Vancouver’s rental vacancy is critically low and it’s created opportunity for the building community to capitalize on the need for purpose-built rental buildings. However, according to Cressey Development Group’s VP of Development Jason Turcotte, builders can’t do it all on their own.
“You can’t just go in and pay full market value and only develop rentals, so you need incentives,” he said. “Government incentives are critical because the highest value for that land will always be condominiums. It’s an easier route for developers, so it generates higher land value.”
REMAX sales agent Ron Antalek agrees government needs to incentivize purpose-built rental developments, otherwise the Lower Mainland is staring down a tenebrous future.
“The land costs in Vancouver are quite high and purpose-built rentals compete with market housing,” echoed Antalek. “The government should create incentives for the private sector to build purpose-built rentals, and a couple of ways of doing that are by offering discounted mortgage financing rates and discounted development cost charges.”
The SkyTrain has also been extended, and that has presented a partial solution to builders. Not only does the SkyTrain reach as far as the airport and Richmond, it stretches eastward to Burnaby and Coquitlam.
“There is lower priced land on the SkyTrain line which is being extended, and that can also extend the supply of land required for purpose-built rentals where people are wanting and needing a connection with Vancouver City and the downtown core," said Antalek.
Given the meagre incentives for the development community to construct rental buildings, Vancouver hasn’t seen many new purpose-built rentals since about the 1980s. However, Cressey is bucking the trend, in large part because it’s identified acute demand for rental abodes in Canada’s most expensive real estate market.
“We’ve completed several rental buildings in the last 15 years, but at no time has the percentage of purpose-built rental projects in our pipeline been as high as it is right now," said Turcotte. "About 45% of our projects in the development stage—to be built this year or next—are purpose-built rental buildings in a variety of locations.”
Cressey is building Hensley in West Coquitlam, a project comprised of two towers—one of which will be entirely composed of rental units. In Vancouver, the company is building another purpose-built rental building called Wilkinson Steel, with units ranging from studios to three-bedrooms.
It’s also being built under a municipal incentive program called Rental 100, which signifies government acknowledgement that it will have to play a role in reducing pressure on the vacancy rate.
“We saw for a long time that economic conditions weren’t suitable for rental developments, and that wasn’t unique to Cressey,” said Turcotte. “It was a period of time where we saw very little of that development happening. More recently, we’ve seen conditions become more viable, and that includes a number of factors. Rental development is extremely sensitive to interest rates and the rents have certainly increased a lot. The financial stars, to a degree, have aligned for rental development to be feasible and a viable business decision.”