0 Downtown 228 130 Kits 152 0 False Creek 433 0 Granville/Oak 381 0 Kerrisdale 0 0 Marpole 33 88 Eastside 48 62 Mt. Pleasant 63 16 Strath/Grandview 57 0 Westside 229 0 T O T A L 2177 296 Source: CMHC Vancouver Branch, Market Housing Activity Report, June 1989 4.3 Where are Non-Market Housing Projects Being Built? A n analysis of where non-market housing units are being built will show that they will generally be found in the east side of the city. There are very few social housing projects in the west side of the city. The three wealthiest neighbourhoods in the city— Shaughnessy, Dunbar-Southlands, and Kerrisdale have no social housing projects. There are several reasons for this. First, although there may be a minority of individuals in economic hardship, the majority of residents can afford market housing. Second, there may be an resistance to this type of housing by residents, and (3) land prices in these areas are so high that subsidized housing of any kind will be excessively expensive. Figure 4.2 Social Housing Inventory Number of Projects and Number of Units by Area Area Name # of Projects # of Units WEST-SIDE Arbutus Ridge 3 Dunbar-Southland 0 Kerrisdale 0 Kitsilano 23 Marpole 11 Oakridge 2 Shaugnessy 0 South Cambie 2 West Point Grey 4 West-side Subtotal 45 EAST-SIDE Grandview-Woodlands 52 Hastings-Sunrise 12 Kensington-Cedar 12 Killamery 20 Mt. Pleasant 23 Renfrew-Colling. 16 Riley Park 5 Strathcona 32 Sunset 3 Victoria-Fraserview 8 East-side Subtotal 183 DOWNTOWN & FALSE CREEK CBD 15 Fairview 22 West End 15 Downtown/Fairview Subtotal 152 Total City of Vancouver 280 Source: Social Planning Department, as of January 1988 4.4 T H E H O U S I N G M A R K E T IN K E R R I S D A L E R M 3 a) The Luxury Condominium Market Prior to 1987, the outlook for luxury condominium units in Kerrisdale was weak. This was consistent with the overall market activity in Metropolitan Vancouver. Since 1986, there has been several condominium projects completed 3. A t that time, the top 3. T h e a d d r e s s e s are 5425 Yew, 5919 Yew, 5535 Vine, 2350 west 39th, and 2115 west 40th. A total of 117 dwelling units were lost in the process. 5885 Y e w was a l s o constructed, but information regarding the previ o u s building w a s not pursued. A l l t h e s e buildings are co n c r e t e hi-rises. 181 0 0 559 498 178 0 65 271 1752 1673 813 401 1572 751 712 362 2616 112 911 9923 1416 1447 1482 4345 16, 020 47 listing prices for luxury units ranged from $160 to $187 per square ft. By late 1988, the prices had increased to about $350 per square ft. A t the peak of the boom, in early 1989, sale prices of land was about $160 per sq. ft, and developers were budgeting and projecting condo sales revenues in the range of $400-$500 per square ft. 4 This meant that typical penthouse suites of 2000 square ft would sell in the $1 million dollar range. Figure 4.3 Selected Kerrisdale Concrete Condominium Completions Address Name Units Avg Price/Sq.Ft Complete Date Marketing Period Absorption Rate 5425 Yew "The Belmont" 37 5199-5245 1987 18 months 2.05/month 5389 Vine Chelsea Crt 18 $287-5452 1988 Not Available n/a 2350 w. 39th St. Moritz 43 $200-5327 1987 7 months 6.14/month 2115 w.40th Regency PI. 25 $191-$252 1986 19 months* 1.31/month 2189 w.42nd Governor's 49 $252 1988 Presold Completely Sold 5939 Yew Tiffany PI 7 $234-5274 1988 8 months .9/month * This building had no pre-selling periods like the others. Building completed in August 1986, and sold out in February 1988 Source: Various Real Estate Marketing Reports The average absorption rate for major luxury projects has been approximately 1-2 units per month in 1986-87 on the West-side. However, with pre-selling of units far in advance of completion, there appears to be little problem selling the units. Almost all of the projects in Kerrisdale sold out within a few months after completion. A s the demand for luxury condominiums continues, it is expected that sales of newly completed units will be more brisk. Purchasers of luxury condominiums traditionally have been empty nesters who have retired and sold their homes on the west side. These buyers typically made up half the market. Purchasers from Hong Kong made up the rest of the market. It is expected that people from Hong Kong will increasingly become more important as more wealthy seniors from Kerrisdale flock to retirement communities in White Rock. 5 4. From d i s c u s s i o n s with W a verly Development Corporation, J u n e 1989 5 T h e s e c o m m e n t s are b a s e d o n real estate marketing reports and with c o n v e r s a t i o n s with real estate a g e n t s . b) T H E R E N T A L M A R K E T LN K E R R I S D A L E R M 3 A P A R T M E N T A R E A The rental apartment market continues to be tight in the Kerrisdale R M 3 district, particularly in low-rise buildings which generally command less rents. The Apri l vacancy rate was .2 percent which means that out of a 2300 units, only five were found to be available for rent. Average rents for one, two and three bedroom units were $611, $926, and $1271 respectively. Figure 4.4 Historical 1 Bedroom Rent Levels in Kerrisdale and the City of Vancouver Overall, 1985- 1989 Oct-84 Oct-85 Oct-86 Oct-87 Oct-88 Apr-89 Kerrisdale City Average Source: CMHC Vancouver Branch, Apartment Vacancy Survey, Various Years Rent increases between 1984 and 1987 were modest in the City of Vancouver primarily because of weak economic growth and low in-migration. In Kerrisdale, rents increased 8% between 1984 and 1985 and remained stable in 1986 and 1987. In 1988, rents jumped dramatically relative to the previous two years in Kerrisdale and in the city because of strong economic growth, and increased in-migration . These factors help to place additional pressures on the existing low vacancy rates. Figure 4.5 Consumer Price Information Index Change for Owner and Renter Expenses in Vancouver, 1985-1989 CPI Index Rent Hi CPI Owner (PIT) Source: Statistics Canada Cataloeue # 62-010. Data Bank D488803. Time Series Retrieval The Consumer Price Index for owners expenses towards shelter has been increasing more steeply than that of renters. In 1985, the percent change in expenses associated with owning property was negative. This meant that owners actually had to pay less expenses than they did the year before. Renters, on the other hand, had a Consumer Price Index of about 3 percent meaning that their rents and associated costs increased an average of about 3 percent. By 1989, the CPI index for renters had increased to 4.5 percent while the one for owners had increased to 6.3 percent. These figures indicate that expenses associated with owning property: principal, interest and taxes have exceeded those expenses associated with renting. This suggests that landlords who own apartment properties are likely to pass those increases to their tenants . In Kerrisdale, the rapid increase in land values will place additional pressure for upward rents as landlords try to reduce their opportunity costs of maintaining their rental properties. 4.5 D E V E L O P M E N T E C O N O M I C S IN K E R R I S D A L E Investment in real estate, while generally good, involves financial risk since much of the money needed to finance projects is borrowed. In addition, factors such as interest charges, land prices, municipal zoning requirements, tax laws, and demand for the final product are significant factors to consider. Unfavorable influences of any of the factors can break or make a project. While the Vancouver housing market has been stable over the last several years, increased demand earlier this year for housing have stimulated house prices. While average house prices in the city have increased across the board, the greatest price increases have occurred in the west side. The demand for luxury condominiums have particularly been strong. Data from Royal LePage show that strongest demand for luxury units come from Vancouver's westside, Richmond and Burnaby. The greatest price increases from year to year were from units on the Westside and from Burnaby with percent increases of 69.9% and 58% respectively. Figure 4.6 Percent Change Percent Price Increase for Luxury Condominium Apartments in Metropolitan Vancouver, April 1988 and April 1989 70 70 60 50 40 30 20 Not applicable 10 0 0 Bumaby Van. West- Coquitlam Surrey Side Source: 1989 Royal LePage Survey of Canadian House Prices, April 1989 Richmond Van East-side Figure 4.7 Median Luxury Condominium Apartment Prices, Vancouver Area, April 1988 and April 1989, Dollars ' i v v w i m c r e a s e m price over 1988 in Westsidi Burnaby Coquitlam Van. East Richmond Surrey Van. West Side Side Source: 1989 Royal LePage Survey of Candian House Prices, April 1989 The strong demand for luxury condominiums in Vancouver's west-side Kerrisdale has meant that many existing rental apartment buildings are being torn and redeveloped. From an investor perspective, the income being generated from existing rental uses did not and could not approach those profits from condo sales. The Kerrisdale R M 3 apartment zone is characterized by mainly 3 storey wood-frame apartment buildings. Although the zoning, in place since the 1950s, allow for outright construction of 12 storey buildings, the majority of apartment dwellings within Kerrisdale remains lo-rise. Land prices in Kerrisdale has been a significant factor in driving the redevelopment of Kerrisdale. The extremely high land values make it necessary for any new development to be built to the maximum zoning envelope. In RM3-zoned apartment districts, the basic F S R 6 (floor space ratio) is 1.0 with the possibility of achieving FSRs of 1.82 for 150 ft. lots and 1.86 for 200ft. lots if bonusing requirements are met 7. Zoning under R M 3 allows 6. "FSR" Fl o o r S p a c e Ratio is defined a s the ratio of allowable built a r e a over the site area. For example, on a site s i z e of 100 feet, a F S R of 2.0 would allow the construction of 2 0 0 ft. on that property, a n d an F S R of 3.0 would allow 300ft. to be built a n d so on. 7. For a d i s c u s s i o n of the maximum floor s p a c e ratios under R M 3 guidelines, p l e a s e refer to " R M 3 Floor S p a c e Ra t i o B o n u s S y s t e m " in Appendix for the construction of apartments up to 120 ft. and are permitted outright. Development permits which meet all the requirements are virtually guaranteed, and neighbours need not be notified. Few of the existing apartment buildings in Kerrisdale utilized the full zoning capacity allowed (typical FSRs were from 1.2 - 1.5) when they were first built in the late 1950s and 1960s. This was primarily due to a number of factors: (1) low-rise developments were already profitable, (2) many of the owners were small-scale and could not afford to build a concrete hi-rise, (3) the market demand was not strong enough, (4) apartments could not be stratified; therefore investors had to be in for the long-term. Because of high land prices and the strong demand for accommodation in Kerrisdale, any new developments will have to built to the maximum. 4.6 Economics of Rental vs Condominium Investment: The attractiveness of any investment is dependent on factors such as: rate of return on investment, the degree of risk, owner objectives (cash flow or capital gain), liquidity, availability of financing, and protection from inflation. The following discussion presents 5 scenarios on the profitability of Rental versus Condominium investment in Kerrisdale R M 3 apartment district from an investor's point of view that maximizes profits while reducing the risks. Scenario 1 analyses the current rent situation of an existing lo-rise building in Kerrisdale using actual current income and expense flows. Potential profits are forecasted for the next 5 years . Scenario 2 analyses the past rental income performance of an owner of rental property who bought in 1983 and have just recently sold. Scenario 3 examines the viability of building a rental hi-rise today. Scenario 4 looks at the returns on building a condominium, and Scenario 5 estimates the degree of risk for redevelopment of other properties in Kerrisdale given developers' budgets for land. Scenario 1: Investor Buys Existing Rental Apartment and Continues to Operate It. Sell after 5 years. The following property has recendy listed for sale. Assuming an investor buys the property and keeps it for five years, what would be his return? The assumptions are: Inflation is 5%, Capital appreciation is 10% per year, Actual purchase price is $980, 000; Downpayment is 25%: $245, 000; Loan amount is $735,000; Financing is 12% per year (amortization period is 25 years with a term of 5 years). Under this scenario, the investor receives net income of $46, 856 in year 1 and increases to $53, 307 in year 5. In year 1, finance charges are $87, 933 and it decreases to $84, 896 in year 5. As time progresses, the expense to income ratio decreases and net cash flows become positive. After year 5, the investor sells the property at an expected price of $1,578, 300 (assuming 10% appreciation), and makes a capital gain of $598, 300. Because one half of the capital gain is taxable, the investor must subtract $137, 609 from the sale price giving him net proceeds of $1, 440, 691. In order to get to the net profit, the investor must still subtract: (1) remaining balance of his loan to the bank, (2) initial equity contribution, and (3) total negative flows during the previous five years. After all this is done, the investors determines that he has earned an after-tax income of $302, 449 over five years. That translates into a 25% return on equity annually or $43, 207 per year. However, if dollars are calculated for inflation (present value calculation), the scenario is drastically altered. Instead of an after-tax income of $302,449 over five years, the investor loses $39, 212 over the same period. Comment: In this example, provided all the assumptions are true, the investor will make approximately $43,000 (20% return on initial equity) per year. This compares to about $20,000 per year after-tax income if that initial equity contribution was invested in bonds. Generally, then, investment in rental housing is still a better investment than placing your money in a bank to earn interest. Figure 4.8a Scenario 1: Continue to Maintain Rental Investment PROPORMA ANALYSIS AND INCOME PROJECTION FOR A RENTAL PROPERTY IN KERRISDALE, ACTUAL INCOME EXPENSE FLOWS Assumptions Inflation is 5% per year Capital appreciation is 10% per year Sale Price: $980, 000 Equity down: 25% of purchase price Financings 12% per year fixed rate Amortization: 300 months Term : Syears Loan is $735, 000 Required equity is $245, 000 Gross income Gross expenses Net income Less: Financing Charges Interest Paid Net Cash Flow End of Year 1 $60,300 $16,444 $43,856 $87,933 ($44,077) End of Year 2 $63,315 $17,266 $46,049 $87,304 ($41,255) End of Year 3 $66,481 $18,130 $48,351 $86,595 ($38,244) End of Year 4 $69,805 $19,036 $50,769 $85,795 ($35,026) End of Year 5 $73,295 $19,988 $53,307 $84,896 ($31,589) Mortgage Details: Interest Paid Principal Paid Total Paid Still owing Sell Property after year 5 @ $1, 578, 300 Initial Property Value, $980, 000 $87,933 $4,961 $92,894 $730,039 $1,078,000 $87,304 $10,552 $185,789 $724,448 $1,185,800 $86,595 $16,852 $278,683 $718,148 $1,304,380 $85,795 $23,950 $371,577 $711,050 $1,434,818 $84,896 $31,949 $464,472 $703,051 $1,578,300 980000 Purchase Price, Year 1 Property Sale Price at Year 5 Nominal $$ Real $$ Gross Profit 50% of nominal Profit taxable 1/2 of Capital Gains is taxed at 46% Nominal After-tax Profit /losses Nominal Dollars $980,000 $1,578,300 $598,300 $299,150 $137,609 $460,691 Correction for Inflation $980,000 $1,236,639 $256,639 $299,150 $137,609 $119,030 PROFIT ANALYSIS OPTION 1, Put money in Term deposit Opportunity Cost of $245,000 Downpayment assuming 10% Bonds 245000 Interest Income of $245,000 @10% over 5 years less taxes @ 30% After tax income over 5 years Return on Equity over 5 years, After tax Approximate return on Equity annually at 8.3% OPTION 2 Nominal Dollars (in Real $$$) Invest in Property, Sell After year 5 $1,578,300 $1,236,639 • less capital gains tax $137,609 $137,609 Net proceeds $1,440,691 $1,099,030 • less remaining balancing to be paid to bank $703,051 $703,051 • less total negative cash flow in 5 yrs $190,191 $190,191 • less initial equity contribution $245,000 $245,000 After tax income over 5 years $302,449 ($39,212) Return on Equity over 5 years After tax 123% -22% Approximate % return on equity annually 25% -4% Approximate return on equity annually $43,207 ($7,842) Notes: CCA tax deductions are not taken into account since they will be recaptured when building is sold. • Earnings for option 2 will be higher if negative cash flow is applied to other income-producing properties of investor's portfolio to reduce taxable income • return on equity annually figures are approximate. • Income/expense, and Sale price are actual figures • For illustration purposes only. August 1989 EndofYearl EndofYear2 EndofYear3 EndofYear4 EndofYearS $269,500 $296,450 $326,095 $358,705 $394,575 Nominal dollars $149,575 $44,872 $104 702 ******************* 43% 20, 940 Scenario 2: Analysis of Profits Incurred of Rental Property Bought in 1983 and Sold in 1989 The following rental property was sold in Apri l 1989 for $5, 437, 500. This property was previously purchased in 1983 for $2, 300, 000. What has been the profits incurred over this period? The assumptions are: Previous owners took out a loan on the $2.3 million in 1983; Equity contribution is $580, 000; Loan amount: $1, 740, 000, Interest in 1983: 11.5% per annum; Vacancy expense: 3% of Gross income; Mgmt and other Expenses: 30% of gross income 8. Income revenues are based on having a total of 44 one bedroom units and one two bedroom unit. Calculations are based on average C M H C rents for the respective bedroom sizes in each of the 7 years. In this example, financing charges exceed income revenues in the first three years. Starting in year 4, rent revenues exceeded finance charges, and the property was making money. At the end of Year 7, the property was generating an annual income of $223, 592 before taxes. The required rate of return for most apartment investors now is about 6.5% (Capitalization rate9). Based on the annual income of $223, 592, and a cap rate of 6.5%, investors would only be willing to pay approximately $3.4 million for the property. In fact, a developer who wanted the property for condominium development paid $5.4 million. The owner of this building made a reasonable profit over the seven years due primarily to capital appreciation (not rental revenues) and to leverage. After receiving $5.4 million for the property, the investor must pay one half of the capital gain in taxes 1 0. In addition, he needs to pay the bank balance of his initial loan, his initial equity contribution and add the positive cash flows from 1983 to 1989. The investor ends up with an after-tax profit of $2.5 million dollars over 7 years (about $362, 911 annually). Should the original investor decide not to invest in this property and put his down payment of $580, 000 in 8. T h e s e figures are b a s e d on Industry standards. T h e s e are the s a m e o n e s u s e d for the Urban D e v e l o p m e n t Institute R e n t a l Model, Apr i l 1989. 9. T h e "c a p i t a l i z a t i o n rate" c a n be defined a s the rate used to convert income to value. T h e c a p i t a l i z a t i o n rate is an i ncome rate a s o p p o s e d to interest and discount rates which are yi e l d rates. T h e c a p rate or income rate is the ratio between income and value (salesprice). C a p Rate= Net Operating income/ S a l e s P r i c e . T h e going c a p rate indicates the income that certain types of properties are e x p e c t e d top generate. T h e lower the c a p rate, the l e s s o n e is willing to pay for the property. R e a l estate a p p r a i s e r s use the c a p rate a s one tool to determine an approximate price for a p i e c e of property. 10. In 1990, it is e x p e c t e d that the c a p i t a l g a i n s tax w o uld be i n c r e a s e d to 7 5 % of the gain c o m p a r e d to today's 5 0 % . T h i s will add to the unattractiveness of rental investments. S o u r c e : R e v e n u e C a n a d a Figure 4.8b Scenario 2: Profit Performance of Rental Investment: Case example (Bought in 1983; Sold in 1989) PROFORMA ANALYSIS AND INCOME PROJECTION FOR A RENTAL PROPERTY IN KERRISDALE, ACTUAL INCOME EXPENSE FLOWS Assumptions Original Owner bought in 1983 New Owners Bought, in April 1989 SITE STATISTICS Lot Size, 214ft. x 118 ft. Interest Rate March 1983 is 11.5% Assume 25% equity Loan Amount $2,320,000 $5,437,500 $25,252 $580,000 $1,740,000 • Cap Rate of 6.5% in 1983 from income of 153, 492/yr gives the property a value of $2.3 million • Cap late of 6.5% in 1989 using current income produced gives the property a theoretical value of $3.4 million under Rental. • $5.4 million was actually paid indicating that the property was capable of earning much more than current rental income. Average Rent Levels, Kerrisdale 1983 1984 1985 1986 1987 1988 1989 44 one bedroom units $409 $486 $525 $540 $545 $612 $611 (1) 2 bedroom unit $1,095 $701 $742 $777 $791 $874 $926 ************************************************************************************************************************ End of Year 1 End of Year 2 End of Year 3 End of Year 4 End of Year 5 End of Year 6 End of Year 7 Gross income $229,092 $265,020 $286,104 $294,444 $297,252 $333,624 $333,720 Less vacancies @ 3% $6,873 $7,951 $8,583 $8,833 $8,918 $10,009 $10,012 Less other expenses @ 30% $68,728 $79,506 $85,831 ' $88,333 $89,176 $100,087 $100,116 Net income $153,492 $177,563 $191,690 $197,277 $199,159 $223,528 $223,592 Less: Financing Charges Interest Paid $199,439 $197,888 $196,147 $194,195 $192,008 $189,555 $186,804 Net Cash Row ($45,947) ($20,325) ($4,457) $3,082 $7,151 $33,973 $36,788 Mortgage Details: Yearly Interest Paid $199,439 $197,888 $196,147 $194,195 $192,008 $189,555 $186,804 Total Principal Paid $12,799 $27,151 $43,243 $61,286 $81,516 $104,200 $129,635 Total Paid $212,238 $424,478 $636,717 $848,955 $1,061,193 $1,273,432 $1,485,671 Still owing $1,727,201 $1,712,849 $1,696,757 $1,678,714 $1,658,484 $1,635,800 $1,610,365 Sell Property after year 7 @ $5, 437, 500 Initial Property Value, $2, 320, 000 Nominal Dollars Real Dollars (assuming 5% Inflation factor) Purchase Price, Year 1 $2,320,000 $2,320,000 . Property Sale Price at Year 7 Nominal $$ $5,437,500 -Real $$ $3,864,329 CAPITAL GAIN $3,117,500 $1,544,329 50% of nominal Profit taxable $1,558,750 $1,558,750 1/2 of Capital Gains is taxed at 46% $717,025 $717,025 Proceeds before final payment to Bank $2,400,475 $827,304 PROFIT ANALYSIS Option 1, Keep Property, Sell After year 7 Nominal Dollars Real Dollars Selling Price after Year 7 $5,437,500 $3,864,329 less capital gains Lax $717,025 $717,025 Net proceeds $4,720,475 $3,147,304 less remaining balancing to be paid to bank $1,610,365 $1,610,365 less initial equity contribution $580,000 $580,000 add net positive cash flow in 7 yrs $10,265 $10,265 AFTER TAX PROFITS AFTER 7 YEARS $2,540,375 $967,204 *********** Return on Equity over 7 years After taxes 438% 167% Return on Equity annually 63% 24% Approx. return on equity annually after taxes $362,911 $138,172 Option 2, Invest $580,000 in Bonds End of Year 1 End of Year 2 End of Year 3 End of Year 4 End of Year 5 End of Year 6 End of Year 7 (assuming 8% avg appreciation) $626,400 $676,512 $730,633 $789,084 $852,210 $920,387 $994,018 Real dollar adjustment, assuming 5% inflation $597,400 $615,322 $633,782 $652,795 $672,379 $692,550 $713,327 580000 Nominal Dollars Real Dollars End of Year 7 $994,018 $713,327 Less original investment $580,000 $580,000 Gross Interest Income $414,018 $133,327 less .46 tax rate $190,448 $61,330 NET INTEREST INCOME OVER 7 YEARS $223,570 $71,996 *********** Return on Equity over 7 years 39% 12% Approx. return on equity / yr after taxes 6% 2% Approx. return on equity /yr after taxes $31,939 $10,285 Notes: • CCA tax deductions are not taken into account since they will be recaptured when building is sold. • Sale and Purchase prices of this property are actual amounts. • Vacancy rates are assumed to be 3%, and expenses are assumed to be 30% of gross rent revenues following the UDI Rental Model • Annual Rental incomes are based on CMHC Average rents for 1 and 2 bedrooms for the various years • Earnings will be higher if negative cash flow is applied to other income-producing properties of investor's portfolio to reduce taxable income • return on equity annually figures are approximate. • Correction for inflation is assumed to be 5% ( Real Dollars calculation) • For illustration purposes only. Aug-89 bonds, his after-tax income from interest would be $223, 570, or approximately $31, 939 annually. Investment in Rental housing is still profitable over the long term. Profits are primarily dependent on capital appreciation and not so much on rental income. The prudent apartment investor needs to be in for the long term and have substantial capital to cover losses in the first few years. Scenario 3: Build a Hi-rise Apartment and Intend to Rent in Kerrisdale Scenarios 3, 4, and 5 are based on the property at 2256, 2278, and 2296 West 40th Avenue in Kerrisdale. Scenario 3 presents the situation where rental apartments are built instead of strata-titled condos. The building to be built will be 12 stories and will contain 26 units. The building is built to the maximum FSR of 1.86. The construction costs per sq. ft. is assumed to be $90 (slightly less than for condominiums). In addition, each rentable sq. ft. of the complex is estimated to rent for $1.25 per sq. ft. per month which translates into a monthly income of $1395 for a 1740 sq. ft. unit. The price paid for this land was $3, 600, 000 ($126 per sq. ft. in July 1988). The going price has since gone up to about $150 per sq. ft for raw land. Estimated net operating income( before long-term debt service) for the new building is approximately $459,910 . The total construction cost of the rental apartment building is calculated to be $10, 705, 754. Taking into account the expected earning potential of this building in the first year ( $459, 910), the investor who wants the standard 6.5% return (6.5% cap rate) will only be willing to pay about $7 million for the property. In order to cover at least the cost of construction, an investor must be willing to take a return of 4.5% on revenues just to break even on costs. Scenario 4 Build Apartment and Sell as Strata-Title Using the same piece of property as the previous example, what is the profit range if condominiums are built? Four situations are presented to take into account the changing market conditions. In situation 1, the actual prices paid for the property in July 1988 are 58 Figure 4.8c Scenario 3: Build New High-rise Building and Rent in Today's Market Pro form a Analysis, Purpose-Built Luxury Rental Hi-rise 2256, 2278, 2294-96 West 40th Ave. Vancouver B.C., July 1989 Kerrisdale Hi-rise Rental Project, 26 units 1 tower, 12 floors. 1 floor of underground parking, all rental 26 units ASSUMPTIONS: • Site Size 203ftxl41ft. • Floor Space Ratio, FSR • Total Buildable Area • Land Price per sq. ft. • construction costs per sq. ft. • Price per Buildable sq. ft. • Total Rentable Area (85% efficiency) • Size of each unit in sq. ft. • Rental rate for each unit per month • Rental Rate per sq. ft/month • Annual Rental Income= Rental rate/month x rentable area x 12 • Land Costs 28623 1.86 53239 $126 $90 $68 45253 1740 $1,395 $1.25 $677,335 $3,600,000 DESCRIPTION: (26) 3 bedroom rental units in Kewrrisdale renting for $1395 per month m****mm****rn******************^****************mm***************************************************************** ****** CONSTRUCTION COSTS • Hard Costs: $90/sq. ft. Buildable area • Parking: @ $10,000 per stall, 58 required • Demolition of three existing buildings • Soft Costs (15% of hard costs) Subtotal INTERIM FINANCING (Construction) ( assuming 1/2 of all construction costs are carried for 12 months at 13%) $3,117,357 $4,791,490 $580,000 $50,000 $813,224 $6,234,714 $404,228 LAND COSTS $3,600,000 INTERIM FINANCING (Land Costs) (assuming full cost of land is financed over 12 months at 13%) $466,812 TOTAL COSTS $10,705,754 REVENUES • Gross potential rents per annum • less Bad debts and vacancy @ 3% • Actual gross rent • less operating expenses @ 30% • Net operating income before debt service $677,335 $20,320 $657,015 $197,104 $459,910 CAPITALIZATION RATES • 6.5% IF INVESTORS REQUIRES 6.5% RETURN THEN PROPERTY WILL BE WORTH $7,075,542 • 5.5% IF INVESTORS REQUIRES 5.5% RETURN THEN PROPERTY WILL BE WORTH $8,362,004 •4.5% IF INVESTORS REQUIRES 4.5% RETURN THEN PROPERTY WILL BE WORTH $10,220,228 • 3.5% IF INVESTORS REQUIRES 3.5% RETURN THEN PROPERTY WILL BE WORTH $13,140,293 NOTES: The capitalization rate is a ratio of income to value. Given a net operating income, the higher the Cap rate, the lower the property value. • In this example, the potential investor must be willing to accept a Cap. rate of about 4.5 just to break even with the Costs, based on 1st year annual cash flows before debt service. When financing charges are added, cash flows become negative. Aug-89 Figure 4.8d Scenario 4: Build Condominium High-rise and Sell in Today's Market 59 Proforma Analysis, Luxury Condominium Development 2256, 2278, 2294-96 West 40th Ave. Vancouver B.C., July 1989 Kerrisdale Hi-rise Condominium Project , 26 units 1 tower, 12 floors. 1 floor of underground parking, all strata-title. 20% equity ASSUMPTIONS: • Site Size 203ftxl41ft. 28623 • Floor Space Ratio, FSR 1.86 • Total Buildable Area 53239 • Total Marketable Area (85% efficiency) 45253 • Construction Costs , per sq. ft. $100 (Steel and Concrete) ********************************* ********************** ***************************************************************** SCENARIO 1 SCENARIO 2 SCENARIO 3 LAND COST PER SQ. FT. SITE VALUE EXPECTED SELLING PRICE PER SQ FOOT PER UNIT $3,600,000 $126 $400 $4,300,000 $150 $400 $4,007,220 $140 $325 RESIDENTIAL REVENUES (Marketable area x Revenues per sq. ft.) $18,101,185 $18,101,185 $14,707,213 COSTS: Construction costs: • Hard Costs: SlOO/sq. ft. Buildable area • Parking: @ $10,000 per stall. 58 required • Demolition of three existing buildings • Soft Costs (15% of hard costs) Subtotal $5,323,878 $580,000 $50,000 $893,082 $6,846,960 $5,323,878 $580,000 $50,000 $893,082 $6,846,960 $5,323,878 $580,000 $50,000 $893,082 $6,846,960 INTERIM FINANCING (Construction) ( assuming 1/2 of all construction costs are carried for 12 months at 13%) $3,423,480 $443,923 $443,923 $443,923 REAL ESTATE COMMISIONS (estimated at 4% of revenues) $724,047 $724,047 $588,289 LAND COSTS INTERIM FINANCING (Land Costs) (assuming full cost of land is financed over 18 months at 13%) $3,600,000 $699,185 $4,300,000 $835,137 $4,007,220 $778,274 TOTAL COSTS Required Equity invested equals 20% of costs $12,314,115 $2,462,823 $13,150,067 $2,630,013 $12,664,665 $2,532,933 BEFORE TAX PROFIT • Return on Costs • Return on Equity (profit/total costs) (profit/equity) $5,787,070 47% 235% $4,951,118 38% 188% $2,042,548 16% 81% AFTER TAX PROFIT apply .46 tax rate $3,125,018 $2,673,604 $1,102,976 Aug-89 used ($126 per sq. ft.). The expected selling price for finished units at $400 per sq. ft. is the going rate for luxury units as of Spring 1989. At $400 per sq. ft., a completed building will bring in revenues of $18.1 million. Hard costs typically run at $100 per sq. ft. and soft costs are about 15% of hard costs 1 1 . When interim financing, land costs, and real estate commissions are added, the total construction costs are estimated to be $12.3 million. This leaves a before-tax profit of $5.7 million and an after-tax one of $3.1 million over approximately 18 months. If the developer were to buy the land in January 1989 when raw R M 3 land was selling for $150 per sq. ft. in Kerrisdale, and assuming everything else still applied, the developer would make a before-tax profit of $4.9 million and a after-tax profit of $2.6 million. Even if the market softens and the developer buys land for $140 per sq. ft. and is able to sell his units for only $325 per sq. ft., he still makes a pre-tax profit of $2 million and an after-tax one of $1.1 million. In general, if market conditions are favourable and there is strong enough demand for the end product, the construction of condominiums apartments is much more profitable than rental housing investment. In the discussion of scenario 2, it was revealed that an apartment building bought in 1983 and resold in 1989 realized after tax profits of 2.5 million over 7 years. While this is not a bad return by itself, it does not compare to the profit potential in building condominiums. For example, using the assumptions in scenario 4, if the developer is able to pre-sell all his condos before completion, he is able to make the same 2.5 million, but only over 18 months! Scenario 5: A n Analysis of the Risk of Further Demolition Activity in R M 3 Land in Kerrisdale Given Selected Developers' Budgets. Given favourable market conditions, the development of condominiums is very profitable. Eventhough the price of land is high in Kerrisdale, the prices that some people are willing to pay are even higher. This strong demand makes potential redevelopment viable. The following discussion outlines a number of market scenarios and under what 11. Har d c o s t s are the material c o s t s related to construction. Soft c o s t s , by contrast, a r e all other c o s t s i n v o l v e d in d e v e l o p m e n t (lawyer's f e e s , architecture f e e s , marketing c o s t s , permit/license f e e s etc). 61 Figure 4.8e Scenario 5: A n Analysis of the Degree of Risk for Further Redevelopment Based on Developers' Budget for Land Sample Pro form a for a Luxury Condominium in Kerrisdale: Analysis of Redevelopment Potential and Risk ASSUMPTIONS: Site: 2256, 2278, 2296 w. 40th Ave. Site Size Site area FSR Total Buildable Area Total Marketable Area, assuming 85% efficiency Parking: 2.2 stalls required/unit Projected Unit Sales price per sq. ft. Construction Costs per sq. ft. Profit required 203x141' 28623 1.86 53239 45253 Scenario 1 $400 $100 20% Scenario 2 $350 $100 20% Scenario 3 $350 $90 20% Scenario 4 $325 $100 15% REVENUES: Marketable area x $400 sq. ft. $18,101,185 $15,838,537 $15,838,537 $14,707,213 COSTS: • Construction Costs: Hard Costs, construction costs/sq. ft x Buildable area $5,323,878 Parking : @ $10,000/stall; 58 required $580,000 Demolition of existing buildings $50,000 Soft Costs (15% of Hard Costs) $893,082 Subtotal $6,846,960 $5,323,878 $580,000 $50,000 $893,082 $6,846,960 $4,791,490 $580,000 $50,000 $813,224 $6,234,714 $5,323,878 $580,000 $50,000 $893,082 $6,846,960 INTERIM FINANCING (assuming that 1/2 of construction costs are carried for 12 months at 13%) $443,923 $443,923 $404,228 $443,923 REAL ESTATE COMMISSIONS (estimated 4% of revenues) $724,047 $633,541 $633,541 $588,289 PROFIT REQUIRED TOTAL COSTS $3,620,237 $11,635,167 $3,167,707 $11,092,132 $3,167,707 $10,440,191 $2,206,082 $10,085,253 RESIDUAL (to cover land costs and land carrying charges) (budget approx. 90% of amount for land) $6,466,018 $4,746,405 $5,398,346 $4,621,960 Less: Land carrying charges ( assuming the full cost of land is financed over 18 months @ 13% Maximum budget Allowance for Land (remainder is additional profit) $1,051,581 $5,414,437 $771,917 $3,974,488 $877,943 $4,520,403 $751,678 $3,870,282 BOTTOM LINE COMPARISON • Land allowance per sq. ft. of Site • Land allowance per buildable Sq. ft of Site • Land allowance for a standard 50x125 sq. ft. lot Notes: Actual Land costs $126 per sq. ft. July 1988 $189 $102 $1,182,274 $126 $139 $75 $867,853 $158 $85 $987,057 $135 $73 $845,099 Redevelopment Potential Based on Developer Budgets and Market Conditions Yes Maybe Yes No Threshold Dollars for Development • Current Values of RM3 Land, July 1989, per sq. ft. • Current per buildable Sq. ft. (FSR 1.82) Selling Price for50xl25 ft. lot, July 1989 $150 $81 $937,500 $150 $81 $937,500 $150 $81 $937,500 $150 $81 $937,500 Aug-89 conditions other apartments will be at risk for redevelopment 1 2. In general, if demand is strong enough, and if the developer's budget for land exceeds current market values, more land will be at risk for redevelopment. In estimating the profitability of any real estate venture, land costs, financing, and the strength of consumer demand are significant variables to consider. In scenario 1, land was bought early in July 1988, at $126 per sq. ft. Assuming sales projections of $400 per sq. ft., $100 construction costs, and a required profit of 20%, the developer would have a residual of $6.4 million for land and carrying charges. The going market rate for land as of January 1989 was $150 per sq. ft. in Kerrisdale. In this situation, the developer was able to afford $189 (but actually paid $126). Using these figures, the developer can theoretically pay up to $189 per sq. ft. for raw land and still make his required profit. Should projected revenues of completed condos drop to $350 per sq. ft, the developer would only have a residual land budget of 4.7 million which translates into $139 per sq. ft. This does not quite make the threshold of $150. But, if the developer turns to cheaper construction costs($90 instead of $100 per sq. ft.), he saves costs and his budget for land increases beyond the threshold amount. Land becomes at risk for redevelopment to condominium. In situation 4, projected sales of condos drops to $325 per sq. ft. In addition, the developer takes a cut in profit. However, the budget for land falls below the threshold. Given these budgets, the developer will not be able to purchase land at the market rate of $150 per sq. ft. without having to take a cut into profits. Based on the 4 Scenarios in this section, hi-rise condominium developments would be able to support values of between $135-$ 189 per sq. ft. for land (which may have 3-storey walkups already on them). Because the going market rate for older three-storey walkups is approximately $150 per sq. ft as of Spring 1989, it is likely that almost every property is at risk (if the demand for condominiums continues). 12. P a r t s of this model is b a s e d on " Th e A n a l y s i s of Redevelopment Potential in the R M 3 Z o n e d A r e a s of S o u t h G r a n v i l l e a n d Grandview-Woodlands", C o r i o l i s C o n s u t i n g Corporation, J a n u a r y 1989. 4.7 S U M M A R Y Rental housing is increasingly becoming rarer as demolition of existing stock increases while the number of new starts decreases. A major reason why private rental housing is not built is because of the poor relative economics behind it. Records from C M H C show that 296 private apartment rental units are currently under construction in the City of Vancouver compared to 2, 177 apartment condominiums. The majority of these rental starts are located in the East-side where land values are cheaper, or are built for the upper end of the market. There are no private rental apartments currently under construction anywhere on the west side. A n analysis of the condominium market in Kerrisdale indicate that demand for condominiums have surged sharply in 1988 and earlier this year. Absorption rates for new units have been steady but not spectacular in previous years. Buyers of condominiums traditionally have been empty nestors who have sold their homes in Kerrisdale. However, people from Hong Kong is increasingly becoming a significant pan of the market. Projected sales revenue of completed condo units were in the range of $400-500 per sq. ft. The rental apartment market continues to be tight in Kerrisdale. In Apri l 1989, the vacancy rate was .2% which means that C M H C enumerators were only able to find 5 units available for rent out of about 2300 units. A n examination of historical rents in Kerrisdale show that rents were raised drastically in 1988 after 2-3 years of only modest increases. Developing property is a risky business. Because projects are usually highly leveraged, an increase in interest rates, a delay in construction, or a drop in demand can have devastating impacts on profits. While it's true that investment in rental housing is increasingly unattractive compared to condominium development, it is still profitable. The attractiveness of rental property as an investment will depend on the investor's own motives and his required rate of return, and his willingness to stay for the long term. Profit for rental apartments is based on heavily on potential capital appreciation and less so on rental revenues. Therefore, investors need to have substantial back-up capital to cover negative cash flows in the early years of the investment. The development of condominiums is extremely profitable compared to rental housing as an investment. Examples in the text indicate that after tax profits of $2.5 million can achieved over 18 months (condo) compared to 7 years if a building was rented out. The strong demand for condominiums in Kerrisdale means that, given developers' budgets for land, all older apartment buildings in the area is at risk. 5.0 The Key Players 5.1 Introduction A central question around the apartment demolition incidents in Kerrisdale are the identities of those developers involved in the demolition of older rental apartment buildings. There is a perception that Asian Developers are mainly to blame. Resentment against Asian investment from local residents have been fuel by a number of issues and incidents. First, the westside of the city (particularly in areas such as South Granville and Kerrisdale) has been inundated with developers building "spec" houses for Hong Kong Chinese. Residents complain that developers have been destroying trees, and that the resulting big houses are ugly and out of place with their neighbourhoods. Second, there is a perception that increased house prices is a result of flipping. Finally, there is concern that residential real estate is increasingly marketed overseas to non-residents. Residents were particularly upset with the exclusive sale of the 216 unit Regatta Condominium project by Victor L i in Hong Kong which sold out in 3 hours. This chapter reports and identifies the key players involved in condominium development in Kerrisdale during the period from late 1988 to 1989. This information is based on Land title and Company searches from the provincial government databanks. Actual land transaction documents were reviewed. In addition,informed professionals were asked for their knowledge about these companies. 5.2 Details of Apartment Transactions1 During the six month period from January 1989 to July 1989, 10 Condominium project applications involving 17 existing low-rise rental apartments were submitted to the City of Vancouver Planning department for approval. A l l 17 of these buildings were bought within the last year. The following discussion identifies and presents details of those transactions. 1. I would like to thank Daphne Bramham of the V a n c o u v e r S u n N e w s p a p e r for her a s s i s t a n c e with parts of this r e s e a r c h . Figure 5.1 Number of Units Proposed Summary of All Developers Currently Having Applications for Condominium Construction in Kerrisdale RM3 Apartment District* 70 * As of September 1989, 222 condo units total. 60 J 64 Local Developers 61 50 4 40 4 30 4 20 4 10 4 0 4-Note: 1755 Holdings and Plan Fortune 'investments have affiliations. They were also Ihe" previous owners of land which they sold to Nova Development Corporation I I I 10 JKI Holdings Nova 8 Kerrisdale Pare Hokko 1755 Holdings Waveriy Plan Fortune Emerald Pax R.A.N. Develpmts Develpmts Develpmts Source: Permits and Licenses, Planning Department, City of Vancouver (Project #1), 2110 West 38th, and 2121 West 38th 65 existing rental units; 41 proposed condominium units These two buildings were bought in April 1989 by Nova 8 Development Corporation. The first property was bought from Shui Yau Tsang for $2.4 million, and the second property was bought from Norbill investments. Nova paid premium prices for this land of about $200 per sq. ft. They have an outstanding mortgage with Security Pacific Bank. (Project #2), 2121 West 38th Ave 26 existing rental units; 13 proposed condominium units This apartment block was bought from Nordic House Ltd in November of 1988 for $2.01 million by 1755 Holdings (a major assembler of land in the area). The owner of the property is listed as Oily Investments and Huey Tai Investments of Hong Kong. Both Huey Ta i and 1755 Holdings were registered in Canada in October 1988. Oi ly Investments is not a Canadian Registered company. Lawyer Michael Kalef of Vancouver is listed as a director of 1755 Holdings. He is also a president of Plan Fortune Investments, a company which owns 2226 West 40th (another proposed condominium location). A n outstanding mortgage on the property is held by the Hong Kong Bank of Canada. (Project #3), 2256, 2278, 2294-96 West 40th Ave. 41 existing rental units; 26 proposed condominiums These three apartment buildings were purchased from Manor Gardens owned by Andre Molnar in July 1988 for $3.6 million. The new owners, Kerrisdale Pare Developments paid cash for the properties. The company's officers are lawyer Boris Fodchuk of West Vancouver, Shan Keng L i of Burnaby; Gary Paul Tso , Gordon George Tso and pharmacist George C . Tso of Vancouver. (Project #4), 2226 West 40th Ave. 15 existing rental units; 10 proposed condominiums This 15 unit building was bought from retired engineer, Ping-Hua Pu, for $1.6 million in December 1988. The new owners, Plan Fortune have an outstanding mortgage with the Hong Kong Bank of Canada. (Project #5), 5890 Balsam Street 20 existing rental units; 10 proposed condominiums This property was bought from Leo Krell (individual) for $1.8 million dollars in January 1989 by Emerald Pax Holdings. Emerald Pax is also the developer of the Emerald West Condominium complex in the West End of the City. The company has a $4.5 million mortgage with the Hong Kong Bank of Canada at prime plus 1/2 %. (Project #6), 5850 Balsam Street 37 existing rental units; 20 proposed condominiums Nova Seven Developments bought this property from the Holding company #349821 alias #355126 alias Shui Yau Tsang alias Generation Enterprises for $3.5 million in December 1988. The Holding company itself bought the property from Rudolf Martin, an east-side electrician in September 1988 for $3 million . The principals of Nova Development are: Aziz i Az iz i of Vancouver, Anin and Kombiz Eghdami of west Vancouver; and Houchang Zargarpour of West Vancouver. The company has a mortgage with Western Builder's Capital. (Project #7), 6020 Yew Street 12 existing rental units; 7 proposed condominiums R . A . N . Developments purchased this property from Anka Investments for $1.1 million in May 1989. R . A . N , holds a mortgage with Confederation Life Insurance. The directors of R . A . N , are Bijan Neyestani and Faramarz Rohani, both of Victoria B . C . (Project #8), 2116 and 2130 West 43rd Ave. 18 existing rental units; 11 proposed condominiums Maple Holiday Park ( a registered company of Waverly Development Corp) bought the two properties in late 1988 for approximately 2.3 million. Maple Holiday's directors include: Ken Megale of West Vancouver, and Douglas Robinson and Ralph Silverton , both of Calgary. The company has a mortgage of $2.4 million and a mortgage of $5.5 million for construction costs with Metropolitan Trust of Canada. (Project #9), 5752, 5774, 5790 Vine Street 28 existing rental units; 20 proposed condominiums Hokko Development Corporation bought these properties in January and February of 1989. The corporation paid $3.3 million cash for these properties. (Project #10), 2120 and 2170 West 44th Avenue 97 existing rental units; 64 proposed condominiums JKI Holdings ( a registered company of local developer, Bucci Development Corporation) bought the two properties from Basha Sales Limited in the Fall of 1988. JKI Holdings has a $7.2 million mortgage from Basha Sales, Leibel Sales, and Newport Sales at an interest rate of 10.75% (bi-annually) until December 1991. After that, interest is calculated at 18% calculated monthly. Basha Sales limited is a holder of several rental apartment buildings in Kerrisdale. 5.3 The Developers It is difficult to estimate exactly how much Asian money is backing developers in Kerrisdale. A careful analysis of records and information from discussions with informed professionals in the development industry indicates that about one third of the developers involved in the current wave of condominium projects in Kerrisdale are experienced Canadian developers. The other two thirds of the developers are relatively new players from off-shore, and are not well known in local development circles. A s figure 5.1 indicates, the two developers proposing the greatest number of units are JKI Holdings and Nova Development Corporation. JKI Holdings is a holding company of local development firm, Bucci Developments. Bucci is a well-known local developer involved with residential and retail projects.2 Nova Development Company, another major player in Kerrisdale, is owned by Iranian-Canadians who have been developing real estate in Canada for about 10 years. 3 With the exception of Waverly Development Company and R . A . N , developments whose director, Bijian Neyestani is believed to have been developing projects in Vancouver for about 10 years, the remainder are new players in the development industry. This is confirmed with discussions with Maureen Enser, executive director of the Urban Development Institute in Vancouver who was unfamiliar with many of the companies. While it is the local developers who are proposing the most units in Kerrisdale, it is primarily the Asian developers who have been assembling land early. For example, numbered company #355126, also affiliated with #349821, Plan Fortune Investments, 1755 Holdings, Generation Enterprises bought several apartment properties in Kerrisdale and flipped them to Nova Development Corporation who is now presently developing those properties. A good example of this is at 5850 Balsam. It was bought from the original owner in Sept. 1988 for $3,000,000 and then resold to Nova for $3.5 million three months later. 2. Interview with M a u r e e n Enser, E x e c u t i v e Director, Urban D e v e l o p m e n t Institute, P a c i f i c R e gion, A u g u s t 1989. 3. C o n v e r s a t i o n s with industry p r o f e s s i o n a l s . The numbered company #349821, an affiliate of 1755 Holdings, also has purchased other apartment properties in the Kerrisdale area. These are located at 5960 Balsam (purchased January 1989, $2.8 million), and 5955 Yew St which was bought in July 1988 for $1.8 million. The property, 5955 Yew was resold to another buyer in March 1989 for $2 million. These properties are still being rented. A n analysis of the portfolios of the developers operating in Kerrisdale reveals that they are also actively developing condominiums in the West E n d . Based on this partial listing, it would appear that both local and Asian-affiliated companies are jumping into the West-end market. Figure 5.2 Partial List of Kerrisdale Developers Currently Involved in West End Condominium Projects Kerrisdale Developers West End Projects Project Address Existing Proposed Nova Development Atlas West Develpmt Corp. 1272ComoxSt. * 20 8 Fls, 26 units Maple Holiday Park (Waverly) Cedar Holiday Park 1520Harwood * 8 8 Fls, 13 units R.A.N. Development A.N.R Investments Ltd. 1290 Burnaby St. * 18 9 Fls,15 units Emerald Pax Emerald West 717 Jervis St. new n/a Plan Fortune/1755 Holdings 1787 Holdings Ltd. 1403 Beach Ave. * 22 6fl, 9 units * Development Application in process (involves rental demolition) Source: Perm's and Licenses. City of Vancouver 5.31 Extent of Flipping O f the 17 apartments slated for demolition and redevelopment, a number were flipped several times. As pointed out in Chapter 3, the number of sales between 1980 and 1987 was modest, averaging about six per year. In 1988, the number of apartment block sales jumped dramatically, and some of those have been resold since then. While it is not the purpose of this study to document the extent of flipping, it was found that flipping is relatively common. One developer (also known as Generation Enterprises, Plan Fortune, 1755 Holdings, #349821, and #355126) was found to have bought a number of sites in the Kerrisdale area in the last two years and have subsequently sold them to other condominium developers locally. Plan Fortune Developments is currently planning to develop luxury condominiums in two sites in Kerrisdale. 5.32 Mortgage Financing O f the nine developers currently developing or planning to develop condominiums in the Kerrisdale, only two paid cash for their properties. Both Kerrisdale Pare and Hokko Developments (Asian-affiliated companies) paid $3.6 and $3.3 million cash for their respective properties. It was Kerrisdale Pare Developments who had offered Andre Molnar "so much money [for his land that] he couldn't say no" 4. The rest of the development companies (both local and Asian-affiliated) had conventional-type mortgages with loans of at least 75% of the purchase price. One interesting case is the mortgage arrangements of JKI Holdings. The company had a $7.2 million loan at 10.75 % interest with monthly payments of $68, 067 which expires in Dec 1991. After that time, the interest becomes 18% calculated monthly (payment about $109, 000/month). This example shows why developers need to develop projects quickly since finance charges can have an significant impact on profits. 5.4 The Previous Owners Rental revenues can not come close to the profits generated by a successful condominium development over the same period of time. That is why, if the price is right, apartment owners sell. In general, the rental apartments in Kerrisdale are own by both corporate and family operations. Family operations differ from corporate-owned properties because, in general, they do not keep up with the market as closely. Rent increases are not decided at a head office but rather by consultation with family or by looking at the newspapers. From discussions with tenants, living in family-run operations often mean a more personal relationship with management, and rent increases are gradual. In Kerrisdale, the proportion of the family-type operations is diminishing as apartment owners sell out. A great number of apartment owners are retired. Many are older and may not be able, to look after their properties as diligently as before. Lucy Swiatek, a former owner of 6020 4. From an interview with Daphne Bramham, Vancouver S u n . Figure 5.3 Amount Paid for Land for Condominium Projects of Current Developers Having Applications in for Redevelopment in Kerrisdale RM3 District JKI Holdings Nova 8 Kerrisdale Pare Hokko Waveriy 1755 Holdings Emerald Pax Plan Fortune R.A.N. Develpmts Develpmts Develpmts Source: Land and Title Searches, Vancouver Land Titles Office, Province of British Columbia, August 1989 74 Yew is typical of some of the owners who sell out to condominium developers. In a recent interview with a Vancouver Sun reporter, Ms. Swiatek indicated that she sold her building because "she got tired of managing it."5 The attractive prices that developers offer individual apartment block owners enable them to retire with substantial financial resources. Many continue to stay in Kerrisdale and live in the one of the area's condominiums. 5.5 Summary There has been a growing backlash in Vancouver against Asian investment. Residents on the westside of the city has especially been upset with the increasing incidence of big houses in their neighbourhood. Residents feel that trees are needlessly chopped down, and the big houses are not in keeping with neighbourhood characters. In addition, there is perception that Asians are helping to increase property taxes by flipping property , and that they are to blame for the rise in house prices. This chapter identifies the key players involved in demolishing apartments and building condominiums in Kerrisdale. During a six month period, from January to July 1989, developers submitted applications for 10 condominium complexes involving the demolition of 17 existing low-rise apartment buildings in Kerrisdale. In general, about one third of the developers are locally based and known in local development circles, and two-thirds are from off-shore in Asia. Many of the developers are also relatively new players. This information is based on a combination of land and company searches, and with discussions with informed individuals in the development industry. In terms of the timing, it is interesting to note that it is the Asian companies who first began buying land with the intent of redevelopment in Kerrisdale. One company, in particular bought several parcels and then resold them to local developers. A s profit potential became clear, other developers jumped into the market. Many of the developers in Kerrisdale are also active in developing property in the West End. Like other sectors of the real estate market, sales of apartment buildings have significantly increased in 1988 and in 1989. The total number of sales in 1988 exceeded sales of the three previous years combined. 5. Daphne Bramham, "Condo C r a z e changing the F a c e of a Neighbourhood" in V a n c o u v e r Sun. B1, A u g u s t 18, 1989. The degree of risk for many of the developers appears to be large. Almost all the developers have large mortgages on their projects except for two Asian developers who paid cash for their properties. What this means is that local developers cannot wait excessively long for their payback. The limited equity positions that characterizes many of the local developers mean they need to seek profits in the shortest term. The selling price of land in Kerrisdale has created an extremely high risk situation for many developers. Developers purchasing property as recent as Apr i l 1989 were paying around $200 per sq. ft. for the land. Finished condominiums can typically sell for about $1 million. It is unclear how large this market niche is. That is why some local developers like Andre Molnar, do little business in Kerrisdale anymore. According to Molnar, "the land is overpriced, and I don't think the prices will stay." 6 The sellers of existing apartment buildings are well compensated for their properties. These people are generally older individuals who are retiring or who no longer wish to manage their rental buildings. Many end up living in luxury condominiums in the area. The amount of off-shore investment into Vancouver real estate is rapidly increasing. Efforts to track it are difficult because the same companies may use different holding companies for every property transaction they make. There is definitely evidence of off-shore money in Kerrisdale. Coldwell Banker, a commercial real estate company, estimates that 25% of the apartment buildings sold in Vancouver in 1988 were to Asian investors.7 That number may be a conservative estimate. In Kerrisdale, this research indicates that about one third of the developers are local and the rest are off-shore developers from Asia who are relatively new to the Canadian scene. Furthermore, several of the properties which local developers did buy were flipped by Asian owners to resident Canadian companies. In the final analysis, the identities of the developers may be irrelevant. If it there there is money to be made, there will be entrepreneurs seeking to make it. 6. Daphne Bramham, "Condo C r a z e changing the F a c e of a Neighbourhood" in V a n c o u v e r Sun. B1, August 18, 1989. 7. F r a n k O'Brien, "Investors from A s i a Buy Up Vancouver," F i n a n c i a l Post. M a r c h 22, 1989. Figure 5.4 Owner and Property Details of Apartment Buildings Planned for Redevelopment in Kerrisdale RM3 Apartment Zone, As of September 1989 Address Previous Owner Current Owner Owner Address Date Bought Price Paid Lot Size Lot Area $/sq. ft Holder of Mortgage 2110 w. 38th 2148 w. 38th Shui Yau Tsang, #355126 ** Norbill Investments Nova 8 Development Corp. Nova 8 Development Corp. 201-585 16th, W. Van 201-2167 Bellevue, W. Van Apr.89 Apr.89 $2,300,000 $5,437,500 102x118 214x118 12036 25252 $191 $215 Security Pacific Bank Canada Security Pacific Bank Canada 2121 w. 38th Nordic House Ltd 1755 Holdings Ltd ** 19th fir, 885 W. Geoergia Nov. 88 $2,010,000 99x148 14652 $137 Hong Kong Bank of Canada 2256 w. 40th 2278 w. 40th 2296-2294 w. 40th Manor Hse, Andre Molnar Manor Hse, Andre Molnar Manor Hse, Andre Molnar Kerrisdale Pare Developments Kerrisdale Pare Developments Kerrisdale Pare Developments 17lh fir, 1075 W. Georgia 17th fir, 1075 W. Georgia 17th fir, 1075 W. Georgia Jul-88 Jul-88 Jul-88 $1,200,000 $1,200,000 $1,200,000 68x140 67x140 67x141 9520 9380 9447 $126 $128 $127 Cash Sales Cash Sales Cash Sales 2226 W. 40th Ping-Hua Pu Plan Fortune Investments 19lh fir, 885 W. Georgia Dec-88 $1,600,000 72x139 10008 $160 Hong Kong Bank of Canada 5890 Balsam LeoKreU Emerald Pax Holdings 830-505 Burrard Jan-89 $1,796,000 99x125 12375 $145 Hong Kong Bank of Canada 5850 Balsam #349821 (HK) same as 355126 Nova 7 Development Corp 201-585 16th S.,W. Van Dec. 88 $3,500,000 181x125 22625 $155 Western Builders Capital 6020 Yew Anka Investments R.A.N. Developments 1690-1500 West Georgia May-89 $1,100,000 55x135 7425 $148 Confederation Life Insurance 2116w. 43rd 2130 W. 43rd Lorene Petersen Neil Meyer Ltd Waverly Development Corp Waverly Development Corp 2100-505 Burrard 2100-505 Burrard Jan-89 Jan-89 $760,000 $1,510,000 41x128 80x128 5248 10240 $145 $147 Metropolitan Trust Canada Metropolitan Trust Canada 5752 Vine 5774 Vine 5790 Vine L. Roesler Irene Makator et al Broadview Bldings Ltd Hokko Developments Co. Hokko Developments Co. Hokko Developments Co. 5037 Blenheim, Van 5037 Blenheim, Van 5037 Blenheim Feb-89 Feb-89 Jan. 89 $1,000,000 $1,000,000 $1,300,000 49x125 49x125 66x125 6125 6125 8250 $163 $163 $163 Cash Sales Cash Sales Cash Sales 2120-2170 W. 44th Basha, Leibel, Newport Sales JKI (Bucci Development Corp) 1490-1090 W.Georgia Dec-88 $9,200,000 135x449 60, 767 $151 Basha, Leibel, Newport Sales Average selling Sq. Ft. Lot value $154 Source: Land and Company Searches, B.C. Land Titles Office, Province of B.C., B.C. Assessment Authority, • Permits and Licenses, City of Vancouver, Danny Ho, UBC, September 1989 6.0 Potential Market Demand: The Likelihood of Redevelopment Pressures Continuing 6.1 Introduction Redevelopment pressure in the Kerrisdale R M 3 apartment area is a result of demand exceeding supply. The tremendous pressure for housing has meant that many existing low-rise rental apartment buildings are being torn for more luxurious accommodation. This chapter examines some of the supply and demand issues which have contributed to the west-side real estate boom in general and to the apartment demolitions in Kerrisidale in particular. The issue of Asian investment in the West-side is also discussed. Although Asian money is widely thought to be fueling the real estate boom in early 1989, the boom is more likely caused by a number of factors of which Asian investment is only one. Other factors are population growth (from intra-provincial, inter-provincial and international migration), an improved economy and improved job environment. When compared to property values in Toronto and to international locations, Vancouver's property values are considerably lower. The increasing internationalization of real estate in Vancouver means that the price of Vancouver real estate will continue to rise. As the world becomes smaller, the financing more international; markets will not only be influenced by local factors but many distant ones as well. 6.2 Supply of R M 3 Apartment Land The primary reason developers are tearing down existing low-rise apartments in Kerrisdale is because there is no other vacant land in the Kerrisdale area which allows for condominium towers. Low-rise rental apartment buildings just happens to be the cheapest land available in the area, and that is why they are the first to go when redevelopment pressure heats up. In a city where about 60% of the people rent, Vancouver has remarkably few zoned areas for multiple-family dwellings. Under the existing zoning (the majority of which is RSI Single-family), Vancouver is built to about 90% of total capacity. In high demand areas such as Kerrisdale, the built capacity is already at 95%, and there are few opportunities to add to that capacity unless zoning changes are implemented.1 Moreover, attempts of rezoning to increase supply are usually met with neighbourhood resistance. Because of the scarcity of development sites in high-demand areas like Kerrisdale, prices have risen so that it is feasible to redevelop. The demand for real estate is site- specific and is dependent on the unique environment surrounding the site. Therefore, the availability of additional capacity in other areas of the city may not necessarily reduce the pressure for redevelopment in Kerrisdale. Residents of the west side of the city may not consider moving to the east side of the city as potential options. Therefore, even though some areas in the eastside such as Grandview-Woodlands may have additional capacity for more multiple-type housing, this additional capacity will not necessarily alleviate pressures impacting on west-side neighbourhoods. The differences in demand for certain areas explain why high-demand neighbourhoods are more at an immediate risk to redevelopment than lower-demand neighbourhoods. 6.3 Where is Demand Coming From? Combined with a constrained and limited supply of West-side land, strong demand from both inter-provincial and international migration have contributed to a heated real estate market. Total net migration to B . C has been increased most dramatically in 1988 as the province's economy gradually improved. A t it lowest point in 1985, B . C . had a net migration from all sources of only 1917 individuals. By 1987, that number had risen to 31, 386 and to 46, 431 by 1988. Net increases of population in B . C . are largely a result of decreased out-migration and increased in-migration. The two largest sources of inter-provincial migrants come from Ontario and Alberta. As recently as 1987, more people from B . C . went to Ontario than did Ontarians to B . C . ; there was a net outflow of 1897. By 1988, however, the situation had drastically reversed. Compared to an net outflow of 1897 persons in 1987, B . C . was the recipients of 7,361 Ontarians in 1988. Net inflows of migrants from Alberta, while still strong, dropped slightly to 10, 462 in 1988 down from 12, 558 in 1987. This is partially attributable to an improving Alberta economy. Up to the second quarter of 1989, strong net in-flows of population from Alberta and Ontario continue to be recorded. During the first six months of 1989, the province 1. City Manager's Report, "Vancouver's H o u s i n g Supply" to S t a n d i n g Committee o n Nei g h b o u r h o o d Issues and S e r v i c e s , City of Vancouver, M a r c h 10, 1989. Figure 6.1 79.. Net Population Movement For Br i t i sh Columbia Jan. 1, 1987 to Dec. 31, 1987 Total Net Movement: 31,386 Persons Terri tories Net Population Movement For Br i t i sh Columbia Jan. 1, 1988 to Dec. 31, 1988 Total Net Movement: 46,431 Persons Terr i tor ies P r e o a r e d b v : C e n t r a l S t a t i s t i c s Bureau D a t e : March 3, 1989 attracted an estimated 14, 581 individuals from other provinces compared to 8885 individuals over the same period in 1988. In addition, B . C . attracted more individuals over 65 than any other province in Canada. However, seniors still tend to be generally immobile compared to other age groups. In the first quarter of 1989, only 362 seniors (mainly from Ontario) came to B . C . in keeping with the province's reputation as a retirement centre. From the international scene the province attracted 22,765 (16, 535 net) persons in 1988 (14.3% of Canada's total), compared to 18, 913 (11, 978 net) in 1987 (12.4%) of Canada's total. 2 The source of the immigration has changed significantly over the past twenty years. In 1968, 44% of the international immigrants came from Europe compared to 22% from Asia. By 1988, the percentage of immigrants from Asia increased threefold accounting for 66% of the total immigrants while the percentage of immigrants from Europe decrease by more 50% to 17%. Increased pressure for housing and other services from immigrants impact mainly the urban areas such as Vancouver. Immigrants from Asia tend to congregate in Vancouver whereas immigrants from Europe tend to disperse themselves throughout the province. For example, out of the 5033 immigrants from Hong Kong in 1988, 4,817 (95%) settled in Vancouver. By contrast, for European immigrants, only 2592 (65%) of the newly arrived immigrants opted for Vancouver. Twenty six percent of the Europeans settled in areas other than Victoria and Vancouver. Asian immigrants account for a large proportion of the "Business" and "Investor" immigrants coming into the province. Immigrants under the Investor and Business Entrepreneurial categories come predominantly from Asia. In 1987, there were 561 immigrants who came in under the "Business Entrepreneur category". O f this number, 372 (66%) came from Asia; each had a net case worth of $1.5 million. The second largest source was from Europe with 63 investors (approximately 1/6 of the Asian number). This European group each had a net worth of $842,000. By 1988, the number of Asian immigrants under this category increased to 679 (which accounted for 78% of the total from all areas) while European Immigrants in this category increased at a lower percentage to only 91 cases. Net worth per case for Europeans stayed relatively stable between 1987 and 1988. For Asians, however, net worth per case dropped from 1.5 million in 1988 to 2. British C o l u m b i a Immigration Highlights, First Quarter 1989, C e n t r a l St a t i s t i c s B ureau, May 1989 , Ministry of F i n a n c e a n d C o r p o r a t e Rel a t i o n s , P r o v i n c e of British C olumbia. 8 1 Figure 6.2 Immigration to British Columbia By Source 999Z 44% Asia World $942,000 in 1988. Hong Kong immigrants who represent 70% of the Asian category maintained their net worth per cases of $1 , $1.1, and $1.3 million in 1987, 1988, and in the 1st three months of 1989. Immigrants from Asia make up 89% of all "Investor"3 immigrants coming into the province in 1988. Out of the 156 cases, 139 came from Asia with a investment per case of $901,800. The next biggest group comes from Europe with 8 cases; each of which has a investment value of $320,000. In 1988, about 12% of all Hong Kong immigrants (each investing about $1 million) came to B C under the Business or Investor categories.4 Hong Kong immigrants coming into B . C . under this investor category pumped $123 million dollars into the economy in 1988 compared to just $41 million in 1987. The net effect of both increased inter-provincial and international migration into the province is an increased demand for housing. The high demand for housing in certain parts of the city (but with a constrained supply of vacant land) means that redevelopment is forced to occur. 6.4 Who is Driving the West-side Housing Market ? The influx of in-migrants from all areas and an improved economy has contributed to a buoyant real estate market in all areas of the lower Mainland. However, it has been the Vancouver's affluent West-side, followed very closely by Richmond which have had the greatest market activity and price increases. Even though it is commonly perceived that Hong Kong money is fueling the real estate boom, this may be true only for certain sectors of the West-side and Richmond markets. On the whole, the empirical evidence suggests that sales are highly sensitive to interest rates—something that may not necessarily affect Asian buyers as much since they pay cash. As the chart shows on the next page, residential sales climbed to a peak in late February 1989 and then dropped as interest rates rose. 3. A n investor is a l l o w e d to qualify for c i t i z e n s h i p if he has a net worth of at least $500,000 and invests $250,000 in a b u s i n e s s . 4. There were 5033 immigrants from Hong K o n g in 1988. 470 c a m e as "Business" immigrants and 130 c a m e a s "Investor" immigrants. S o u r c e : Immigration and R e f u g e e Affairs D i v i s i o n , Department of E x t e r n a l Affairs, G o v e r n m e n t of C a n a d a , M a r c h 1989. Figure 6.3 Number per Week 3000 T* 2300 • -2000 1500 • -1000 • -500 JAN REAL ESTATE BOARD OF GREATER VANCOUVER WEEKLY ACTIVITY SYNOPSIS, JAN.-JUNE 1989, -* • • ¥-• • «L 1 YEA* MORTGAGE ^ » w «._ INTEREST RATES LISTINGS buercM Rate per yew T 14.00% 12.00% 10.00% - • 8.00% - • 6.00% - - 4.00% - - 2.00% FEB MARCH APR M A Y JUNE 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 IS 16 17 18 19 2 0 21 22 23 Source: Real Emit Board of Greater Vancouver Figure 6.4 REAL ESTATE BOARD OF GREATER VANCOUVER MEDIAN SALE PRICES RESIDENTIAL, VANCOUVER WEST, JANUARY -JUNE 1989 IN DOLLARS SOOOOO - r 450000 400000 - • 350000 30OO00 - -250000 - -200000 - • 150000 - " 100O00 50000 - -0 4— Jaa Feb Mar Apr May line SOURCE: Quarterly Suuaucal Riper), April 1-Jura M . 1919 » Pnxxawd throuib MLS, Real Emit Board a Omut Vaaeouw O n Vancouver's west-side, the centre of all the controversy, the market is fueled primarily by both Asian and Eastern money . However, it is the Asian market which has become the most visible. According to Alex Ning, former manager of Keystone Realty, a company which specializes in West-side real estate, Eastern money mainly flows into the used west-side residential market. Moreover, many people from Eastern provinces chose instead to move out to the suburbs. The new big houses that have been causing much opposition in West-side neighbourhoods, however, are built exclusively (99%) for the Asian market. 5 While not as affected by interest rates as local buyers, there has been a drop in demand recently because (1) West-side prices are becoming too expensive for some immigrants, (2) other options such as houses in Richmond are becoming more attractive; (3) the liquidity of assets in Hong Kong (without losses) is becoming more difficult since the June 4th China massacre.6 A l l these factors have had negative affects on the level of demand in west-side neighbourhoods at least in the short term. It is difficult to estimate how much Asian money is flowing into Vancouver Real estate, but the consensus is that it is significant and varies according to the sector of the market. Statistics show that approximately 5033 immigrants came from Hong Kong in 1988 compared to 7,361 from Ontario. Migrants from these areas add to the general demand for housing. In addition, would-be immigrants from Hong Kong who hope to emigrate to Canada also buy. Typically, these buyers have their friends look after their purchases, or they leave the houses empty. 7 The Chinese Edition, a local upscale Chinese magazine aimed at new arrivals, also made a point in its investment section that "there is also a trend that many buyers are neither immigrants nor in the process of becoming immigrants." "[The buyers] have merely discovered that Vancouver has the potential to become a bigger city with higher real estate values, and are investing accordingly."8 Marketing product in off-shore markets is becoming common (see appendix). According to Victor Setton, president of United Properties,.one of the city's largest condominium developers, "if overseas investors stopped buying, high-rise residential construction in Vancouver would drop 50% and condominium starts in general would fall 5. T h i s feeling is s h a r e d by every real estate agent the r e s e a r c h e r have t a l k e d to. 6. Ibid. 7. T h i s o b s e r v a t i o n was made by s e v e r a l real estate agents. T h e r e s e a r c h e r is a l s o familiar with s e v e r a l p e r s o n a l c a s e s . 8. Wilfred Wan, "Annual Investment G u i d e " in C h i n e s e Edition: Lifestyle Magazine. S p r i n g 1989. 25%. It is pretty scary."9 Michael Geller, president of the Urban Development Institute, a group representing the development industry, echos the importance and extent of Asian investment. Geller, who has arranged major property deals with Hong Kong buyers estimates that 60% of the 3,000 condominiums planned for construction this year (1989) in Vancouver are financed in part or entirely by Asian Investors, and that this represents investments of $360 mi l l i on . 1 0 Coldwell Banker Real Estate Services, in their Greater Vancouver Apartment Report, notes that the extent of foreign participation in the local real estate market in 1988 was between 25-30 percent. As of September, they estimate that 50 percent of the real estate activity is from off-shore— primarily from Hong K o n g . 1 1 Strong and steady demand from off-shore means that many local real estate companies are increasing marketing products overseas. Royal LePage, Canada's largest real estate agency will be one of the first companies to set up sales offices in Hong Kong, Taiwan, and Tokyo to tap this market. 1 2 Luxury condominiums which are being built at a rapid pace in Vancouver is largely pre-marketed off-shore. A s the diagram on the next page shows, the marketing process involves a series of players which may or not be partners. On the one side, local or Asian developers develop the finished units which they may wholesale to middlemen, or they may market the units themselves. Wholesalers are important because they have the distribution channels to market product, and their connections are well-established in the orient. While not all condominium units are sold this way, it is estimated that 60% of the units are sold in this fashion overseas. Depending on the market, some of these units (interim agreements) may be flipped, or some may be rented through property management firms or taken care of by friends. Even though many condominiums are marketed off-shore, many developers will not market properties in Hong Kong alone. According to David Wan, investment adviser for Vigers International (North America), "the developers will sell in both Hong Kong and Canadian markets. "But they have the Hong Kong people's need in mind when designing. For instance, they will build apartments with two three bedrooms while flats with one bedroom are geared to the needs of Canadians," he sa id . 1 3 Luxury condominiums going 9. Frank O'Brien, "Investors from A s i a buy up Vancouver" in T h e F i n a n c i a l Post. M a r c h 22 1989. 10. Ibid. 11. C o l d w e l l B a n k e r C o m m e r c i a l R e a l Estate S e r v i c e s , G r e a t e r V a n c o u v e r Apartment Report. S e p t e m b e r 1989. 12. Robert Matas, "B.C. H o u s e s Hot S e l l e r s A broad" in T h e G l o b e and Mail". N o vember 28, 1988. 13. Chung, L y n d a "Residents Will Get First C h o i c e of Apartments" in South C h i n a Morning Post. W e d n e s d a y A u g u s t 2, 1989 Property p.7. Figure 6.5 Significant Players in the Condominium Pre-sale Marketing Process, Spring 1989 Retail End User Significant Players (Developers) Chi Wo Properties * Cheung Kong Properties** Adex properties Victor Li, Terry Hui ipossible joint ventures with other Asian partners LOCALS • Polygon • United Properties • Buron • Molnar t Wholesalers • H.K. Midland Realty • L & D Associates • Royal LePage Asian Affiliates etal Wholesale Brokers Possible distribution channels depending on the project possible renting Danny Ho, UBC August 1989 * For example: Exclusive brokers for Highbury Towers (4th and Highbury), Pacific Cove, False Creek, and the "Metropolitan" condos near MetroTown " Handled the Hong Kong Sale of the "Regatta" Condominium in South False Creek Property Mgmt firms handle rentals for investor properties. New Condo projects such as The Discovery,", The Admiral", The Carlye" tend to be rented out. It is estimated that more than 50% of these projects are rented, t The Molnar Group and Zhong Xing Group of Hong Kong will be teaming up to build the Renaissance Development in New Westminster. When complete, the development will include 15 buildings, and contain 1411 units of housing. Source: Conversations with industry professionals up in Kerrisdale are typically large with two or more bedrooms. Some of the proposals for the new condominiums include design plans for extensive children's play areas as well indicating that targeted end users may be families rather than retired couples. 6.5 How Deep will the Market be in the Kerrisdale Condominium Sub-Market ? It would be difficult to estimate the demand for condominiums in this area in the long term. Desirability is dependent on the changes which occur in the neighbourhood, the availability of other housing alternatives, and market conditions. In general, Kerrisdale has always been a desirable neighbourhood. For many local west-side residents, Kerrisdale is a good place to retire because the area is quiet, safe, and close to their friends and family. Asian buyers like Kerrisdale, as they do South Granville, for the areas' status and prestige and for the areas' proximity to good schools. 1 4 Therefore, these two areas will remain attractive. However, there is a limit to how much people can pay. Even though many of the condominium developers are targeting their luxury units to Asian buyers, it is doubtful whether the asking prices of $400-$500 per square ft. can be obtained in the current market ($800,000-$1,000,000 per unit). Even in Hong Kong, people only have so much money. Alex Ning, manager of Edgewater Realty on the city's westside, says "the average family in Hong Kong can no longer afford to live in the city's exclusive westside." With 359 condominium units planned to be developed over the next year or so, there may be a potential oversupply problem. 1 5 It is unlikely, in the short-term, that any more new residential condominium developments will be planned in Kerrisdale until market conditions heat up again. But, that may not be long. According to Andrea Eng, a realtor with Colliers, Macaulay, Nicolls Inc, and president of the Vancouver Chapter of the Hong-Kong-Canada Business Association, "a typical [commercial] Hong Kong buyer has between 2 and 7 million dollars to invest in Vancouver real estate, and there are lots of these guys." 1 6 Eng adds, that many of the smaller off-shore investors who get involved in the Vancouver real estate market downplay their assets. "They will tell you that they have $1 or $2 million 14. B a s e d o n c o n v e r s a t i o n s with real estate agents. 15. However, the T a i w a n e s e and J a p a n e s e markets are only recently being tapped. Therefore, the level of d e m a n d c o u l d e a s i l y i n c r e a s e . 16. a s q u o t e d in G o r d o n Keast's article, "The World's Longest Commute" in Equity M agazine. M a r c h 1988. to invest but during negotiations, you discover that their pockets are much deeper, and a property deal involving $2-7 million is not out of their reach." Ms. Eng also pointed out that Hong Kong investors are no longer only passive players content with apartment buildings and shopping centres. "Up until the early 1980s," says Eng, most investors were passive. Now we're starting to see a wave of developers." In the larger Vancouver context, the city's land is still an excellent buy compared to the international markets. It is only a matter of time before land prices in Vancouver catch up with the rest of the world. In a recent conference sponsored by the Urban Development Institute, Francis Wong, a Vancouver Real Estate Developer and former Hawaiian senator, noted that "Asian investors look on Greater Vancouver prices as a bargain." 1 7 M r . Wong noted that "internationalization of real estate is inevitable." This drive towards internationalization is driven by: (1) investors seeking a better long-term return than is available in East A s i a 1 8 , and (2) investors seeking investments abroad with Good preservation of capital as a hedge against inflation. As long as market comparisons can be made between high real estate values in East Asia, and international financing can flow freely, funds will seek the best values. Wong cited that at the height of the real estate boom in Tokyo in 1987, the highest land price was 34 million yen for a square meter. That translates into U.S. $6.7 billion per acre! In Hawaii, prime beachfront sold recently for a record high of a mere US $35 million an acre or US $800 per sq. ft. This is a bargain by Japanese standards. Contrast these numbers with the approximately $400 per sq. ft. that developers are asking for new condominiums in Kerrisdale, and by Japanese standards, those prices are ridiculously low. In Hawaii, local financial institutions and local developers are also participants with the Japanese. Wong predicts that in the not too distant future, Vancouver will have major Japanese players competing with investors from East Asia. Moreover, Wong points out, "as the world's economy shifts from the Atlantic to the Pacific, and transportation and communication becomes quick and easy, we'll see a gradual leveling of similar real estate values." 1 9 17. From the S p e e c h by Fra n c i s A. W o n g before the UDI F i n a n c i a l Forum 1989: "The A s i a n Buyer Phenomenon", M a r c h 22, 1989. 18. A s an example, W o n g s a y s that the C a p rate in J a p a n may be only 2 % . In Hawaii, the s a me investment c a n return 4.5%. 1 9 l b i d . 89 6.6 Summary: This chapter examines the likelihood of redevelopment pressures continuing. Redevelopment pressure in the Kerrisdale R M 3 apartment area is a result of demand exceeding supply. The area's current zoning allows for more built area than currently exists. Because land prices have increased dramatically, there is tremendous economic incentive to redevelop. Demolitions of existing apartments have occurred because Kerrisdale land is 95% built to capacity; there is no other vacant land. In addition to constrained supply, strong demand from other provinces and from off-shore is driving the redevelopment pressure. Inter-provincial and international migration reached highs in 1988. In 1988, there was a net inflow of 7, 361 individuals from Ontario to B . C . whereas in 1987, B . C . lost 1897 individuals to Ontario. International migrants,who came to B . C . in 1988, accounted for 16, 535 individuals (5033 were from Hong Kong). The influx of in-migrants into the province and an improved economy has resulted in a buoyant real estate market. Even though Asian money is perceived to be fueling the Vancouver real estate boom in early 1989, this may be true for only certain sectors of the west-side and Richmond markets. In general, the west-side markets are fueled by both Asian and Eastern money. However, it is the Asian segment and the big house controversy which have been the most visible. A n analysis of Greater Vancouver M L S sales, listings and mortgage rates indicate that sales dropped when interest rates rose. This indicates that Asians are not totally to blamed since most pay cash for their properties. But, even though few Asian buyers finance their homes, a drop in demand cannot be explained by interest rates alone. Other influencing factors are: (1) prices on the west-side are too high; (2) other areas such as Richmond are becoming more attractive; (3) internal political events such as the China Massacre in June has affected the liquidity positions of many potential investors in the short-term; (4) other areas in the eastern suburbs are opening up for development. Nobody knows exactly how deep the market for Vancouver real estate is. However, according to industry professionals such as Victor Setton, president of United Properties, one of the city's largest condominium developers. "If overseas investors stopped buying, high-rise residential construction in Vancouver would drop 50% and condominium starts in general would fall 25%. It's pretty scary." While few know exactly how deep the market really is, it is inevitable that Vancouver real estate prices will level off to international levels. In Japan, in 1987 during its real estate boom, the highest land price was $US 6.7 billion per acre! In Hawaii recently, prime beachfront sold for U S $35 million an acre (US $800 per sq. ft.). In exclusive Kerrisdale, by contrast, land for condominiums can be bought for (Can. $6.5 million per acre, $150 per sq. ft.). In the long term, as long as land values remain relatively cheap by international standards, there is little doubt that redevelopment pressures will continue to occur in the city. 7.0 The City's Response and Other Policy Options 7.1 Introduction: Although there are many dimensions to the housing issue, the fundamental problem is that demand exceeds supply. Demand is forecasted to increase due to a number of factors. First, Vancouver is a attractive place to live. Its mild climate and scenic setting make it one of the world's most beautiful cities. Second, Vancouver's real estate prices are significantly lower compared to other international cities. This makes Vancouver an attractive place to live and to invest. Changes in demographics such as an increasing number of households mean that there is more demand for housing. Adding to the housing "problem" is the lack of supply in Vancouver. Because of the land-locked nature of Vancouver, there is little land left for additional housing. Additional supply will only be created by rezoning to greater densities. A prominent feature of the city is that much of its residential land is zoned RS-1 single family. This low-density zoning combined with the strong demand to live in Vancouver will increase redevelopment pressures on the few multiple-family zoned areas existing in the city. Vancouver, under its present zoning structure, is built to about 90% of permitted capacity.1 Several important points need to be introduced with regards to capacity. First, of the approximately 35,000 units which is estimated to be possibly built in Vancouver, more than half are located in the downtown core (19,000), and less than 2% (625) are located in high-demand areas such as Kerrisdale, Arbutus, Oakridge, Cambie, and Shaughnessy combined. This means that additional units in the downtown core may not necessarily reduce pressure off high-demand areas such as Kerrisdale. There is also evidence that downtown living may not be attractive to seniors as it is to younger individuals. 2 In 1981, 15% of the residents of South False Creek were 65 year or older. By 1986, that percentage had dropped to below 9%. This is below both the city and region average. 3 1. City Manager's report to S t a n d i n g C ommittee o n Neighbourhood Issues a n d S e r v i c e s , "Vancouver's H o u s i n g Supply", M a r c h 10, 1989. 2. There is a g e n e r a l c o n c e n s u s among Kerridale s e n i o r s interviewed that living in downtown V a n c o u v e r is not an option (mainly b e c a u s e of a per c e i v e d fear for safety). T h i s did not appear to be an i s s u e for younger K e r r i s d a l e r e s i d e n t s . 3. O p cit. 92 The situation in Kerrisdale is a problem of demand exceeding supply. Policy decisions from government can be comprised of actions that decrease demand and/or actions that increase supply. Whether or not there is any government involvement is based on the government's belief in the free market. On the one extreme, action is not necessary because intervention may be more detrimental than helpful. O n the other extreme, intervention may be necessary since the market will not provide housing for those that need it. Policy action from government will fall somewhere between these two extremes. Each of the three levels of government have different positions on the housing situation in Kerrisdale. At the federal level, the government is unable to assist residents in Kerrisdale because it is primarily a local issue which they do not have any jurisdictional powers under the B N A act. Furthermore, any federal actions such as interest rate policy (which affects demand) will affect the nation as a whole and cannot be implemented in isolation to a local area. At the provincial level, the laws regarding the land-use of local areas are delegated to the municipalities and therefore the provincial government has no jurisdiction. Where the sale of land is concerned, the provincial government indicates that it is unwilling to tamper with the free market. In a letter to a resident of Kerrisdale, the Honourable Rita Johnson, Minister of Municipal Affairs writes with regard to the housing situation in Kerrisdale: the specific forces bringing these matters into focus are market driven and it is not our intention to intercede in this process to any major degree. If unilateral intrusions are made in the way of freezes on demolitions, rents and conversions, marked artificial decreases and/or increases in values will occur, shortages will become more acute, and an unofficial payment system will quickly develop in securing rental accommodation.^ Actions by both federal and provincial governments are unlikely to be helpful in the short or long terms because of jurisdictional powers or simply because of unwillingness to interfer with the free market. In addition, it is unlikely that either governments will be willing to, or able to, afford to build social housing projects in high land value areas such as Kerrisdale. 4. Memo to K e r r i s d a l e resident from Ri t a J o h n s o n , Minister of M u n i c i p a l Affairs. S e e appendix. This chapter outlines the City's response to the housing situation in Kerrisdale and documents the impact these policies have had so far on the various groups involved. In addition, several other options are discussed and the various pros and cons are presented 7.2 The City's Response The municipal government's main tool for land-use control and regulation is limited to its zoning and development by-law. Since January, when the housing market was beginning to heat up, the city has implemented a number of demand and supply strategies in attempts to alleviate the housing situation (particularly in Kerrisdale). Among the major initiatives passed were: (1) Demolition Delay (April); (2) V L C Properties Ltd. announced (May); (3) R M 3 Amendments (June); and (4) Rental Demolition Fee requirement (August). In general, Vancouver's municipal government have implemented a number of strategies aimed at slowing down the rate of change in neighbourhoods. In addition, the municipal council have requested for legislation requiring landlords to pay for relocating tenants dislocated by demolition, and have called for the establishment of a rentalsman to review unconscionable rent increases.5 7.21 City Action #1: Demolition Delay The general intent of this action is to give more time for evicted tenants to look for accommodation, and to encourage landlords to provide greater consideration for tenants who must relocate. No development permit will be issued until all tenants have vacated the building voluntarily, or 6 months have elapsed since notice of the proposed demolition has been given to tenants. Developers are required to keep accurate records of the status of all their tenants, and an affidavit stating that all tenants have left voluntarily ( or time has lapsed to 6 months) is required before any permit is issued. The impact of this bylaw for tenants is that it gives them more time to look for other accommodation. However, for many tenants, a longer grace period also means a longer period of uncertainty. Therefore, many tenants move much earlier than the limit of six months. 6 The impact on this bylaw for developers will be a delay in the development 5. W h i l e the city may want d e v e l o p e r s to c o m p e n s a t e d i s l o c a t e d tenants for moving e x p e n s e s , the city has no power to enforce this requirement. S u c h matters f a l l under the provincial government who is r e s p o n s i b l e for landlord-tenants matters. T h i s was indicated in a letter from M a y o r C a m p b e l l , Letters to Editor, " C o u n c i l W o r k i n g for Demolition S o l u t i o n s " in V a n c o u v e r Sun, J u l y 28, 1989. 6. T h i s o b s e r v a t i o n is b a s e d o n comments from affected tenants in K e r r i s d a l e . process and potentially less profits. In the worst case scenario, developers will have to wait a maximum of six months before all the building's tenants have vacated. If the developer is in a hurry, he may wish to "pay" the tenants to move out earlier. The net result of the by-law is that it gives tenants more time to look for other accommodation, and is essentially a temporary measure. 7.22 City Action #2: Vancouver Land Corporation ( V L C Properties Ltd.) The announcement of Vancouver Land Corporation in May is the municipal council's strategy towards increasing the supply of housing. V L C was formed to develop, own and manage, multi-family residential rental properties located primarily in Vancouver. Under the proposal, the company will build rental units on long-term leases to middle-income singles, seniors and families by encouraging investment from various pension funds. The city will commit much of its public land in addition to about 7.5 million dollars to the private company, and fast-track any rezonings if required . The company hopes to build 2000 rental units per year and rent them out at slightly below market rates. A s of May 1989, that would mean a typical one bedroom unit would rent for between $650 and $800 per month. 7 While the municipal council has passed a resolution to commit to V L C , the company is controversial among developers and tenant groups alike. For developers, there is some concern that a private company will have a competitive advantage over other companies interested in developing the same land. And , for potential tenants, there is concern about the affordability of the new units. The beneficial impact of V L C , if any, will be in the long run. However, it may not necessarily help those most in need, nor will it necessarily help evicted tenants in areas such as Kerrisdale where there is little public land available. 7.23 City Action #3: R M 3 Amendments The R M 3 amendments to the R M 3 zoning schedule has made it more difficult to build 12 storey buildings in R M 3 areas. Enacted in June, the amendments have made high-rise apartments over a Floor space ratio (FSR) of 1.0 conditional uses. Previous to the 7. Jeff Lee, "Cope A l d e r m a n R i p Mayor O v e r H o u s i n g Plan", V a n c o u v e r Sun, May 26,1989. amendments, the maximum FSR in R M 3 districts was 1.85 and 120 ft. If a developer met the requirements of the zoning schedule, he was automatically entitled to a permit without having to go to public hearing. With the new amendments, buildings are limited to a maximum of 40 ft. outright use, and the developer needs "referral for advice of council, consideration of the rate of change in the neighbourhood and consideration of the opinions of tenants who would be replaced" should additional relaxations be requested. These criteria have not yet been defined. 8 O f the 10 condominium projects submitted for condominium development in Kerrisdale, 6 will be affected by the new amendments.9 The advantages of the amendments are: (1) They will reduce the economic incentive to redevelop in the short term, and (2) city council can make these amendments quickly and has the legal authority to do so. On the other hand, such amendments will not solve the housing problem in the long term. Downzoning will frustrate market demand unless other similar areas are rezoned for the same use. Downzoning does not necessarily mean the end of evictions and demolitions either. Continued high demand, without other land choices, will mean that future evictions would be again be possible (this time with perhaps luxury lo-rises condominiums). High demand and constrained supply will also mean that loss of affordable housing is still possible through increased rents, renovation, and conversion. Finally, downzoning destroys the investor's confidence in the c i ty . 1 0 7.24 City Action #4: Rental Demolition Fee Requirement On August 1, the Vancouver City Council passed a by-law requiring developers to pay a $1000 demolition fee for every rental unit demolished. The impact of this by-law is expected to be minimal towards developers since the fee is small. The by-law will have little significant impact on the development of condominiums in the area. The by-law is important because it sends a message to developers that there is a cost to redeveloping previously rented accommodation. However, the $1000 fee is not likely to be enough of a disincentive to make any difference. Some observers have suggested that this fee be raised to make a more significant impact. Michael Goldberg, the Director of International Finance 8. Bylaw 6515: A By-law to A m e n d the Z o n i n g and Development By-law being By-Law No. 3575, e n a c t e d J u n e 27, 1989. S e e appendix. 9. T h o s e projects affected include: 2110, 2148 W. 38th., 2121 W. 38th, 2 2 2 6 W. 40th., 6020 Yew, 5752, 5774, 5790 Vine, a n d 2120, 2 1 7 0 W. 44th Ave. 10. F o r a d i s c u s s i o n of the R M 3 amendments from a realtor's perspective, s e e appendix. Figure 7.1 THE CITY'S RESPONSE: TIME-LINE OF SIGNIFICANT EVENTS RELATED TO KERRISDALE HOUSING FROM JANUARY - AUGUST 1989 Kerrisdale Citizens Forum Vancouver MLS Sales Peak April 25 Demolition Delay passed VLC Properties Announced June 27 RM3 Amendments Passed Mayor's Housing Meetings 1st Kerrisdale Apartment Demolished Aug.l, Demolition Fee $1000 passed Jan. Feb. Mar. Apr. May June. July. August. Real Estate Boom Bulk of Developers submit their applications for Condo development i On-going city initiatives Figure 7.2 Development Permit Application Process, Procedures and Timeline Using RM3 Bylaws and Amendments Current to August, 1989 Development Permit Application Building Permit Application Demolition Permit Application R e c e i v e s A l l Permits Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Developer wants to redevelop. • must notify tenants of intent preferaby on or before this date. • provides city with affidavit with list of tenants stating "intent to demolish and redevelop" Tenants may have to move. Legally entitled to two months notice under Provincial legislation after 2 months notice. If everything is going well with the development permit applica-tion, developer applies for development and building permit to save time . If there are no other tenants in the building, and if plans meet all zoning and building bylaws, these permits are issued quickly. Developer submits 2nd affidavit stating that "all tenants in the building have voluntarily moved, or that they have made good arrangements for relocation". And if City is satisfied that all tenants are relocated satisfactorily, all permits (including demolition) are issued. As of Aug. 1, if any developer does not have his demolition permit, he will be charged an $1000 "demolition" fee for each dwelling unit demolished. Comment: Under RM3 amendments as of April 4, 1989. The developer must show evidence that all tenants have been satisfactorily been relocated. There is no requirement that the developer compensate for moving expenses. However, he may have to pay them to leave earlier. * If the city has any concerns about the validity that "tenants have been satisfactorily located", the city can withold permits for a maximum of six months from development application date. S u m m a r y of Development R e q u i r e m e n t s meet all zoning and building requirements provide affidavit of tenants satisfactorily re-located give six months notice pay $1000 demolition fee per unit demolished. Based on information from Permits and Licenses, City of Vancouver -n} Centre and U B C professor of Urban Land Economics, suggests instead a "whopping big charge for demolitions in the range of $5,000 per unit instead of the $1,000. He says "that tax would be put into a defense fund to help the needy, for displaced tenants to find alternative accommodation or even to subsidize their rents so that they can afford to stay in Kerrisdale." 1 1 7.3 General Policy Options Besides some of the actions which have already been undertaken by Vancouver council, there has been several options which have been suggested by the publ ic 1 2 . Each of these options will have tendencies to reduce demand or to increase supply. There is , in addition, short and long term costs and benefits of each option. This section outlines the various major options and their subsequent effects. Demand Side Option 7.31 Rent Control The major intent of rent control is to prevent unreasonable rent increases. The practice is controversial because it infringes on the rights of property owners, and interferes with the market. 1 3 Rent control programs can vary in terms of strictness. Few rent control programs do not allow rent increases to take place. The city council have asked the provincial government to re-instate the rentalsman to hear appeals from tenants receiving unconscionable rent increases, but was turned down earlier this year. Benefits: • In the short run, rent control maintains affordable rents for existing tenants • Rent review prevents landlords from unreasonable rent increases during periods of high demand and low vacancies. 11. Bramham, Daphne " A Neighbourhood in Trouble: R a d i c a l s Are Bred in Turmoil" in V a n c o u v e r Sun. A u g u s t 17, 1989 A9. 12. S o m e of t h e s e options are b a s e d o n the summary sheets, May 8, 1989 H o u s i n g S y m p o s i u m prepared by J o h n Winsor, V a n c o u v e r P l a n n i n g Department. 13. T h e effects of rent co n t r o l is a hotly d e b a t e d topic. F o r one view of the impact of rent control, s e e Friedman, Milton a n d M i c h a e l Walker et al. Rent Control: A Po p u l a r Paradox. E v i d e n c e o n the E c o n o m i c  Effects of Rent Control. V a n c ouver: T h e F r a s e r Institute, 1975. For another view, s e e Bartelt, D a v i d and R o n a l Lawson, "Rent C o n t r o l and Abandonment in New York City: A Look at the,Evidence" in R a c h e l G. Bratt et al (ed) C r i t i c a l P e r s p e c t i v e s o n Housing. T e mple University P r e s s 1986. Costs: • A ceiling on rent levels decreases the potential profitability of one's investment, and adds to the increasing unattractiveness of rental investments. • Landlords are more likely to avoid maintenance • In the long run, rent control may reduce the incentive to build further rental units • A freeze on rents does not necessarily mean that those most in need will benefit • During periods of high demand, a freeze on rents may accelerate conversion or demolition activity further eroding the existing rental stock. 7.32 Demolition Control The intent of demolition control is to delay the the demolition of affordable rental housing. City council has amended a by-law in April to require that all tenants have been relocated voluntarily, and that these tenants are given six months notice of intent to demolish until any demolition permit will be issued. The Vancouver City council has tried to slow the rate of change by also selectively downzoning R M 3 areas (requiring the densities over a certain degree to be conditional). Benefits: • A delay in demolition activity gives more time for evicted tenants to find other accommodation. • demolition control, extends the life of rental buildings in the short term. • Council may insist that that a equal number of units be replaced. Costs: • Any benefit of demolition control/delay will only be in the short term • Wil l add to the unattractiveness of rental housing as an investment. • Controls of demolition may have an upward pressure on rents as owners try to defray the opportunity costs of redevelopment. 7.33 Ownership Controls and Speculation Taxes The main intent of ownership controls and speculation taxes is to limit house price increases. The two levels of government who would most likely administer these controls would either be the federal or/and the provincial government. Ownership control may include limiting the sale of land to landed immigrants or Canadian citizens. A speculation tax is intended to make the rapid resale of property over a short period uneconomical since any profits would be taxed. Benefits: • restrictions on foreign ownership of land will reduce the overall demand, and thereby price increases • taxes on speculation will capture speculative profits for public purposes Costs: • Implementation of speculation taxes may scare off foreign investment in other sectors of the economy. • Speculative taxes and controls on ownership will be extremely difficult to monitor. • Restricting foreign ownership of land may reduce the supply of rental housing since it is the foreign injections of capital which has created many buildings. • Restrictions on foreign ownership is beyond the city's legal authority to control. Supply Side Options 7.34 Increase Capacity by Rezoning in Low Density Areas The housing "crisis" in Vancouver is primarily a result of demand exceeding supply. Vancouver, under its present zoning, is 90% built to capacity. While the demand to live in Vancouver is high, the vast proportion of the city is zoned low density (RS-1 single family). In the west side especially, there is little land for multi-family homes under the existing zoning. What are the effects of rezoning single-family areas? Benefits: • Increasing the supply of R M 3 land will decrease the pressure for demolitions which are currently focused on the few existing areas which allow for multi-family use on the west side. • Increased capacity would mean that seniors may have more choices to stay in their neighbourhoods • Increased supply of land would mean that rent may not necessarily rise as quickly Costs: • Increasing the capacity of an area means that the neighbourhood may change, and current residents must be willing to accept this change. 7.4 Other Options 7.41 Option that Requires That Developers Pay for Affordable Housing The intent of this option is based on the fact that developers contribute for the need for affordable housing by demolishing rental units, and by making an area more desirable . This may have the net effect of increasing the price of accommodation close to these new developments. At the present time, for major rezonings, the city asks developers that a certain proportion of land (about 20%) be made available for non-market housing. The city council can do this because there are fewer ground rules that govern rezonings than for sites governed by set zoning schedules. Developers has thus far been receptive since council is more willing to negotiate for rezoning bonuses if they are co-operative. For single-site cases, the range of options are more limited. The Vancouver City council has asked the provincial legislature to grant the council the authority to levy development costs charges, including a levy for social housing. However, the legislature has not yet responded, and the city does not have the power to make developers pay for this development levy at present. There has been some suggestions by the public that developers should integrate social housing units in the same structures as non-market housing. For example, developers might reserve the first few floors of a building for non-market units, and the rest for market strata units. While the idea has validity, the Vancouver city council does not have the power to enforce it, and developers are generally not receptive to this idea because it would be extremely difficult to sell the strata units mixed with non-market housing. 1 4 In addition, there are administrative difficulties in classifying the units in the building as strata, co-op, or other tenure. 14. Enforcement is from the p r o v i n c i a l goverment. Whether or not this arrangement h a p p e n s is dependent o n the market a s well in terms of the marketability of t h o s e units. Benefits: • Having developers pay for affordable housing is fair because in developing their projects, it is inevitable some affordable housing will be lost (or the developments would put upward pressures on rents in nearby areas). Costs/problems: • This option only works when the market is extremely active and developers can afford to allocate the funds to non-market housing. In less buoyant times, these requirements may dissuade development. • The city council does not have the statutory authority to assess development levies for land for Social housing. • Calls for the integration of non-market and market units in a single site is not enforceable by the city council, and is not acceptable to developers from a marketing perspective • The existing City council requirement for 20% non-market housing for "mega-projects" may already be illegal. That is, the requirement that developers adhere to the 20% requirement for social housing in exchange for a re-zoning application is tantamount to "selling zoning" which is i l legal. 1 5 Should developers seek to challenge this requirement, the city may not be able to enforce this requirement. 7.42 City Helps Seniors Buy Building in Kerrisdale The intent of this option is to assist tenants dislocated through eviction to stay in their neighbourhoods. A major problem with this option is that it favours certain residents at the expense of other needy tenants. There are also those critics who would argue that many of the tenants now being evicted had sold their homes in the past and benefitted . Therefore, there is no reason to compensate tenants today. Benefit: • Displaced tenants are able to stay in their neighbourhoods 15. C o n v e r s a t i o n with Mr. R i c k S c o b i e , A s s o c i a t e Director Z o n i n g , P l a n n i n g Department, City of Vancouver, S e p t e m b e r 1989. Costs: • Economically unfeasible since land in Kerrisdale is extremely expensive, and there are no public land available in the area to write down costs. • Because of the price of land, finance charges would exceed rental revenues. This means rents cannot be affordable unless there is some subsidy by government. It is unlikely that C M H C would subsidize projects in Kerrisdale because of the high land prices. • The City would have to discriminate in favour of one part of town at the expense of another (which may be worse off) in the city. • This idea is only valid in the short term, and is limited to the number of units bought. 7.5 Summary This chapter describes the city's response to the housing situation in Kerrisdale, and presents a number of other possible options. Although there are many dimensions to the housing issue, the fundamental problem is that demand exceeds supply. In general, potential policy actions must either decrease the demand or increase the supply. Each of the various supply and demand actions have short and long term costs and benefits. In the long run, it is necessary to concentrate on those policy actions which increase supply. Actions and inactions by both the federal and provincial governments have not been helpful. At the federal level, there has not been a response because the housing situation in Kerrisdale is primarily a local matter. In addition, housing policy is designed to affect the nation, and cannot be implemented in isolation to a local area. At the provincial level, a belief in the forces of the free market has made the government reluctant to intervene to any significant degree. A recent city council request to re-instate the rentalsman to hear appeals from tenants who have received unreasonable rent increases was refused. The municipal city council's role in the Kerrisdale situation has primarily been through actions implemented with its zoning and development by-law. The municipal response thus far has been to implement several by-laws and amendments. These include: Demolition Delay, R M 3 amendments, Rental Demolition fee requirement, and the announcement of Vancouver Land Corporation. The intent of the demolition delay is to give evicted tenants more time to look for other accommodation. The city has tripled the length of time for eviction notices from 2 to 6 months. The intent of the R M 3 amendments is to reduce to economic incentive of redevelopment in R M 3 areas. This has been done by reducing the outright use to a lower density. Requests for relaxations and increased densities are conditional and dependent on certain criteria yet to be defined by council. The introduction of a rental demolition fee in August is significant because it sends a message to developers that there is a price to pay for demolishing rental units. Unfortunately, the small fee involved will unlikely have a significant impact on the decision to proceed with redevelopment. The announcement of Vancouver Land Corporation is a supply-side solution. The city hopes to build 2000 rental units per year via this private company. Because the company relies primarily on city-owned land, it is unlikely that seniors living on the west-side will benefit; there are few appropriate city-owned land in this part of town. Several other options that may be possible are the various controls on the market that reduce the demand for potential properties. These include rent control, demolition control, and ownership control. In general, these actions have beneficial short-term effects, but may have more counteractive effects in the long run. In addition, restrictions on ownership may have negative effects on investment in other sectors of the economy. The idea that developers pay for non-market housing is often proposed as an option. It is standard practice for the city council to require developers involved with "mega-projects" (in major rezonings) to reserve about 20% of land for non-market housing. However, there may be some uncertainty whether the city council can legally require developers to abide by this requirement since the city is essentially "selling" zoning which is illegal. A n important alternative strategy is to increase the supply of land by rezoning selected RS-1 and commercial areas near high-demand areas such as Kerrisdale. The availability of more land will mean less pressure on existing R M 3 areas, and will mean that seniors will have more choices to stay in their neighbourhoods. The downside is that residents who are accustom to lower densities must be willing to accept greater densities. In general, whether certain options are implemented by the city council is dependent on its statutory authority to re-enforce such laws, and is dependent on the political will of the other two levels of government. At the same time, municipal governments can received tremendous resistance at any hint of upzoning. The housing problem is multi-dimensional, and no matter what strategy is implemented, there have to be trade-offs. Vancouver is changing rapidly, and residents need to understand that certain changes will be inevitable if people want to stay in the city. 8.0 Conclusions The purpose of this study has been to investigate the social impact (extent and degree) that redevelopment pressures have had on people forced to move. The study has examined why redevelopment pressures are happening, and has reported on the key players involved. In addition, the City of Vancouver's response to this housing situation are discussed, and a range of additional policy options are presented. The perspective taken in the study is from both a developer and tenant point of view. Information from both viewpoints are presented. In general, the impact of redevelopment pressures in Kerrisdale has been primarily social. Social impact refers to loss of self-esteem, uncertainty, anxiety, loss of control, and stress. A n analysis of income data for renters from Statistics Canada and from discussions from tenants themselves, indicate that 48% of tenants in low-rise buildings earn less than $20,000 in 1985. Half the tenant population in Kerrisdale are seniors and are on fixed incomes. Individuals who live in low-rise rental stock are generally poorer than renters living in nearby high-rises. When redevelopment pressures build, it is the least able (poorer renters) living in the older low-rise rental stock who must move and who have the most difficulty adjusting. The majority of tenants affected are seniors and women. Although it is still relatively early, (only 7 of 17 buildings have been demolished), evicted tenants relocated throughout the Lower Mainland. At least 65 percent of the seniors evicted managed to stay in Kerrisdale. Those who moved out of the neighbourhood tended to be younger. Evicted renters who managed to find places in Kerrisdale generally paid more for rent. This was because they had to find accommodation in high-rises. Those fortunate to find low-rise accommodation paid the same or slightly more. In some instances, rents were higher or lower because of space differences; therefore, no generalization can be made. The fact that a majority of seniors managed to stay in the community does not mean that there are no costs to them. In addition to rising rents, stress, anxiety, uncertainty, loss of control, and self-esteem represent some of the major impacts of the apartment evictions. The rationale for the apartment demolitions in Kerrisdale is an economic one. Because of an limited supply of apartment land on the one hand, and an extremely strong demand for accommodation in the area, there is little choice but to demolish from an economic viewpoint. The decision to demolish is also encouraged by the fact that there is little economic incentive to maintain rental units compared to condominium development. A n analysis of two sample pro-formas in Chapter 4 (scenario 3 and 4) indicate that it makes little sense to build rental apartment buildings in today's market. In scenario 3, a developer builds a 12 storey high-rise condominium tower to sell. His actual land costs are $126 per sq. ft. Assuming a Floor Space Ratio of 1.82 and an expected selling price of $400 per sq. ft. for the luxury units, the developer is estimated to make over $3 million dollars after tax. O n the other hand, a developer who wants to build a rental tower must be willing to accept a low return on investment (4.5% capitalization rate in first year) just to cover construction costs. These numbers show that any additional rental housing in Kerrisdale is unlikely to occur without subsidies. The nine developers who have plans or are actively developing condominiums in Kerrisdale represent a mix of local and off-shore companies. About one third of the developers are local and established while the remaining two-thirds are from off-shore and considered relative new players in local development circles. A l l of the properties currently slated for redevelopment were bought within the last year. A n analysis of land transactions show that the off-shore companies were the first to assemble land in the area with the local developers entering later into the market. Conversations with developers and an analysis of the plans of the projects suggest that many of the units have been designed with the off-shore buyer in mind. However, from an economic standpoint, the identities of the developers are irrelevant. Where there is profit to be made, there will be an entrepreneur to capitalize on it. The response of the civic government toward the demolitions in Kerrisdale has primarily been to slow the rate of change in the neighbourhood. The major actions the city has implemented so far include: (1) demolition delay; (2) amendments to the R M 3 bylaw making some uses "conditional"; (3) rental demolition fee requirement; and (4) establishment of the Vancouver Land Corporation ( V L C Properties Ltd.). The effects of these strategies will have to be measured over the long term. Based on the economics of land development, the rental housing sector will continue to decline. From an economic viewpoint, Vancouver will have to increase the supply of apartment land if it is to reduce the pressure for demolitions. The single-family zones in Vancouver may not be so realistic as demand for land increases. This means that residents must be willing to accept higher densities in the city. Such upzoning can be done gradually and in carefully selected areas. In conclusion, the crux of the demolition situation in Kerrisdale is that demand exceeds supply. Demolitions are happening because of a good economy, strong demand, and zoning that allows for higher density housing. Demolitions will continue to take place as long as these conditions are present. More research is required to determine the impact of evictions on the health of elderly residents over a period of time. In addition, it would be interesting to determine what percentage of evicted tenants will have to move out of the neighbourhood in the next round of eviction and rent increases. Finally, it would be interesting to document how much new rental housing is created or trickles down for the low-end of the rental market as a result of recent condominium investment in Kerrisdale. 109 Appendix 1 Impacts on Kerrisdale (Chapter 3) Evicted Tenants: Distribution and Characteristics Part 1 of 2 Bui lding 1 Age Group Sex Length of Residence in Suite Rent/month Bui lding 1 younger m n/a 710 Building 1 senior couple 2yr 750 Bui lding 1 senior f 2 y r 525 Bui lding i senior f n/a 550 Bui lding 1 senior f 6 yrs 725 Building 1 senior f 19yrs 550 Building 1 senior f 3 yrs 750 Building 1 senior f 10 yrs 550 Bui lding 1 senior f n/a 550 Bui lding 1 senior f 10 yrs 750 Bui lding 1 senior f 4 yrs 550 Bui lding 1 senior f n/a 550 Building 1 seniors couple n/a 550 Bui lding 1 seniors couple n/a 550 Bui lding 1 senior f n/a 510 Bui lding 1 senior f 10 yrs 550 Building 1 younger f 3 yrs 550 Building 1 seniors couple 18 yrs 795 Bui ld ing 1 younger couple 2 yrs 525 Building 1 senior f l y r 700 1 0 0 * S A M P L E 100% S A M P L E Building 2 Age Group Sex Length Residence Rent/month Bui lding 2 senior ? n/a n/a Bui lding 2 younger couple n/a n/a Building 2 senior 7 n/a n/a Building 2 senior ? n/a n/a Bui lding 2 senior f 18 yrs 450 Bui lding 2 younger f n/a n/a Bui lding 2 younger 7 n/a n/a Building 2 senior f n/a n/a Bui lding 2 Senior ? n/a n/a Bui lding 2 younger ? n/a n/a Bui lding 2 middle f 9 yrs 511 Building 2 middle f n/a n/a Building 2 senior m n/a n/a Bui lding 2 senior m n/a n/a Building 2 middle f n/a 511 Building 2 senior f n/a n/a Building 2 younger f n/a n/a Building 2 younger f n/a Building 2 middle f n/a n/a Bui lding 2 senior f n/a n/a Building 2 younger m n/a n/a Building 2 younger 7 n/a n/a Bui lding 2 younger 7 n/a n/a Building 2 senior couple n/a n/a Building 2 senior f n/a n/a Building 2 senior f n/a n/a Building 2 senior f n/a n/a Bui lding 2 younger f n/a n/a Bui lding 2 younger f n/a n/a Building 2 senior f 9 yrs 485 Building 2 senior couple n/a n/a Building 2 middle f n/a n/a Apt size Moved To: N e w Rent % Increase/Decrease in Rent New Apt Size bdnn+den still in apt n/a n/a 2 b d n n S. Granvil le 1050 40 3 bdrm l b d n n Kerrisdale 775 48 l b d n n Ibd rm Kerrisdale 785 43 l b d r m bdrm +den S. Granvil le 555 -23 l b d n n l b d r m S. Granvil le 555 1 1 bdnn 2 bdrm Kerrisdale 795 6 l b d r m l b d n n Kerrisdale 620 13 l b d r m l b d r m Kerrisdale n/a n/a l b d r m bdrm +den Kerrisdale 590 -21 l b d r m 1 bdrm Kerrisdale 625 14 l b d n n l b d r m Kerrisdale 775 41 l b d n n l b d n n Kerrisdale n/a n/a l b d r m l b d r m Kerrisdale n/a n/a n/a l b d r m Kerrisdale n/a n/a n/a l b d r m sti l l in apt n/a n/a n/a l b d r m still in apt n/a n/a n/a bdrm +den Kerrisdale 640 -19 l b d r m l b d r m still in apt n/a n/a n/a 2 bdrm Kerrisdale 775 11 l b d r m Apt size Moved To: N e w Rent Notes l b d n n Victoria n/a l b d r m still in apt n/a l b d r m N . V a n n/a l b d r m S. Granvil le n/a l b d r m Kerrisdale 625 Died July 89 Ibd rm St i l l in apt l b d r m Richmond l b d r m Kerrisdale l b d r m Richmond l b d r m unknown l b d r m still in apt l b d r m Kerrisdale l b d n n Marpole l b d r m n/a n/a Died, spring, 1989 l b d n n West End l b d r m Kerrisdale n/a l b d n n st i l l in apt. l b d r m still in apt l b d r m Kerrisdale l b d r m Nursing home ibd rm W . E n d l b d r m W . End l b d r m st i l l in apt. I bd rm Kerrisdale l b d r m Oakridge l b d r m unknown Ibdrm S. Granvil le l b d r m unknown l b d r m unknown l b d r m Kerrisdale n/a Richmond n/a unknown Danny Ho, U B C , August 1989 Evicted Tenants: Distribution and Characteristics Part 1 o f 2 Bui ld ing fi Age group Sex previous rent Bui ld ing Ki 65 m 650 Bui ld ing tfh 66 m 650 Bui lding 4 65+ f 450 Bui lding 5 65+ f n/a previous apt, size M o v e d to: New rent Ap t size 2 bdrm S. Granvil le less than 650 1 bdrm unknown S. Granvil le 750 1 bdrm Bachelor Kcmadale 390 Bachelor 1 bdrm Kerrisdale n/a lbdrm Comments • Moves occured from Dec. 1988 to July 1989, and is continuing for those still in slated buildings • A general pattern is that the majority o f seniors stayed in Ketrisisdale (more than 50% stayed i n the area) • For those who moved, Marpole and South Granville were the top 2 destinations for seniors. Nobody was found who moved to the Eastside. • new rents generally increased. Where decreases were observed, there was a sacrifice of space, or they moved out of the area. • most residents lived alone and were women • while it would appear that rent increases were absorbed by the tenants, it's uncertain whether they could endure the next set o f increases. • some people were displaced to the suburbs. But. generally those people were younger, were going to buy a house there, or already had friends there. • while economic impact was very stressful, the psychological impact on self-esteem, physical well-being were frequently mentioned. • Loss o f dignity, self esteem, loss of choice and control, injustice, uncertainly, and fear were common themes cited. Methodology: • Key contacts • Telephone survey • subsequent cross-referencing Danny H o , U B C , August 1989 Evicted Tenants: Distribution and Characteristics, Part 2 of 2 Address Problem Sex Age 5850 Balsam eviction f 59 5850 Balsam eviction f 83 5752 Vine eviction m/f 25 5774 Vine eviction f 84 5790 Vine eviction f 65+ 5790 Vine eviction m/f 65+ 5797 Vine increase f 69 2121 w. 38th eviction f 50+ 2121 w. 38th eviction m 33 2121 w. 38th eviction m/f 30 2121 w. 38th eviction m 74 2121 w. 38th eviction f 67 2121 w. 38th eviction f 41 2148 w. 38th emptying f 65+ 2148 w. 38th emptying f 76 2148 w. 38th emptying f 35 2180 w. 38th increase f 65+ 2226 w. 40th eviction f 46 2120 w. 44th emptying f 65+ 2120 w. 44th emptying f 78 2120 w. 44th emptying m/f 60+ Household size Current rent % of Income 1 $511 37% 1 $480 n/a 2 $500 25% 1 $435 54% 1 $470 34% 2 $580 41 1 $450 60 1 535 n/a 1 450 23 2 540 n/a 1 527 44 1 600 43 1 545 39 1 560 62 1 545 36 1 550 n/a 1 635 n/a 3 625 48 1 600 n/a 1 565 44 2 550 33 New Rent % Rent Increase/Decrease % of Income n/a n/a n/a n/a n/a n/a n/a n/a n/a $510 17 63 $675 44 48 $675 16 0 $500 11 67 n/a n/a n/a 515 14 25 n/a n/a n/a 460 -13 39 660 10 47 635 17 45 n/a n/a n/a n/a n/a n/a n/a n/a n/a 695 9 n/a 780 25 n/a n/a n/a n/a 775 37 55 n/a n/a n/a Notes: (1) From: Roneen Marcoux, "Tenant Relocation Study", Social Planning Department, August 1989 (2) For overall picture only. There may be some isolated overlap from part 1 Appendix 2 Potential Demand (Chapter 6) Levett & Bailey ^ Chartered Surveyors P A N A D A C1 V a n c o u v e r — O a k r l d g e I n c o m e P r o p e r t y A d | a c e n t to O a k r l d g e M a l l , 122 r e s i d e n t i a l u n i t s o n 2.3 a c r e s s i te , g o o d r e d e v e l o p m e n t p o t e n t i a l . S t r o n g renta l market , c u r r e n t y i e l d 5 . 7 % , g o o d rent r e v i e w s . C D N $ 1 5 . 2 M C 2 V a n c o u v e r — B u r n a b y R e s i d e n t i a l 95 — 2 B e d r o o m u n i t s , a d j a c e n t to C e n t r a l Park a n d A L R T R a p i d Transit . W e l l m a i n t a i n e d 1st c l a s s c o n d o m i n i u m s , g o o d C o n d o va lue for future r e s a l a C u r r e n t y i e l d 5 . 5 % , g o o d ' rent rev iews . C D N J 1 2 M C 3 V a n c o u v e r — D e v e l o p m e n t S i t e 160,000 sq . l t . s i t e area , a d j a c e n t to C i t y H a l l , Q.E. Park , 5 -minute drive to d o w n t o w n Vancouver , p r o p o s e d res ident ia l d e v e l o p m e n t C D N S 1 7 . 0 M C 4 V a n c o u v e r — D e v e l o p m e n t S i t e 56,000 s q . ft. s i t e area , ad jacent to d o w n t o w n V a n c o u v e r and E x p o S i te , c o m m e r c i a l re ta i l a n d h o t e l d e v e l o p m e n t o p p o r t u n i t y , 340,000 s q . ft. b u i l d a b l e a rea , e x c e l l e n t Investment . C D N J 1 6 . 0 M ' C5 V a n c o u v e r — K e r r i s d a l e L u x u r y C o n d o m i n i u m s P r e s t i g i o u s l o c a t i o n o n W e s t S i d e d i s t r i c t . O u t s t a n d i n g d e s i g n e d u n i t s . Ideal d i s t i n c t i v e h o m e o r i n v e s t m e n t . C o m p l e t i o n : 1990 J u n a C O N $ 8 6 0 , 0 0 0 — C D N S 1 . 6 M C 6 V a n c o u v e r — C h a m p l a i n H e i g h t s 2 to 4 b e d r o o m t o w n h o u s e s , b u i l t 1 9 8 2 , 9 8 9 s q . ft. to 1,449 s q . ft. CDN$141,808 — C D N J 1 9 6 . 2 1 6 C 7 O n t a r i o — I n v e s t m e n t O p p o r t u n i t i e s R e s i d e n t i a l a p a r t m e n t s In M i s s l s s a u g a , w e s t o f Met ropo l i t an Toronto, U. of T. E r lnda le C a m p u s , return ranges , f r o m 6 to 8 % . C D N $ 7 M — C D N S 2 4 M . C 8 A l b e r t a — I n v e s t m e n t P r o p e r t i e s S h o p p i n g C e n t r e s , B u s i n e s s Park , W a r e h o u s e , O f f i c e a n d R e s i d e n t i a l C o m p l e x In E d m o n t o n a n d Calgary , y i e ld ranges f r o m 7 to 9 % . C D N S 2 . 0 M — C D N S 7 . 5 M Australia U.S.A. • A l S u n s h i n e C o a s t , Q u e e n s l a n d — C a t a l l n a A p a r t m e n t L u x u r y t w i n t o w e r w i t h o c e a n v iew. 2 to 3 b e d r o o m a p a r t m e n t s r a n g i n g 1,131 s q . ft. — 4,300 s q . ft. P o o l , s a u n a , c o n f e r e n c e room f a c i l i t i e s , F I R B a p p r o v a l . A$220 ,000 — A$1,2O0,OO0 A 2 G o l d C o a s t — Water f ront A p a r t m e n t s L o c a t e d o n the b a n k s of the N e r a n g River , heart of S u r f e r s P a r a d i s e . 2 B e d r o o m a p a r t m e n t s r a n g i n g 1,017 to 1188 s q . It. P o o l , s a u n a & g y m n a s i u m f a c i l i t i e s ava i lab le . A$230 ,000 — $355,000 A 3 G o l d C o a s t — M e d i t e r r a n e a n S t y l e T o w n h o u s e s W e l l l o c a t e d pr ivate r e s i d e n t i a l resor t , s u p e r b c h o i c e of 2, 3 o r 4 b e d r o o m t o w n h o u s e s . F i n a n c e o n 1 0 % d e p o s i t a n d take a d v a n t a g e of ' N e g a t i v e G e a r i n g ' for tax bene f i t . Don ' t miaa this opportunity. ASWfiOO — SmjDQQ A 4 G o l d C o a s t — Luxury R e s i d e n t i a l R e s o r t L o c a t e d o n waterfront land o v e r l o o k i n g the Sur fe rs Parad ise G o l f C o u r s e . V i l l a s t y l e 3 b e d r o o m c o n d o m i n i u m s r a n g i n g 2,450 to 3234 s q . ft. e x c l u s i v e c o u n t r y c l u b . A$425,0O0 — AS520 .000 U1 M a n h a t t a n , N.Y. — M a n d a r i n P l a z a Hear t of N Y , 25 s to rey tower, s t u d i o , 1 to 2 - b e d r o o m apar tments rang ing 465 sq.ft . to 1,150 sq.ft. C o m p l e t i o n : 1990 A p r i l US$160,890 — U S $ 5 8 2 , 0 0 0 U 2 O f f i c e B u i l d i n g — L o s A n g e l e s & S a n F r a n c i s c o , C A D o w n t o w n l o c a t i o n , 15,300 sq. f t . to 53,000 sq. f t . r en tab le area, redeve lopment po tent ia l . Y i e l d 7 . 2 5 % to 1 0 % . U S $ 3 . 7 M — $ 1 0 M ' U 3 H o t e l R e s o r t C o m p l e x — C a l i f o r n i a J o i n t Venture partnership , p r e s t i g i o u s tour ist point , 5.2 m i l e s of b e a c h f rontage , p r o p o s e d d e v e l o p m e n t of 500 h o t e l r o o m s , 1,000 r e s i d e n t i a l u n i t s a n d 4 go l f c o u r s e s , c l o s e to t w o m a | o r m e t r o p o l i t a n a reas (San F r a n c i s c o a n d S a n J o s e ) . A s k i n g U S J 4 6 . 5 M U4 VmBeaeh, Florida— R»mt&R§§i4erH*aiG&mpte* F a n t a s t i c b e a c h l o c a t i o n , a w a r d w i n n i n g c o m m u n i t y , l a rge va r i e t y of m o d e l s & u n i t s i z e s . P r i c e r a n g i n g f r o m US$130,000 's to $300,000*8. SOURCE: South China Morning Post., Sept. 6 , 1 9 8 9 P. 5 PACIFIC-COVE One of Vancouver's most beautiful residential waterfront developments. U 5 Pacific Cove is a development of 143 suites set on the South shore of False Creek, facing the city and the mountains. It offers an incomparable lifestyle to discerning buyers, and a convenience of location that is hard to find, even in Vancouver. Now, if you act quickly, you can purchase in this beautiful development at extremely favourable prices. But hurry, prices go up on August 15, 1989. Call Mary Tung ' Every suite features a balcony or deck ' Fitted kitchens and bathrooms ' Recreational facilities ' Games room,jaccuizi, sauna ' Landscaped gardens with lagoon • Private underground parking ' Solid concrete construction ' Prime location • Close to city centre ' Short walk to Granville Island ' Mortgage finance up to 70% C A N A D I A N C O N N E C T I O N c m w o C h i Wo lYoperties U d . A Jardine Pacific Business SOURCE: South China Morning Post. August Z, 1989 Investment Analysis Problem: Suppose a foreign investor in Japan wants to invest money in Canada, and eventually wants to convert that money back to Japanese currency. Would the rate of return be better i f the investor invested in Japan or in Canada? As of August 3/89: Globe and Mail Money market Statistics Canadian one year T-bill 11 A% per year Japanese Spot Rate: Cdn $ per unit: 0.008555 Japanese 12 month forward rate: Cdn $ per unit: 0.009051 Step I: Convert Japanese currency to Candian Dollar Step 2: Calculate Return of Canadian Dollar investment Step 3: Convert Spot and Forward rates of Canadian Investments back to Japanese currency Step 4: Calculate yield based on borne currency terms. Yen to Canadian equals ¥ x Spot Canadian^ $ Cdn)/¥; Step 1 Investor has yen equilvalent to $1 million Canadian, ie, $1,000,000 Can/ spot rate ¥ = 116, 890,707 ¥ Step 2 Invests that money in Canada at 11.4 % T-bills for one year. After one year at maturity, the investors receives $114,000 for a total of $1,114,000. Step 3 Investor wants to convert that money to Japanese yen. Convert Canadian $ to Yen= SI. 114.000 Can =$123,080, 322.60 ¥ .009051 Therefore, 123.080. 322.60¥- 116.890.707¥ x 2f t = 5.29 % 116,890,707¥ 365 Japanese Domestic rate: 5.37% yield Japanese—Canadian—Japanese rate : 5.29 % yield Step 4 Yield Analysis and comment If the Japanese investor decides to invest the equilvalent of $1 million Canadian into a Canadian Bank, and then convert that money into Japanese yen using current and 12 month forward rates, the yield is 5.29 %. On the other hand, if the investor decides to keep the money in Japanese banks investing in domestic t-bills, then the yield after one year is 5.37%. Thus, unless the investor is willing to take a risk (forego forward contract rates), the yields in the two countries are similar. Acknowledge me nt: John Wong, Treasury Department, B.C. Centra] Credit Union Augua 3.1989 117 Commercial Bank Lending Rates to Prime Borrowers, Selected International Countries, 1987- 1989 * H o n g K o n g T a i w a n Japan Uni ted K i n g d o m Canada Source: Wor ld Financial Markets, 1989 issue 2 1 1 7 a Appendix 3 Policy Response (Chapter 7) O C I T Y O F V A N C O U V E R P L A N N I N G D E P A R T M E N T j4 . BY-LAW ADMINISTRATION BULLETIN "119 AUTHORITY City Council EFFECTIVE DATE A p r i l 25, 1989 DEMOLITION DELAY Council, on April 25, 1989 amended Section 10.12 of the Zoning and Development By-law as follows: "10.12.2 Except as set out in section 10.12.3, where development necessitates the demolition of existing residential rental accommodation, no development permit shall be issued for the demolition unless and u n t i l (a) a l l tenants have vacated the b u i l d i n g v o l u n t a r i l y or s i x months have elapsed s i n c e n o t i c e of the proposed demolition has been given to a l l tenants; and (b) a development permit for the new development has been issued. The development permit for the new development shall not be issued unless and u n t i l a l l building permits for the new development and a building permit for the demolition are issuable." Need for Affidavits The owner or his agent i s responsible for proving that either of the foregoing conditions in (a) above have been met. An a f f i d a v i t , including the following information, w i l l be required indicating that either: 1. Six months have elapsed since notice of the proposed demolition has been  given to a l l tenants. The names of the former tenants should be l i s t e d along with th e i r former suite numbers, and the date(s) of n o t i f i c a t i o n . 2. A l l tenants have vacated the building voluntarily. The names of the former tenants should be l i s t e d along with their former suite numbers. Any indication of relocation assistance provided to the tenants should be included in the a f f i d a v i t . I t i s also desirable to include signed and dated statements from tenants. or that, 1 2 0 A notice to vacate given by the owner or his agent under the provisions of the R e s i d e n t i a l Tenancy Act w i l l not be considered as evidence that tenants have vacated the building voluntarily. Notice to Vacate The six month notice of demolition provides tenants additional time to make relocation arrangements. It i s not, however, a notice to vacate, nor does i t provide tenants the right to remain on the premises for six mcrths in contravention of notice to vacate given under the provisions of the provincial R e s i d e n t i a l Tenancy Act. e o » \ O O H 1 2 1 BY-LAW NO. 6515 A By-law to amend the Zoning and Development By-law, being Bv-law No. 3575 THE COUNCIL OF THE CITY OF VANCOUVER, in open meeting assembled, enacts as follows: 1. The RM-3 D i s t r i c t Schedule to By-law No. 3575 1s amended: (a) in section 2.2.DW by deleting the words "Multiple Dwelling." and by substituting therefor the following: "Multiple Dwelling, provided that the floor space r a t i o does not exceed 1.0 and the height does not exceed 40 feet."; (b) in section 3..2.0W by inserting as the last entry thereof the following: "Multiple Dwelling, provided that before'making a decision the Development Permit Board shall advise Council and thereafter consider the rate of change In the neighbourhood and the opinions of tenants who would be displaced by the development.". 2. Except as provided for in section 3, this By-law comes into force and takes effect on the date of Us passing. 3. This By-law shall come into force and take effect on April 4, 1990 with respect only to those sites for which an application for a development permit was made on or before April 4, 1989 and which, i f containing residential rental accommodation, had at least two-thirds of i t s units unoccupied as of June 20, 1989. DONE AND PASSED 1n open Council this 27th day of June , 1989. (signed) Gordon Campbell Mayor (signed) Maria Kinsella City Clerk "I hereby c e r t i f y that the foregoing is a correct copy of a By-law passed by the Council of the City of Vancouver on the 27th day of June, 1989, and numbered 6515. CITY CLERK" BY-LAW NO. 6 5 3 9 A B y - l a w t o amend the B u i l d i n g B y - l a w , b e i n g B v - U w No. 6134 THE COUNCIL OF THE CITY OF VANCOUVER, In open meet ing a s sembled , e n a c t s as f o l l o w s : 1. Schedu le " A " t o B y - l a w No. 6134 I s amended: (a) In c l a u s e (a) o f s e c t i o n 1 by I n s e r t i n g a f t e r the words " c l a u s e ( b ) , " the f o l l o w i n g : "bu t i n a d d i t i o n to the fee s e t out 1n c l a u s e ( e ) , " ; and (b) i n s e c t i o n 1 by adding t h e r e t o the f o l l o w i n g c l a u s e : ' ( e ) F o r the d e m o l i t i o n o f a BUILDING wh ich has a t any t ime p r o v i d e d RESIDENTIAL OCCUPANCY, f o r each DWELLING UNIT $1 ,000 .00" 2 . T h i s B y - l a w comes In to f o r c e and t akes e f f e c t on the da te o f i t s p a s s i n g . DONE AND PASSED 1n open C o u n c i l t h i s l s t day o f A u g u s t 1989. ( s i g n e d ) B r u c e E r i k s e n  o e p u t y H i y o r ( s i g n e d ) M a r i a K i n s e l l a C i t y C l e r k " I h e r e b y c e r t i f y t h a t t h e f o r e g o i n g i s a c o r r e c t c o p y o f a B y - l a w p a s s e d b y t h e C o u n c i l o f t h e C i t y o f V a n c o u v e r o n t h e l s t d a y o f A u g u s t , 1 9 8 9 , a n d n u m b e r e d 6 5 3 9 . Residential occupancy means the occupancy or use of a building or part thereof by persons for whom sleeping accommodation is provided but who are not harboured or detained to receive medical care or treatment or are not involuntarily detained. Dwelling unit means a suite operated as a housekeeping unit, used or intended to be used as a residence and usually containing cooking, eating, living, sleeping and sanitary facilities. EXAMPLES: DEMOLITION OF A ONE FAMILY DWELLING-ESTIMATED COST OF DEMOLTION $3,000 • • S E C . 1 ( A ) F E E $52.00 • • S E C . 1(E) F E E $1,000.00 TOTAL F E E $1.052.00* • A N A D D I T I O N A L $35.00 F E E IS R E Q U I R E D FOR D E M O L I T I O N OF R E S I D E N T I A L R E N T A L ACCOMMODATION DEMOLITION OF A MULTIPLE DWELLING CONTAINING 5 DWELLING UN ITS-ESTIMATEO COST OF DEMOLITION $6,000 • • S E C . 1(A) FEE $60.00 • • S E C . 1(E) FEE $5,000.00 * A N A D D I T I O N A L $35.00 F E E IS $35.00* R E Q U I R E D FOR D E M O L I T I O N OF R E S I D E N T I A L R E N T A L ACCOMMODATION TOTAL F E E $5,095.00 M-••FROM SCHEDULE A OF THE VANCOUVER BUILDING BY-LAW #6134 l\> NATIONAL REAL ESTATE SERVICE NRS COMMERCIAL REALTY LTD. COMMERCIAL, INDUSTRIAL, INVESTMENTS M a y 26, 1989 R E : R M - 3 D O W N Z O N I N G P U B L I C H E A R I N G O N J U N E 8 T H , 1989 We are w r i t i n g to you to urge you to attend the Publ ic H e a r i n g on June 8th, 1989 to debate the proposed downzon ing of al l R M - 3 zoned property in Kerr i sda le , South G r a n v i l l e a n d G r a n v i l l e - W o o d l a n d s areas. A s a property owner in these areas you should be aware of the f inanc ia l impl i ca t ions o f the amended R M - 3 Dis tr ic t Schedule C i t y C o u n c i l has proposed whereby: a) mult iple dwel l ings would be permitted as an outright approval use only to a m a x i m u m floor space ratio of 1.0 ( formerly 1.85) and a m a x i m u m height of 40 feet ( formerly 120 feet); b) mult iple dwell ings would be condi t ional ly approvable at a greater f loor space ratio, subject to the "bonus" provisions in the current R M - 3 schedule (site size, site coverage, underground parking) , and to a m a x i m u m b u i l d i n g height of 120 feet, prov ided the Development Permit B o a r d f irst consider after adv i s ing C o u n c i l : i) the rate o f change in the R M - 3 neighborhood; and ii) the opinions of tenants who would be displaced were the proposed development to proceed. N R S C o m m e r c i a l Rea l ty L t d . , as agents for several property owners in the above areas, wish to advise you that should the above draf t by- law be enacted we expect that property values and your abi l i ty to sell or redevelop wi l l be s ignif icant ly reduced. ...II SUITE 901,1075 WEST GEORGIA STREET, VANCOUVER, B.C. V6E 3C9 (604)687-4441 FAX: (604) 685-7048 AN INDEPENDENT MEMBER BROKER L A N D U S E A N D D E V E L O P M E N T P O L I C I E S A N D G U I D E L I N E S 125 KERRISDALE RS-1 REZONING POLICY Adopted by City Council October 7, I980 The Director of Planning i s instructed to advise applicants or potential applicants wishing to a l t e r the r e s i d e n t i a l zoning i n Kerrisdale that Council would not be prepared to approve any rezoning applications from single-family r e s i d e n t i a l to apartment, townhouse or other higher-density residential use. CITY OF VANCOUVER PLANNING DEPARTMENT MAY 1984 Selected References 1986 Census Canada printout, "Private Households bv Structural Type. Household  Income. Tenure and Shelter Costs" User-Specified Areas. Census Canada 1986 Tapes, City of Vancouver Planning Department, Nov. 1988. 1986 Census Canada User-Specified Areas, Private Households bv Structural Type.  Household Income. Showing Tenure and Shelter Costs. Census Canada tapes, City of Vancouver Planning Department, Nov. 1988. 1986 Census figures in Vancouver Local Areas, 1986 Census Data, City of Vancouver Planning Department Aldrich, C . & Mendkoff, E . "Relocation of the aged and disabled, a mortality study", Journal of American Geriatrics Society. 1963 Bramham, Daphne "Condo Craze Changing the Face of a Neighbourhood" in Vancouver  Sun. B l , August 18, 1989 Burns, Leland S. and Leo Grebler, The Future of Housing Markets. Plenum Press, New York, 1986 Bylaw 6515: A By-law to Amend the Zoning and Development By-law being By-Law No. 3575, enacted June 27, 1989. See appendix Campbell, Gordon, Letters to Editor, "Council Working for Demolition Solutions" in Vancouver Sun. July 28, 1989. Census Canada 1986 figures, Vancouver Local Areas. City of Vancouver Planning Department, June 1989 City Manager's report to Standing Committee on Neighbourhood Issues and Services, "Vancouver's Housing Supply", March 10, 1989 • City Manager's Report, "Vancouver's Housing Supply" to Standing Committee on Neighbourhood Issues and Services, City of Vancouver, March 10,1989 C M H C B . C . Region, Housing Statistics. Various Months, Jan-Sept. 1989 C M H C Ottawa, Market Analysis Centre, National Housing Outlook—Summer 1989. C M H C Vancouver Branch, April 1989 Vancouver Vacancy Survey C M H C Vancouver Branch, Housing Market Activity Reports. Various Months, Coldwell Banker Commercial Real Estate Services, Greater Vancouver Apartment Report. September 1989 Coriolis Consulting Corporation, " The Analysis of Redevelopment Potential in the R M 3  Zoned Areas of South Granville and Grandview-Woodlands" January 1989. 127 • Dasso, Jerome, Fundamentals of Real Estate. Prentice-Hall Inc., Englewood Cliffs, New Jersey, 1977 • Fried, Marc " Grieving for a Lost Home" in Leonard J. Duhl, M . D . The Urban Condition. Basic Books, New York 1963. • Gilderbloom, John I. and Richard P. Appelbaum, Rethinking Rental Housing. Temple University Press, Philadelphia, 1988 • Goetze, Rolf, Rescuing the American Dream. Holmes and Meir Publishers, New York, 1983 • Goldberg, Michael, The Chinese Connection: Getting Plugged into Pacific Rim Real Estate. Trade and Capital Markets. University of British Columbia Press, Vancouver B . C . , 1985 • Goldberg, Michael, The Housing Problem: A Real Crisis?. University of British Columbia Press, Vancouver B . C . 1983. • Govt, of B . C . , British Columbia Immigration Highlights. First Quarter 1989, Central Statistics Bureau, May 1989 , Ministry of Finance and Corporate Relations, Province of British Columbia. • Hamilton, Gordon "Apartment Demolitions Haunt Tenant, 83" in the Vancouver Sun Newspaper, Apri l 6, 1989 p. 1 • Hartman, Chester, America's Housing Crisis: What is to be Done? Routledge and Kegan, Boston, 1983 • Hartman, Chester, "Comment on "Neighbourhood Revitalization and Displacement: A Review of the Evidence" in American Planning Association Journal. Oct. 1979 • Hasselkus, Betty Risteen, "Relocation Stress and the Elderly" in The American Journal of Occupational Therapy. November-December 1978, Vol . 32, No. 10. • Hulchanski, J. David, Making Better Use of the Existing Housing Stock. Ministry of Municipal Affairs and Housing, Ontario Government, September 1982 • Hulchanski, J. David, Rental Housing Trends: City of Vancouver, U B C Centre for Human Settlements, The University of B . C . April 1989 • Johnson, Rita Minister of Municipal Affairs. Letter to Kerrisdale resident, See appendix. • Keast, Gordon "The World's Longest Commute" in Equity Magazine. March 1988 • Lee, Jeff, "Cope Alderman Rip Mayor Over Housing Plan", Vancouver Sun. May 26, 1989 • Marcoux, Roneen, "Tenant Relocation Study". Social Planning Department, City of Vancouver, August 1989. • McKenzie, Dennis J. and Richard M . Betts, The Essentials of Real Estate Economics. John Wiley and Sons, New York, 1980 2 National Institute for Advanced Studies, "Market Generated Displacement: A Single City  Case Study" Draft Report prepared for the U.S. Department of Housing and Urban Development (Washington, D . C : National Institute for Advanced Studies, 1980) in Shill and Nathan, 1983: 55 Newman, Sandra and Michael Owen, "Residential Displacement in the U.S., 1970-1977." Paper prepared for the U.S. Department of Housing and Urban Development, Office of Policy Development and Research, 1980 in Michael Shill and Richard P. Nathan, Revitalizing America's Cities: Neighbourhood Re-investment and  Displacement. State University of New York, Albany, N . Y . 1983 O'Brien, Frank, "Investors from Asia Buy Up Vancouver," Financial Post. March 22, 1989. Planning Department, City of Vancouver. "Vancouver Local Areas 1986.20% data from Census Canada, June 1986 Robert Matas, "B.C. Houses Hot Sellers Abroad" in The Globe and Mail". November 28, 1988 • Royal LePage Residential Real Estate Services, Royal LePage Home Buying Survey. February 1989 Rutman, Deborah L . and Jonathan L . Freedman, "Anticipating Relocation: Coping Strategies and the Meaning of Home for Older People" in Canadian Journal of Aging. V o l . 7, No. 1, 1988 Sandra J. Newman and Michael S. Owen, "Residential Displacement in the U.S. . 1970- 1977." Paper prepared for U.S. Department of Housing and Urban Development, Office of Policy Development and Research, 1980. Schultz, Richard and Gail Brenner, "Relocation of the Aged: A Review and Theoretical Analysis" in Journal of Gerontology, Vo l . 32, No. 3, 1977, and Hasselkus, Betty Risteen, "Relocation Stress and the Elderly" in The American Journal of Occupational  Therapy. November-December 1978, Volume 32, No. 10 Seattle Office of Policy Planning, Physical Planning Division, Seattle Displacement  Study. (Seattle: Office of Policy Planning) October 1979 Shelter A i d for Elderly Renters Brochure #81134, Ministry of Social Services and Housing, Province of B . C . South China Morning Post: Property Post. Hong Kong, Various Months 1989 Steacy, Richard, Canadian Real Estate. Stoddart Publishing, Toronto 1987 Stobie, Peter "Private Redevelopment in the Inner City". 1979 Unpublished M . A . Wan, Wilfred "Annual Investment Guide" in Chinese Edition: Lifestyle Magazine. Spring 1989. Wong, Francis A . "The Asian Buyer Phenomenon", before the U D I Financial Forum March 22,1989 • Y i n , Robert K . Case Study Research. Applied Research Methods Series, Vo l . 5, Sage Publications, Newbury Park, California, 1984 

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