STORY about Housing posted on August 26, 2010 by dawn
The Ugly Story of Short Term Incentives for Rental
Renters pay for developers' profits with the blessing of the City of Vancouver
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Like a vicious zombie, the Short Term Incentives for Rental (STIR) program keeps on coming back to chew on Vancouver City Council. In the splatteriest encounter, three Vision representatives exchanged nasty cracks over a council chamber microphone that they thought was dead. Then the recording went up on YouTube. Viral infamy forced mainstream media to cover a story that would usually get deep sixed.
On the evening of 8 July 2010 Mayor Gregor Robertson and Councillors Tim Stevenson and Heather Deal exposed their contempt for speakers who had waited hours to say how the West End should be represented by an advisory committee. The seven presenters were derided as "fucking ... NPA hacks" and "100% owners" who expect "democracy cubed."
To control the damage, much of the reporting attempted to spin attention sideways toward forgivable earthy language and understandable frustration at long hours. The real story, though, remains a group of disrespected West Enders whose petition has now been signed by almost 10,000 persons. West Enders have struggled in particular against fast-tracked top-down proposals to dump huge densities onto sites at 1401 Comox and and 1201–1215 Bidwell Street and 1726 Davie Street.
What ignited this grassroots uprising in one of Vancouver's densest neighborhoods – and caused the formation of West End Neighbours? It all goes back to STIR.
What Is STIR?
The STIR program, after going to Council in a 45-page report in July 2009, percolated for months behind the scenes. When two proposals showed West End residents exactly how much Vancouver's bureaucrats and politicians intended to hand over to developers, numbing verbal details suddenly morphed into a specter of rampaging concrete. After all, one architect's model will communicate far more than dozens of turgid city hall reports.
The gist of STIR's public-side economics is simple and up front:
•Waive required developer levies for infrastructure like streetscapes and parks (an estimated $7600 per unit)
•Look further to eliminate or reduce associated development fees
•Look further to exempt from municipal general purpose tax levies
In essence, politicians boost developer profits by no longer collecting ordinary municipal revenue, and leave (often low income) renters who live in Vancouver to cover the resulting financial gap. Then, they use "expedited processing" (aka queue jumping) to let developers glom onto major financial concessions. The icing on the cake for the developers is the option of negotiating additional density. Floor Space Ratio (FSR) is developer crack cocaine, and translates into how tall and wide a building can go. The higher the condo, the more dollars the developer can extract from the view.
Besides all the foregoing looms another frightful suggestion: the report mentions that city-owned lands might offer yet more handout potential to developers.
Why STIR?
The justification for STIR is Vancouver's need for affordable rental housing. "The need for new rental housing and the benefits of sustained development activity for our local employment market justify the STIR program," reads the 45 page STIR report.
The second and always-handy justification is jobs. But a closer look weakens that particular argument. In Vancouver's economy, fewer than one job out of five falls within the goods sector, which is divided mostly between manufacturing and construction. Construction labour is mobile labour. Otherwise, Vancouver never could have accommodated the surge of activity generated by the Olympics. The bottom line: big local developers want a certain ongoing rate of activity to sustain their enterprises.
But back to rental housing. STIR foresees a new 500 sq ft one-bedroom apartment that rents for $1000 a month. Then comes the big trick. After all those concessions to the developer, there are no constraints on rent charged. After raking in massive subsidy, the developer remains free to charge whatever the rental market will bear. By way of example, the STIR rezoning for 1142 Granville went to Council on 22 June 2010. The associated Policy Report shows that the developer expects to rent 320 sq ft units for $960. This $3 per sq ft rate is 50% more than general projection from a year earlier.
Attention also needs to be paid to the "short term" aspect of STIR. The program is supposed to end in December 2011 (but might not). Named as the impetus for the program is a short term economic recession that has precipitated a decrease in construction activity with associated costs and challenges to the City.
Councillors started out eager to please major campaign contributors. Then the squeeze from their newly fitted financial straitjacket has made the measure even more pleasant to contemplate. The City of Vancouver has shackled its finances to the shaky foundation of development activity. While manufacturing declines, the city's remaining industrial land provides rich soil for sprouting lucrative condos. They City of Vancouver's financial statements for 2009 show total revenues of $1.288 billion, $393 million of which comes from fees, a source second only to the $589 million that comes from property taxes.
Developers and the NPA STIR it up
The Vancouver City Planning Commission (VCPC) appears to have spawned the basic ideas of STIR amid the deep uncertainties of the fall 2008 global economic meltdown. Two years onward, such crisis-induced stimulation looks like untimely pork barreling. VCPC members at the time included developer/publicist Bob Ransford and Non Partisan Association (NPA) maven Michael Klassen.
On 29 October 2008 the VCPC posted a report on rental housing to its web site – one day ahead of a report titled Rental Housing Strategy: Process and Consultancies going to Vancouver City Council. On 19 February 2009 VCPC reported to Council on 2007–2008, their presentation included its September 2008 Market Rental Housing in Vancouver.
This VCPC report includes these striking propositions:
•To view "rental housing as a public amenity"
•To "expedite development by pre-zoning for the city as a whole ... This means that the public hearing process ... Will happen only once for the entire city"
•To require rental status for the property for only 10 years rather than the customary 20 to 60 because "10 years is a common holding period for apartment investor's analysis"
By the time these proposals got worked into STIR, the mass pre-zoning gambit disappeared, as did the token 10 year rental requirement. In questioning an objecting speaker about the time period that would be restricted to rental, Raymond Louie demanded to know how much more than ten years would be enough!
The bit that never went away was a view of new market rental housing construction itself as a stand-alone amenity, with nothing required from the developer except rental cash flow back to the project owner.
What Happened When STIR Went to City Council? Unreported Flak and Outrageous Presumption
STIR did its best to sneak its way through City Council. Timed for the height of summer vacation, the item started off as a notorious "late distribution," an item that would fly under the radar of most Council watchers until it became a fait accompli. This back-door entry into the public realm made a farce of the report's own outline of a communications plan, which included "advertising the opportunity for delegations to be heard by Council prior to endorsement of the STIR program."
Despite this stealth, the matter still attracted five speakers on 16 June 2009. Council minutes fail to record the amazing flip-flop that occurred on that date. Early on, Suzanne Anton moved to postpone the item and was voted down. In discussion George Chow tried to insist that the handful of speakers present meant that the public had been heard. At the very end of the session, Raymond Louie backed off one inch and proposed that the matter be referred to allow for further speakers. Two days later another four speakers showed up to express concerns. Clrs. Suzanne Anton and Ellen Woodsworth made three unsuccessful attempts to postpone or refer. Then all of the Vision councillors proceeded to shove the motion through. For his part, Clr. Geoff Meggs celebrated the occasion with this classic observation: "In my view, and I've said this to staff who ask about it and to members of the public: The consultation was the election and this is the delivery
What Is STIR Worth to a Developer? Try Sextupled Profits ...
A June 2010 pro forma for the Maxine's development proposal at Bidwell and Davie, calculated by a professional and outsider, indicates a return to the developer of between 83 per cent and 119 per cent. (Normal range of profit is 15 to 20 per cent.) Even if the figures arrived at in that arms-length attempt at financial analysis are way off-base, the giveaway nature of the STIR program still stands out sharp and clear. Following the contents of the STIR proposal, this assurance from the report that went to council reads like nothing more than cynical blabber: "Staff will review and evaluate the developers’ pro-forma to ensure that any STIR Program incentives will not provide undue profit".
End of Story?
Contradictions pervade the sorry story of STIR. Three stand out.
•Economic – Public money gets called amenity while it is being tucked into the pockets of developers.
•Political – Mayor Gregor Robertson sneers at informed questioners, calls them NPA hacks, and all the while he and Vision are implementing a developer-friendly project cooked up by an NPA-appointed Vancouver City Planning Commission.
•Social – Vancouver residents (owners and renters alike) are forced to forego the developer levies that create livability in return for nothing except the scam of so called market-affordable rental housing.
In a 24 August 2010 blog posting (comment #29 under State of Vancouver Takes a Vacation), STIR watcher Bill McCreery suggests that construction finances under STIR do not compute, and that developers are starting to pull back. To the extent that this proves to be the case, the story of STIR stays ugly. Despite injection of substantial public funding into market rental construction, Vancouver City Council has cooked up a plan that may not even work.
Further Reading
H. Craig Davis. "Is the Metropolitan Vancouver economy uncoupling from the rest of the Province?" BC Studies 98 (summer 1993) 3-19
Vancouver as a City-Region in the Global Economy (March 2010)
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Comments
Amazing indepth story!
Fantastic Joseph.
So much important information that most Vancouverites know nothing about.
Thank you so much for taking the time to put this together.
Tami Starlight
DNC/VMC
And thank you Dawn!
Almost forgot.
Thank you Dawn for posting this!
Excellent review Joseph.
The total taxpayer subsidy of the Maxine's /Davie & Bidwell STIR project is $149,927 per unit when DCL, CAC, property taxes relief & land lift are included! That's a total revenue loss for the City of $7,346,434. READ INCREASED PROPERTY TAXES. That's 1 project. Multiply that times, say 20 projects over the City = $146,928,680. Now, that will really increase everyone's taxes which as you rightly point out increases rents for those who can least afford it.
Stir Project
The NPA during its glory days managed to persuade both developers and neighborhoods to support it on the promise that if elected they would protect each from the other. Under Sam Sullivan, however, the NPA decided that it would turn neighborhoods over to developers to pursue densification. It abandoned any pretense of trying to balance interests.
Believing they should not be rewarded at the polls and assuming that Robertson and VISION could not be worse than Sullivan and the NPA, the voters rallied and threw the bastards out.
Now every neighborhood in the City realizes that they are worse.
Joseph Jones' story of the STIR program reveals the abject intellectual, political and moral bankruptcy of the Robertson - VISION regime and the flakes who are financing and advising them.