VANCOUVER—Sticker shock over the extremely high rents proposed for several new rental buildings has led several Vancouver councillors to try to scrap or change a rental construction incentive program.

Supporters of the Rental 100 incentive program say it’s kick-started a rental building boom in Vancouver after a 30-year period when no new purpose-built rental buildings were being constructed, and it’s reckless to consider cancelling it when there is a dire need to increase rental housing.

Over the past decade, 3,644 new rental units have been completed in Vancouver, according to the city. Staff said 2,161 of those units used Rental 100 incentives or a previous program known as STIR. Developers can apply to get a break on development fees if they agree to put a covenant on the building that will keep it being used as rental for 60 years and to charge “affordable” rent rates.

But it’s the definition of affordable that’s come into question. City staff regularly call new rental projects “affordable” in their reports to council justifying why the project should qualify for development fee waivers, even when rent for a studio apartment is set at over $1,600, a two-bedroom is set at nearly $2,800 and a three-bedroom is set at $3,700 a month.

Even when the proposed rents are higher than average rents for a new building in the area, city staff still say the rent is “affordable” — because it’s cheaper than home ownership. On Vancouver’s west side, where detached homes cost upward of $3 million, home ownership would cost $8,300 a month for a three-bedroom, planning staff wrote in the same report that costed the three-bedroom rent at $3,700.

At the request of council, staff are reviewing the Rental 100 program, but Councillor Adriane Carr plans to introduce a motion that will freeze new applications. Councillors Pete Fry and Jean Swanson also believe Rental 100 needs major changes.

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“It’s a concern that we’re building this rental housing that’s not affordable, and it’s specifically not affordable for those who rent,” said Carr.

Fifty-one per cent of Vancouver households rent, according to city reports. Of those, 30 per cent make less than $50,000 per year, while 42 per cent make under $80,000.

“We’re giving away what would otherwise be revenue to the city in terms of development cost levies,” Carr said.

But those incentives are needed because Vancouver is in a rental vacancy crisis, with a vacancy rate of under one per cent, said Karen Sawatzky, a rental advocate and member of the city’s rental advisory committee. The tight vacancy rate is the root cause of all the problems renters face, she said.

“It gives landlords all kinds of leverage over their existing tenants when they know their tenants have no alternative to move to,” said Sawatzky.

“To be saying about the program — that has created thousands of rental units in the past few years — that you think this program is really terrible and needs extensive review and we don’t support it anymore, that sends really terrible signals about people who might be considering developing rental housing or have applications in the mix.”

Between 2010 and 2018, Vancouver far outstripped other Metro Vancouver municipalities in creating new rental housing, adding a net gain of 3,023 units while other municipalities lost hundreds of units, stayed the same or added just a few hundred, according to CMHC data.

Other cities in the region have now followed Vancouver in developing incentive programs. Developers say incentives are necessary because they are competing with condo projects, which deliver a much faster return on investment and can pay more for land.

“It is difficult to fathom why anyone on council would seriously consider ending (Rental 100),” David Hutniak, CEO of LandlordBC, wrote in an email to the Star.

“While the scale of new rental getting built in the past few years is significantly below what is required to mitigate persistently low vacancy rates, Rental 100 was a critical contributor to the new rental that did get built. It needs to be enhanced, not eliminated.”

Swanson and Fry said they’re not convinced by the argument that adding new rental supply will ultimately drive rents down as landlords are forced to compete for tenants. Instead, Swanson said she believes that the new buildings are simply pushing rents up in nearby older buildings, as landlords rush to evict long-time tenants so they can renovate older apartments and rent them at the new, higher rates.

Tom Davidoff, an economist at the University of British Columbia, disagrees with the two councillors.

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“They may have the causality backwards: these units are expensive because we don’t have enough rental homes,” said Davidoff.

“The first order of business is that adding rental units makes all rental units cheaper.”

Between 2016 and 2018, Metro Vancouver’s vacancy rate improved slightly, from 0.7 to one per cent; in the same period, rents rose by a whopping 13 per cent. During that time, the region added 1,422 rental units.

The rent increase was a historic high, according to CMHC, and followed a huge spike in home prices between 2015 and 2016.

“There’s this theory that I don’t agree with that says when you build expensive rental, people who are in the higher end of the rental market will move up into the expensive rental, freeing up the lower-cost units for people who can’t pay as much,” Swanson said.

“But the problem with that theory is that we don’t have vacancy control.”

B.C. already caps annual rent increases at around two per cent, but vacancy control would impose the same rent increase limit when a tenant moves out and a new person moves into a unit.

Developers have warned that vacancy control would put thousands of new rental units at risk as companies walk away from projects or build condos instead, and a provincial rental task force recommended against the measure for that reason.

But that hasn’t stopped Swanson from continuing to push for it. At a rezoning vote for a new rental project in Kitsilano, she proposed an amendment, which passed, to require the developer to accept vacancy control in order to get the development fee waiver.

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But after a warning from city manager Sadhu Johnston that the amendment would threaten the viability of the project, council rescinded the amendment and approved the project. He later warned the mayor and council that introducing new affordability requirements at the very end of a rezoning process could lead to projects being cancelled.

Carr, Swanson and Fry believe a new tool, rental-only zoning, is a better way to incentivize new rental construction. The province recently allowed municipalities to use the new zoning, but New Westminster is the only municipality so far to use it.

Carr would also like to look at speeding up building permit times, reducing the amount of parking developers are required to build and increasing density as ways to make the numbers work for developers with lower rents.

But, she warned, council will need to consult with community residents before going the route of increasing density and reducing parking, two things current residents often have concerns about when new buildings are proposed in their neighbourhood.

Sawatzky is frustrated that some councillors think that new buildings “drive displacement and gentrification.”

She pointed to the Vancouver neighbourhood of Strathcona, where few new buildings have been built and where the population of renters has declined over time. Between 2006 and 2016, Strathcona gained 270 homeowners but lost 625 renters, according to Statistics Canada Census data.

“When housing becomes scarcer, who gets the new housing? Richer people get the new housing,” Sawatzky said.

“There’s no new building there, and displacement still happens and has already happened.”

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