Infill Housing Analysis

Transcription

1 City of Victoria Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis Urbanics Consultants Ltd.

2 Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis Victoria, B.C. Prepared for: City of Victoria June, 2018 Prepared by: Urbanics Consultants Ltd. Suite Granville Street, Vancouver, B.C., V6C 1T2 ii

3 Executive Summary Urbanics Consultants Ltd. has been retained by the City of Victoria to assess the potential value of properties under various infill housing options and tenure structures in the Fairfield and Gonzales neighbourhoods in the City. In particular, the study examines residual land values 1 and the financial viability of several infill housing options, including Duplexes, Triplexes, Fourplexes, Sixplexes and Eightplexes, for both rental and for-sale units. The study also examines the sensitivity of potential residual land value to the changes in market characteristics (revenues and construction costs) as well as the impact of higher density infill housing on the potential value of land. In addition, it compares the financial viability of converting existing single-family homes to duplexes (through lifting) to new-built duplexes. To address these questions, we: Created twenty-six distinct housing options and two tenure types (rental and owner-occupation), including duplexes with suites, triplexes, fourplexes and other multi-unit development (e.g. 6-8 plex) ranging up to 1.0 FAR. Identified rental and sales revenues associated with each of the above-mentioned housing types. Obtained costs of developing (Class D Estimates) the above-mentioned twenty-six housing and tenure options from Ross Templeton and Associates. Estimated the residual land values based on the costs and revenues associated with each of the housing and tenure options. The analysis reflects market conditions as of May The analysis finds that: Allowing the proposed infill housing types is not likely to increase the cost of singledetached lots in the Fairfield and Gonzales neighbourhoods. The reader should note that: o higher density rental infill housing types are financially unviable; and, o higher density for-sale infill housing types do not result in significantly high residual land values as compared to single-detached houses. 1 Residual land value: It is the maximum amount that a developer would pay for a plot of land today. It is estimated as the residual value of a development project and is calculated by subtracting all the development costs (hard costs, soft costs, financing costs and developers profit) from the potential revenues of a proposed development. iii

4 All of the new-built for-sale infill housing types (Duplexes, Triplexes, Fourplexes, Sixplexes and Eightplexes) are financially viable. In contrast none of the new-built rental infill housing types are financially viable. Duplex conversion rental housing types are the only rental housing types that are likely to be financially viable; especially if their redevelopment is not impacted by added costs of removal of hazardous materials and environmental contamination. There are a limited number of single-family lot sales (properties selling for land value in the MLS) in the Fairfield and Gonzales neighbourhoods. There were only four single-family lot sales during v 2016 Sept 2017 (there were no lot sales during Jan to June 2018). These sales ranged from $75 $178 per sq. ft. of land, with the higher end of the sales price ($170 + per sq. ft.) being achieved in lots smaller than 4,000 sq. ft. The reader should also note that currently there are three development ready single-family lots available for sale in the Fairfax East neighbourhood 2, which are priced from $161 per sq. ft. to $174 per sq. ft. of land. After adjusting for costs associated with demolition, site services and on-site development work, the suggested list price for these lots is expected to be in the range of $153 per sq. ft. to $165 per sq. ft. of land. This is only marginally higher than the price suggested by local realtors for single-family lots ($850,000 for a 6,000 sq. ft. lot or $142 per sq. ft. of land) in the neighbourhoods. Based on the sales evidence, MLS listing price and discussions with local realtors and developers, we believe that single-family lots priced at or below the $142 per sq. ft. of land (threshold land price for redevelopment) are more likely to be redeveloped. Sales price of recent (Oct 2017 April 2018) single-family homes (properties with improvements on lots ranging from 5,000 sq. ft. to 8,000 sq. ft.) ranged from $124 to $363 per sq. ft. of land 3 (Lot area) with an average median sales price of $183 2 Single-family lots: Single-family lots available for sale in the Fairfax East neighbourhood include 2003 Romney Rd., 2005 Romney Rd. and 2007 Romney Rd. These lots have been listed from $161 per sq. ft. to $174 per sq. ft. of land. However, since the listing price is for development ready lots, it needs to be adjusted for costs associated with demolition, site services and on-site development work. After adjusting for the above-mentioned costs, the suggested list price for a comparable tear down property is expected to be in the range of $153 per sq. ft. to $165 per sq. ft. of land. 3 Single-family home sales: During Oct 2017 April 2018 there were a total of 27 single-family home sales in the two neighbourhoods as per the local MLS. Of the total, only 19 sales were of lots with sizes ranging from 5,000 sq. ft. to 8,000 sq. ft. These single-family home sales included existing improvements and ranged from $124 to $363 per sq. ft. of land (lot area) with an average median sales price of $183 per sq. ft. of land. Only one sale was priced below $142 per sq. ft. of land, eight sales were priced from $142 per sq. ft of land to $183 per sq. ft of land and the remaining ten sales are priced higher than the $183 per sq. ft. of land. iv

5 per sq. ft. of land. Nearly all the sales, except one, were priced above $142 per sq. ft. of land, suggesting that the single-family homes were less likely to have been bought for redevelopment. Also, the single-family homes that were sold at or below $183 per sq. ft. of land were older single-family units (built in ) with deferred maintenance that were more suited for duplex conversion rather than demolition and redevelopment. Thus, the proposed infill housing types are not expected to result in rapid change/loss of the existing single-family homes. Developers are unlikely to compete with homebuyers for a character home, especially for a home with significant use value. Developers are more likely to pay for a home that requires significant improvements and is priced at the lowest end of the market. The reader should note that there will always be a segment of the single-family homes that will be redeveloped on account of the following: o Quality of the improvements o Underutilization of lot, i.e. low built up as compared to allowed FAR o Functional obsolescence because of outdated designs and layouts New purpose built rental housing is not financially viable based on the market rental rates and the anticipated costs of construction. As a result, none of the other higher density rental housing types are likely to be developed as the associated residual land values for these types is significantly below the market value for comparable lots (i.e. $142 per sq. ft of land). House conversions for added rental housing may be attractive to current owners, whether owner-occupiers or landlords, but not to developers/investors. This is primarily because current market rental rates are not high enough to make such conversion rental housing desirable for most developers or investors. Moreover, these housing types do not provide the necessary efficiency of scale required by investors and owners and operators of rental housing. Allowing a duplex to have suites (where duplexes are already permitted) is likely to make rezoning applications for duplexes more likely. This is primarily because a lot that allows for a mortgage helper is likely to be more desirable to homeowners looking for a rental income. In addition, from a residual land value perspective, a lot that allows for a duplex to have suites is anticipated to be worth $4 per sq. ft. (a sq. ft. lot is worth $24,000 more than a standard for-sale duplex lot) higher than a standard for-sale duplex lot. The reader should however note that this represents only 2% of the residual value of the standard duplex lot (i.e. $1,180,200 at $197 per sq. ft. for a 6,000 sq. ft. lot). House conversion to duplex or multiple units for-sale and for rental is an attractive option compared to demolition and new construction. This is primarily because there is a significant cost saving associated with using the existing improvements. However, the reader should note that these cost savings might be easily impacted v

6 by additional costs related to any adverse construction issue, as well as the cleanup and disposal of hazardous materials and environmental contamination. The reader should note that the Proposed Fairfield and Gonzales Neighbourhood Housing Options Analysis has several limitations, including: The analysis was undertaken by the consultant during the month of May, 2018 and reflects the real estate market conditions during the month. The rental rates, sales prices and cost estimates might change over time and may lead to completely different residual land values for the subject. The study uses Class D Cost Estimates (Order of Magnitude) which provide a highlevel range of costs (i.e. +/- 25%), which is indicative of the relative financial strength of each of the housing options. The study does not examine supply and demand for each of the residential types. The reader should note that financial viability of a housing type does not indicate its demand. The study does not examine whether the proposed housing types can be achieved on the suggested 6,000 sq. ft. and 7,000 sq. ft. lots. The Gross Building Area and the FAR for the analysis was provided by the City. The assumptions related to capitalization rates, discount rate, interest costs and loan terms for determining the residual land value are based on the consultant s best estimates. If these or any of the other assumptions noted in this study are found to be materially different in a future inquiry, then the study s findings will need to be re-examined. vi

7 Table of Contents Executive Summary... iii List of figures... viii List of tables... viii 1 Introduction Location Methodology Assumptions Report structure Limitations Findings Costs and revenues Residual land value Impact of higher density on potential land value Viability of converting existing single-family homes Rental housing types Duplex-A MR #2: Duplex-B MR #3: Duplex-A-Conversion SFD to Duplex MR #4: Duplex-B- Conversion SFD to Duplex MR #5: Triplex-A MR #6: Triplex-B MR #7: Fourplex-A MR #8: Fourplex-B MR #9: Sixplex- A MR #10: Sixplex- B MR #11: Sixplex- C MR #12: Eightplex-A MR #13: Eightplex-B For-sale housing types MS #1: Duplex-A MS #2: Duplex-B MS #3: Duplex-A-Conversion SFD to Duplex MS #4: Duplex-B- Conversion SFD to Duplex MS #5: Triplex-A MS #6: Triplex-B MS #7: Fourplex-A MS #8: Fourplex-B MS #9: Sixplex- A MS #10: Sixplex- B MS #11: Sixplex- C MS #12: Eightplex-A MS #13: Eightplex-B vii

8 List of figures Figure 1: Location Map... 2 Figure 2: Rental housing types: Comparison of cost and revenue per sq. ft. GBA... 9 Figure 3: For-sale housing types: Comparison of cost and revenue per sq. ft. GBA Figure 4: Residual land value (per sq. ft. land) with rental housing types Figure 5: Residual land value (per sq. ft. land) with for-sale housing types Figure 6: FAR and Residual Land Value: Rental housing types Figure 7: FAR and Residual Land Value: For-sale housing types List of tables Table 1: Development assumptions: Duplex-A (Rental) Table 2: Residual land value: Duplex-A (Rental) Table 3: Development assumptions: Duplex-B (Rental) Table 4: Residual land value: Duplex-B (Rental) Table 5: Development assumptions: Duplex-A-Coversion (Rental) Table 6: Residual land value: Duplex-A-Conversion (Rental) Table 7: Development assumptions: Duplex-B-Conversion (Rental) Table 8: Residual land value: Duplex-B-Conversion (Rental) Table 9: Development assumptions: Triplex-A (Rental) Table 10: Residual land value: Triplex-A (Rental) Table 11: Development assumptions: Triplex-B (Rental) Table 12: Residual land value: Triplex-B (Rental) Table 13: Development assumptions: Fourplex-A (Rental) Table 14: Residual land value: Fourplex-A (Rental) Table 15: Development assumptions: Fourplex-B (Rental) Table 16: Residual land value: Fourplex-B (Rental) Table 17: Development assumptions: Sixplex-A (Rental) Table 18: Residual land value: Sixplex-A (Rental) Table 19: Development assumptions: Sixplex-B (Rental) Table 20: Residual land value: Sixplex-B (Rental) Table 21: Development assumptions: Sixplex-C (Rental) Table 22: Residual land value: Sixplex-C (Rental) Table 23: Development assumptions: Eightplex-A (Rental) Table 24: Residual land value: Eightplex-A (Rental) Table 25: Development assumptions: Eightplex-B (Rental) Table 26: Residual land value: Eightplex-B (Rental) Table 27: Development assumptions: Duplex-A (For-sale) Table 28: Residual land value: Duplex-A (For-sale) Table 29: Development assumptions: Duplex-B (For-sale) Table 30: Residual land value: Duplex-B (For-sale) Table 31: Development assumptions: Duplex-A-Conversion (For-sale) Table 32: Residual land value: Duplex-A-Conversion (For-sale) Table 33: Development assumptions: Duplex-B-Conversion (For-sale) Table 34: Residual land value: Duplex-B-Conversion (For-sale) Table 35: Development assumptions: Triplex-A (For-sale) viii

9 Table 36: Residual land value: Triplex-A (For-sale) Table 37: Development assumptions: Triplex-B (For-sale) Table 38: Residual land value: Triplex-B (For-sale) Table 39: Development assumptions: Fourplex-A (For-sale) Table 40: Residual land value: Fourplex-A (For-sale) Table 41: Development assumptions: Fourplex-B (For-sale) Table 42: Residual land value: Fourplex-B (For-sale) Table 43: Development assumptions: Sixplex-A (For-sale) Table 44: Residual land value: Sixplex-A (For-sale) Table 45: Development assumptions: Sixplex-B (For-sale) Table 46: Residual land value: Sixplex-B (For-sale) Table 47: Development assumptions: Sixplex-C (For-sale) Table 48: Residual land value: Sixplex-C (For-sale) Table 49: Development assumptions: Eightplex-A (For-sale) Table 50: Residual land value: Eightplex-A (For-sale) Table 51: Development assumptions: Eightplex-B (For-sale) Table 52: Residual land value: Eightplex-B (For-sale) ix

10 1 Introduction Urbanics Consultants Ltd. has been retained by the City of Victoria to assess the potential value of properties under various infill housing options and tenure structures in the Fairfield and Gonzales neighbourhoods in the City. In particular, the study has the following objectives: To examine the residual land value and the financial viability of the following infill housing options for both rental and for-sale units: o Duplexes; o Duplexes with suites; o Triplexes; o Fourplexes; and, o 6 8 plexes. To examine the sensitivity of potential residual land value to the changes in market characteristics (revenues, construction costs and financing costs). To examine the impact of higher density on the potential value of land; Examine the desirability of conversion of existing homes (through lifting) as compared to the demolition and redevelopment (this is only possible if a cost consultant is used as online cost services cannot provide upgrade costs). 1.1 Location The study area includes two residential neighbourhoods in the southeast quadrant of the City of Victoria, namely: Fairfield: The neighbourhood is bounded to the north by the Rockland and Harris Green neighbourhoods and the Gonzales neighbourhood to the east. The neighbourhood is one of the largest, most populated and the oldest neighbourhood in Victoria. It is characterized by strong residential character with mature streetscape with a mix of low-rise apartments and single-family homes (Fairfield Community Profile Oct 2016). Gonzales: The neighbourhood is bounded to the north by the Rockland neighbourhood, to the west by the Fairfield neighbourhood and the District of Oak Bay to east. The neighbourhood is almost entirely residential and has the highest percentage of homeownership (70%) and the lowest density in the City (Gonzales Community Profile Oct 2016). 1

11 Figure 1: Location Map 2

12 1.2 Methodology The study uses the following methodology: Create development scenarios: The study created thirteen housing options based on the following housing types: o Duplexes with suites o Triplexes (Gonzales) o Fourplexes (Fairfield and Gonzales) o Other multi-unit development (e.g. 6-8 plex) up to 1.0 FSR o The development scenarios include information on Gross Buildable Area 4 (GBA), net saleable and net rentable area, unit-mix, unit-size, and parking requirements. Identify rental and sales revenues: A market survey of the sales and rental revenues associated with comparable housing types. The main objective is to identify the revenues associated with the following types of housing: o Fee simple condominium o Market rental housing Identify of costs of development: The costs of construction for each of the housing option were obtained from Ross Templeton and Associates. The cost estimates are Class D Estimates (Order of Magnitude) which provide a high-level range of costs (i.e. +/- 25%). Estimate residual land value: The the residual land value is estimated by using the potential revenues (Task 2) and potential costs (Task 3), as well as the estimated finance costs (construction and land) and developer profits associated with each of the development scenarios. Findings and recommendations: The section provides the main findings from the analyses and identifies the housing options with the highest residual land values. In addition, it will examine the impact of higher density on the potential value of land and the desirability of conversion of existing homes (through lifting) as compared to the demolition and redevelopment. 4 Gross Building Area: It is the total floor area of a building, both above and below ground. It is measured from the exterior faces of a building or structure. It does not include any above or below grade parking area in this analysis. 3

13 1.3 Assumptions The study relies on numerous assumptions, including: Floor Area Ratio: The study examines the thirteen housing options based on discussions with the City s Planning Staff. The actual FAR s and measured FAR s were arrived at in consultation with the City. Parking requirements: Parking requirements were provided by the City. These include: o Duplexes with suites: 1 parking space per unit in front or back yard or within attached or detached garage. o Triplexes: 1 parking space per unit either on surface or detached garage. o Fourplexes: 1 parking space per unit either on surface or detached garage. o 6-8 plex: 1 parking space per unit either on surface or detached garage, could be tuck under or half-basement. Revenues: The revenue assumptions include: o Market-rate rental housing: Rental revenue assumptions are based on a survey of comparable rental units on Craigslist. The rents are capitalized at 3.5 percent for the rental housing types. The suggested average rent for market-rate rental for comparable housing types ranges from $2.10 per sq. ft. to $2.35 per sq. ft., depending on the size, location and condition of the unit. The analysis uses an average rent of $2.23 per sq. ft. o For-sale condominium: Sale price assumptions are based on the sales of comparable housing (new-builds and resales) as well as discussions with the local developers. Comparable sales in 2018 suggest a price range of $700 per sq. ft. to $800 per sq. ft., depending on the location and quality of the housing. However, further discussions with the local developers suggest that a price range of $750 per sq. ft. to $800 per sq. ft. for newly-built comparable housing would be more suitable. The analysis uses an average value of $775 per sq. ft. Acquisition for conversion: During Oct 2017 April 2018 there were a total of 19 singlefamily sales with lot sizes ranging from 5,000 sq. ft. to 8,000 sq. ft. These single-family sales included existing improvements and ranged from $124 to $363 per sq. ft. of land (lot area) with a median sales price of $183 per sq. ft. of land. Only one sale was priced below $142 per sq. ft. of land, eight sales were priced from $142 per sq. ft of land to $183 per sq. ft of land and the remaining ten sales are priced higher than the $183 per sq. ft. of land. The analysis assumes that most conversion activity is likely to occur in homes priced from $142 per sq. ft. of land and $ 183 per sq. ft. of land. Finance costs: Finance costs and are based on industry best practices and the prevailing interest rates. 4

14 Developer profit: Developer profit (15 percent) is based on typical profits desired in the development industry. 1.4 Report structure The study examines thirteen housing options in two sections (Section 3 Section 4). These sections also correspond to the two tenure types, namely: Market-rate rental housing: Market-rate un-subsidized rental housing types for individuals and households. o MR #1: Duplex-A: Standard duplex (new-build) is assumed to have two units with 2 parking spaces. It is assumed to have a 6,000 sq. ft. lot and a GBA (Gross Building Area) of 4,090 sq. ft. (including 1,075 sq. ft of below grade built-up space). o MR #2: Duplex-B: The modified duplex (new-build) housing type includes two units with two additional suites with 2 parking spaces. It is assumed to have a 6,000 sq. ft. lot area with a GBA of 4,800 sq. ft. (including 1,785 sq. ft of below grade built-up space). o MR #3: Duplex-A-Conversion SFD to Duplex: Conversion Duplex-A is a result of renovation of an existing single-family home to Duplex A. Similar to Duplex A, this housing type is assumed to have a 6,000 sq. ft. lot area and a GBA (Gross Building Area) of 4,090 sq. ft. (including 1,075 sq. ft of below grade built-up space). o MR #4: Duplex-B- Conversion SFD to Duplex: Conversion Duplex-B is a result of renovation of an existing single-family home to Duplex B. Similar to Duplex B, this housing type includes two units with two additional suites and 2 parking spaces. It is assumed to have a 6,000 sq. ft. lot area with a GBA of 4,800 sq. ft. (including 1,785 sq. ft of below grade built-up space). o MR #5: Triplex-A: Triplex-A (new-build) is assumed to have three units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 3,900 sq. ft. and three parking spaces. o MR #6: Triplex-B: Triplex-B (new-build) is assumed to have three units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 5,250 sq. ft. and three parking spaces. o MR #7: Fourplex-A: Fourplex-A (new-build) is assumed to have four units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 4,500 sq. ft. and four parking spaces. o MR #8: Fourplex-B: Fourplex-B (new-build) is assumed to have four units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 5,250 sq. ft. and four parking spaces. o MR #9: Sixplex- A: Sixplex-A (new-build) is assumed to have six units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 6,000 sq. ft. including 1,500 sq. ft. of below-grade space and six parking spaces. 5

15 o o o o MR #10: Sixplex- B: Sixplex-B (new-build) is assumed to have six units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 5,340 sq. ft. and six parking spaces. MR #11: Sixplex- C: Sixplex-C (new-build) is assumed to have six units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 6,230 sq. ft. and six parking spaces. MR #12: Eightplex-A: Eightplex-A (new-build) is assumed to have eight units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 6,000 sq. ft. and eight parking spaces. MR #13: Eightplex-B: Eightplex-B (new-build) is assumed to have eight units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 7,000 sq. ft. and eight parking spaces. For-sale housing types: For-sale housing types, unlike rental housing types, are developed for owner-occupancy and are assumed to have superior finishes. The units are owned individually and the common areas of the property, such as hallways, walkways, laundry rooms, etc. are jointly owned. o MS #1: Duplex-A: Standard duplex (new-build) is assumed to have two units with 2 parking spaces. It is assumed to have a 6,000 sq. ft. lot and a GBA (Gross Building Area) of 4,090 sq. ft. (including 1,075 sq. ft of below grade built-up space). o MS #2: Duplex-B: The modified duplex (new-build) housing type includes two units with two additional suites with 2 parking spaces. It is assumed to have a 6,000 sq. ft. lot area with a GBA of 4,800 sq. ft. (including 1,785 sq. ft of below grade built-up space). o MS #3: Duplex-A-Conversion SFD to Duplex: Conversion Duplex-A is a result of renovation of an existing single-family home to Duplex A. Similar to Duplex A, this housing type is assumed to have a 6,000 sq. ft. lot area and a GBA (Gross Building Area) of 4,090 sq. ft. (including 1,075 sq. ft of below grade built-up space). o MS #4: Duplex-B- Conversion SFD to Duplex: Conversion Duplex-B is a result of renovation of an existing single-family home to Duplex B. Similar to Duplex B, this housing type includes two units with two additional suites and 2 parking spaces. It is assumed to have a 6,000 sq. ft. lot area with a GBA of 4,800 sq. ft. (including 1,785 sq. ft of below grade built-up space). o MS #5: Triplex-A: Triplex-A (new-build) is assumed to have three units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 3,900 sq. ft. and three parking spaces. o MS #6: Triplex-B: Triplex-B (new-build) is assumed to have three units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 5,250 sq. ft. and three parking spaces. o MS #7: Fourplex-A: Fourplex-A (new-build) is assumed to have four units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 4,500 sq. ft. and four parking spaces. 6

16 o MS #8: Fourplex-B: Fourplex-B (new-build) is assumed to have four units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 5,250 sq. ft. and four parking spaces. o MS #9: Sixplex- A: Sixplex-A (new-build) is assumed to have six units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 6,000 sq. ft. including 1,500 sq. ft. of below-grade space and six parking spaces. o MS #10: Sixplex- B: Sixplex-B (new-build) is assumed to have six units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 5,340 sq. ft. and six parking spaces. o MS #11: Sixplex- C: Sixplex-C (new-build) is assumed to have six units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 6,230 sq. ft. and six parking spaces. o MS #12: Eightplex-A: Eightplex-A (new-build) is assumed to have eight units on a 6,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 6,000 sq. ft. and eight parking spaces. o MS #13: Eightplex-B: Eightplex-B (new-build) is assumed to have eight units on a 7,000 sq. ft. lot. It is assumed to have a GBA (Gross Building Area) of 7,000 sq. ft. and eight parking spaces. The rest of the study provides the findings related to the suggested residual land values for each of the infill housing options. 7

17 1.5 Limitations The reader should note that the analysis relies on a number of assumptions, including: The analysis was undertaken by the consultant during the month of May, 2018 and reflects the real estate market conditions during the month. The rental rates, sales prices and cost estimates might change over time and may lead to completely different residual land values for the subject. The study uses Class D Cost Estimates (Order of Magnitude) which provide a high-level range of costs (i.e. +/- 25%). As a result, the estimates of residual land values are also expected to be high-level and indicative of the relative financial strength of each of the housing option. The study does not examine supply and demand for each of the residential types. The reader should note that financial viability of a housing type does not indicate its demand. The study does not examine whether the proposed housing types can be achieved on the suggested 6,000 sq. ft. and 7,000 sq. ft. lots. The Gross Building Area and the FAR for the analysis was provided by the City. The assumptions related to capitalization rates, discount rate, interest costs and loan terms for determining the residual land value are based on the consultant s best estimates. If these or any of the other assumptions noted in this study are found to be materially different in a future inquiry, then the study s findings will need to be re-examined. 8

18 Duplex-A Duplex-B Duplex-A- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Triplex-A Triplex-B Fourplex-A Fourplex-B Sixplex- A Sixplex- B Sixplex- C Eightplex-A Eightplex-B $230 $262 $315 $355 $355 $359 $378 $381 $396 $398 $393 $412 $407 $544 $544 $544 $544 $544 $544 $544 $544 $516 $516 $516 $516 $516 Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis 2 Findings 2.1 Costs and revenues Rental housing product: Comparison of cost psf GBA to revenue psf GBA (excluding land costs and developers profit) $600 $500 $400 $300 $200 $100 $- Cost psf GBA Revenue psf GBA Figure 2: Rental housing types: Comparison of cost and revenue per sq. ft. GBA Rental infill housing types: Based on assumptions related to development costs and revenues (excluding land costs and developer profit) for each of housing types, the analysis finds that: The rental housing types are expected to display a higher cost per sq. ft. GBA with increase in density, from $315 per sq. ft. GBA for Duplex-A to $407 per sq. ft. GBA for Eightplex-B. The rental revenue per sq. ft. GBA for the rental housing types is expected to decline with increase in density from $544 per sq. ft. GBA for Duplex-A to $516 per sq. ft. GBA for Eightplex-B. The conversion housing types Duplex-A and Duplex-B are assumed to cost roughly $230 per sq. ft. GBA and $262 per sq. ft. of GBA based on assumptions related to possible costs of conversion. These costs are however rough approximations and might be different for specific properties. 9

19 Duplex-A Duplex-B Duplex-A- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Triplex-A Triplex-B Fourplex-A Fourplex-B Sixplex- A Sixplex- B Sixplex- C Eightplex-A Eightplex-B $250 $281 $357 $396 $398 $400 $420 $423 $437 $439 $433 $453 $446 $736 $736 $736 $736 $736 $775 $775 $775 $775 $775 $775 $775 $775 Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis $900 For-sale housing product: Comparison of cost psf GBA to revenue psf GBA (excluding land costs and developers profit) $800 $700 $600 $500 $400 $300 $200 $100 $- Cost psf GBA Revenue psf GBA Figure 3: For-sale housing types: Comparison of cost and revenue per sq. ft. GBA For-sale infill housing types: Based on assumptions related to development costs and revenues (excluding land costs and developer profit) for each of the housing types, the analysis finds that: The for-sale housing types are expected to display a higher cost per sq. ft. GBA with increase in density, from $357 per sq. ft. GBA for Duplex-A to $446 per sq. ft. GBA for Eightplex-B. The revenue per sq. ft. GBA for the for-sale housing types is expected to decline with increase in density from $775 per sq. ft. GBA for Duplex-A to $736 per sq. ft. GBA for Eightplex-B. The conversion housing types Duplex-A and Duplex-B are assumed to cost roughly $250 per sq. ft. GBA and $281 per sq. ft. of GBA based on assumptions related to possible costs of conversion. Overall For-sale infill housing types display significantly higher revenues as well as costs as compared to the comparable rental housing types. 10

20 Duplex-A Duplex-B Duplex-A- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Triplex-A Triplex-B Fourplex-A Fourplex-B Sixplex- A Sixplex- B Sixplex- C Eightplex-A Eightplex-B Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis 2.2 Residual land value Residual Land Value (psf Land): Rental housing product $ 250 $ 250 $ 200 $ 150 $ 100 $ 50 $ 196 $ 186 $ 154 $ 156 $ 133 $ 129 $ 121 $ 115 $ 96 $ 101 $ 89 $ 82 $ 74 $ 66 $ 71 $ 69 $ 59 $ 60 $ 58 $ 35 $ 15 $ 14 $ 79 $ 41 $ 69 $ 73 $ 35 $ 39 $ 42 $ 25 $ 200 $ 183 $ 150 $ 142 $ 100 $ 47 $ 50 $ 31 $ 0 $ 0 -$ 17 -$ 19 -$ 50 -$ 41 -$ 39 -$ 34 -$ 50 -$ 100 Low Cost/ High Revenue High Cost/ Low Revenue Median Single-Family Homes Sales Price -$ 73 -$ 79 Medium Cost/ Medium revenue Threshold Land Price for Redevelopment -$ 100 Figure 4: Residual land value (per sq. ft. land) with rental housing types tes: Threshold Land Price for Redevelopment: The threshold land price at $142 per sq. ft. of land is the price below which single family lots and single-family homes are more likely to be redeveloped. Median Single-Family Homes Sales Price: It is the median sales price of all comparable single-family homes (with improvements on lots ranging from 5,000 sq. ft. to 8,000 sq. ft.) sold during Oct 2017 April Rental infill housing types: After accounting for finance costs (construction and land) and developer profit (15% of revenue), the study finds the following: The highest residual land values (Medium Cost and Revenue) are displayed among the Duplex A and B Conversion housing types ($154 per sq. ft. land and $156 per sq. ft. land respectively). These values include the existing improvements on the property and do not include demolition costs which are included in the other housing types. House conversions for added rental housing may be attractive to current owners, whether owner-occupiers or landlords, but not to developers/investors. This is primarily because current market rental rates are not high enough to make such conversion rental housing desirable for most developers or investors. Moreover, these housing types do not provide the necessary efficiency of scale required by investors and owners and operators of rental housing. 11

21 Duplex-A Duplex-B Duplex-A- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Triplex-A Triplex-B Fourplex-A Fourplex-B Sixplex- A Sixplex- B Sixplex- C Eightplex-A Eightplex-B Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis For new-built infill rental housing types the residual land values (Medium Cost and Revenue) are highest for Duplex A and B at $96 per sq. ft. land and $82 per sq. ft. land respectively. All new-built rental infill housing types are expected to result in significantly lower residual land values (with the lowest among eightplex housing types) as compared to market suggested land prices. Overall, the suggested land values associated with new purpose built rental housing types are lower than the threshold land price for redevelopment ($142 per sq.ft. of land), which makes the rental infill housing types financially unviable for investors and developers. Residual Land Value: For-sale housing product $ 350 $ 300 $ 250 $ 200 $ 150 $ 100 $ 50 $ 331 $ 350 $ 301 $ 293 $ 300 $ 270 $ 255 $ 247 $ 242 $ 234 $ 240 $ 229 $ 228 $ 234 $ 250 $ 216 $ 215 $ 213 $ 218 $ 197 $ 201 $ 200 $ 186 $ 181 $ 200 $ 171 $ 162 $ 169 $ 159 $ 164 $ 165 $ 172 $ 160 $ 183 $ 154 $ 142 $ 124 $ 126 $ 124 $ 120 $ 142 $ 150 $ 104 $ 110 $ 102 $ 110 $ 100 $ 50 $ 0 $ 0 Low Cost/ High Revenue High Cost/ Low Revenue Median Single-Family Homes Sales Price Medium Cost/ Medium revenue Threshold Land Value for Redevelopment Figure 5: Residual land value (per sq. ft. land) with for-sale housing types te: Threshold Land Price for Redevelopment: The threshold land price at $142 per sq. ft. of land is the price below which single family lots and single-family homes are more likely to be redeveloped. Median Single-Family Homes Sales Price: It is the median sales price of all comparable single-family homes (with improvements on lots ranging from 5,000 sq. ft. to 8,000 sq. ft.) sold during Oct 2017 April For-sale infill housing types: After accounting for finance costs and developer profit, the study finds the following: The highest residual land values (Medium Cost and Revenue) are displayed among the Duplex A and B Conversion housing types ($270 per sq. ft. land and $293 per sq. ft. land 12

22 respectively). However, the reader is advised to use these values with extreme caution as these values are expected to be vastly different for a specific conversion project based on the costs of remediating hazardous materials and contamination. For new-built infill for-sale housing types the residual land values are highest for Duplex A and B at $197 per sq. ft. land and $201 per sq. ft. land respectively. Further, allowing a duplex to have suites (where duplexes are already permitted), i.e. Duplex B, is likely to make rezoning applications for duplexes more likely. This is primarily because a lot that allows for a mortgage helper is likely to be more desirable to homeowners looking for a rental income. In addition, from a residual land value perspective, a lot that allows for a duplex to have suites is anticipated to be worth $4 per sq. ft. (a sq. ft. lot is worth $24,000 more than a standard for-sale duplex lot) higher than a standard for-sale duplex lot. The reader should however note that this represents only 2% of the residual value of the standard duplex lot (i.e. $1,180,200 at $197 per sq. ft. for a 6,000 sq. ft. lot). All the other higher density for-sale infill housing types are expected to result in residual land values (Medium Cost and Revenue) in the range of $159 per sq. ft. land to $186 per sq. ft. land. All of these infill housing types are financially viable and can be expected to result in the redevelopment of some aged, under-developed and functionally obsolete single-family homes. However, rapid change/loss of the existing single-family homes in the Fairfield and Gonzales neighbourhoods is not anticipated at this point. This is primarily because the residual land values for most of the infill products is still lower than the median single-family homes sales prices, i.e. most of the single-family homes are priced above the suggested residual land values for the infill products. Overall, the suggested residual land values are higher than the threshold land value for redevelopment ($145 per sq. ft. of land) but lower than the median single-family home sales price ($183 per sq. ft. of land), which makes for-sale infill housing types significantly more financially viable for investors and developers, as compared to the rental infill housing types. 13

23 2.3 Impact of higher density on potential land value FAR and Residual Land Value (psf Land): Rental housing product $ $ 160 $ 140 $ 154 $ $ 120 $ 100 $ 80 $ 60 $ 40 $ 20 $ $ 96 $ 82 $ $ 74 $ 60 $ 58 $ 41 $ 35 $ 39 $ 25 $ Duplex-A Duplex-B Duplex-A- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Triplex-A Triplex-B Fourplex-A Fourplex-B Sixplex- A Sixplex- B Sixplex- C Eightplex-A Eightplex-B Residual land value FSR Figure 6: FAR and Residual Land Value: Rental housing types Rental infill housing types: The impact of higher FAR on residual land values with rental infill housing types is displayed in the above chart. The analysis suggests that the residual land value associated with the rental infill housing types decreases with the increase in FAR. This is primarily because: Costs of construction increases with increase in FAR, the cost per sq. ft. of GBA is expected to increase from $315 per sq. ft. for Duplex-A to roughly $407 to Eightplex-B; and, Efficiency in the housing types decreases with increase in density, i.e. increase in common areas in the building from 100% efficiency in Duplex- A to roughly 95% for Eightplex-B. Overall, the suggested land values make the rental infill housing types financially unviable for investors and developers. Even the conversion rental Duplex A and B housing types (at $154 and $156 per sq. ft. Land) are expected to be financially unviable for most investors and developers. The main reason for low residual land values among the rental infill housing types is on account of low rental rate as compared to cost of development. At $2.23 per sq. ft. rental rate the suggested revenue is only $544 per sq. ft. of GBA for Duplex-A, which is significantly lower than that for the for-sale infill housing types at $775 per sq. ft. of GBA. This relationship worsens with the increase in density. 14

24 Duplex-A Duplex-B Duplex-A- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Triplex-A Triplex-B Fourplex-A Fourplex-B Sixplex- A Sixplex- B Sixplex- C Eightplex-A Eightplex-B Proposed Fairfield and Gonzales Neighbourhood Infill Housing Analysis $ 350 FAR and Residual Land Value: For-sale housing product 1.2 $ 300 $ 250 $ 270 $ $ $ 150 $ 100 $ 197 $ 201 $ 162 $ 186 $ 171 $ 169 $ 181 $ 159 $ 164 $ 165 $ $ $ 0 0 Residual land value FSR Figure 7: FAR and Residual Land Value: For-sale housing types For-sale infill housing types: The impact of higher FSR on residual land values for the for-sale infill housing types is displayed in the above chart. The analysis suggests that: the residual land value is the highest for Duplex-A and B housing types (roughly around $200 per sq. ft. land) but is lower for all the other housing types. In addition, it stays largely stable for the Triplex and higher density infill housing types, i.e the higher density infill housing types are not expected to significantly increase land values in the neighbourhoods. The reader should note that the cost of construction increases with increase in density, from $357 per sq. ft. for Duplex-A to roughly $446 to Eightplex-B. Overall, the estimated residual land values suggest that for-sale infill housing types are expected to be more financially viable as compared to the rental housing types. 15

25 2.4 Viability of converting existing single-family homes Rental housing: While some owners of single-family homes might benefit from converting their investment properties to rental units, however for most investors it would not be financial feasible to buy existing homes for rental use. This is primarily because most single-family resales were in the range of $124 per sq. ft. to $363 per sq. ft. of land (median sales price of $183 per sq. ft. of land) and the suggested residual land value for the Duplex-A-Conversion and Duplex-B- Conversion (2 units with 2 suites) is only $154 and $156 per sq. ft. of land. For-sale housing: It is likely that investors and developers may wish to purchase existing homes for conversion to for-sale units. However, Developers are unlikely to compete with homebuyers for a character home, especially for a home with significant use value. Developers are more likely to pay for a home that requires significant improvements and is priced at the lowest end of the market. 16

26 3 Rental housing types 3.1 Duplex-A Duplex-A Rental Assumptions Product Type Scenario MR #1 New Build or Renovation New Build Raising Existing House Partial Basement (3-4') Basement Habitable Yes Number of Units 2 units Supplementary Information no suites Lot Size 6,000 sf Allowed FSR 0.65 Measured FSR 0.68 Gross Buildable Area 4,090 sf Below Grade Area 1,075 SF Number of Storeys 1.5 Efficiency 100% Number of Parking Spaces 2 stalls SF per Parking Space 200 sf Total SF of Parking 400 sf Parking Type Surface parking/ Garage Revenue Assumption Whether Rental Yes 1 Gross rent-medium $ 2.23 Capitalization rate 3.5% Vacancy 5% Operating Expense 25% Financing costs Construction Loan to Costs 75% Land Loan to value 60% Developer profit 15% Table 1: Development assumptions: Duplex-A (Rental) 17

27 Residual Land Value: Duplex-A (MR #1) Gross $2.23 psf $ 109,203 Less Vacancy 5% $ 5,460 Effective Gross Income $ 103,743 Less Operating Expense 25% $ 25,936 Net Operating Income $ 77,807 Net 3.5% Cap $ 2,223,061 Less Acquisition (current $0 psf $ - $ - Less Construction Costs Construction $ 795,200 Contingencies $ 261,000 Professional Fees $ 116,200 Connection Fees and Permits $ 25,800 Owners Management and Overheads $ 39,600 Soft Cost Contingency $ 11,000 Subtotal hard and soft costs $ 1,248,800 Financing costs $ 37,964 Total Construction Costs $ 1,286,764 Land residual including financing and profit: $ 936,297 Developer profit $ 333,459 Land residual including land financing: $ 602,838 Less land financing (interest): $ 26,858 Residual land value (RLV) $ 575,980 Per unit cost $ 643,382 Per unit revenue $ 1,111,531 Per unit cost as a % of revenue 58% Land Value psf GBA 4,090 sf $ 141 psf GBA Land Value (psf Land) 6,000 sf $ 96 psf Land Table 2: Residual land value: Duplex-A (Rental) 18

28 3.2 MR #2: Duplex-B Duplex-B Assumptions Rental Product Type Scenario MR #2 New Build or Renovation New Build Raising Existing House Partial Basement (3-4') Basement Habitable Yes Number of Units 4 units Supplementary Information 2 units with 2 suites, 2 unit strata, 4 plex Lot Size 6,000 sf Allowed FSR 0.65 Measured FSR 0.80 Gross Buildable Area 4,800 sf Below Grade Area 1,785 SF Number of Storeys 1.5 Efficiency 100% Number of Parking Spaces 2 stalls SF per Parking Space 200 sf Total SF of Parking 400 sf Parking Type Surface parking/ Garage Revenue Assumption Whether Rental Yes 1 Gross rent-medium $ 2.23 Capitalization rate 3.5% Vacancy 5% Operating Expense 25% Financing costs Construction Loan to Costs 75% Land Loan to value 60% Developer profit 15% Table 3: Development assumptions: Duplex-B (Rental) 19

29 Residual Land Value: Duplex-B (MR #2) Gross $2.23 psf $ 128,160 Less Vacancy 5% $ 6,408 Effective Gross Income $ 121,752 Less Operating Expense 25% $ 30,438 Net Operating Income $ 91,314 Net 3.5% Cap $ 2,608,971 Less Acquisition (current $0 psf $ - $ - Less Construction Costs Construction $ 1,058,600 Contingencies $ 347,600 Professional Fees $ 154,800 Connection Fees and Permits $ 25,800 Owners Management and Overheads $ 52,800 Soft Cost Contingency $ 14,300 Subtotal hard and soft costs $ 1,653,900 Financing costs $ 50,279 Total Construction Costs $ 1,704,179 Land residual including financing and profit: $ 904,792 Developer profit $ 391,346 Land residual including land financing: $ 513,447 Less land financing (interest): $ 22,875 Residual land value (RLV) $ 490,571 Per unit cost $ 426,045 Per unit revenue $ 652,243 Per unit cost as a % of revenue 65% Land Value psf GBA 4,800 sf $ 102 psf GBA Land Value (psf Land) 6,000 sf $ 82 psf Land Table 4: Residual land value: Duplex-B (Rental) 20

30 3.3 MR #3: Duplex-A-Conversion SFD to Duplex Duplex-A-Conversion SFD to Duplex Assumptions Rental Product Type Scenario MR #3 New Build or Renovation Renovation Raising Existing House Yes Partial Basement (3-4') Basement Habitable Yes Number of Units 2 units Supplementary Information - Lot Size 6,000 sf Allowed FSR 0.65 Measured FSR 0.68 Gross Buildable Area 4,090 sf Below Grade Area 1,075 SF Number of Storeys 1.5 Efficiency 100% Number of Parking Spaces 2 stalls SF per Parking Space 200 sf Total SF of Parking 400 sf Parking Type Surface parking/ Garage Revenue Assumption Whether Rental Yes 1 Gross rent-medium $ 2.23 Capitalization rate 3.5% Vacancy 5% Operating Expense 25% Financing costs Construction Loan to Costs 75% 12 months Land Loan to value 60% 12 months Developer profit 15% Table 5: Development assumptions: Duplex-A-Coversion (Rental) 21

31 Residual Land Value: Duplex-A-Conversion SFD to Duplex (MR #3) Gross $2.23 psf $ 109,203 Less Vacancy 5% $ 5,460 Effective Gross Income $ 103,743 Less Operating Expense 25% $ 25,936 Net Operating Income $ 77,807 Net 3.5% Cap $ 2,223,061 Less Construction Costs Construction $ 581,500 Contingencies $ 191,000 Professional Fees $ 85,200 Connection Fees and Permits $ 25,800 Owners Management and Overheads $ 29,000 Soft Cost Contingency $ 7,300 Subtotal hard and soft costs $ 919,800 Financing costs $ 18,972 Total Construction Costs $ 938,772 Land residual including financing and profit: $ 1,284,289 Developer profit $ 333,459 Land residual including land financing: $ 950,830 Less land financing (interest): $ 28,318 Residual land value (RLV) $ 922,512 Per unit cost (not including existing improvements) $ 469,386 Per unit revenue $ 1,111,531 Per unit cost as a % of revenue 42% Land Value psf GBA 4,090 sf $ 226 psf GBA Land Value (psf Land, including existing improv 6,000 sf $ 154 psf Land Table 6: Residual land value: Duplex-A-Conversion (Rental) 22

32 3.4 MR #4: Duplex-B- Conversion SFD to Duplex Duplex-B- Conversion SFD to Duplex Assumptions Rental Product Type Scenario MR #4 New Build or Renovation Renovation Raising Existing House Yes Partial Basement (3-4') Basement Habitable Yes Number of Units 4 units Supplementary Information 2 units with 2 suites, 2 unit strata, 4 plex Lot Size 6,000 sf Allowed FSR 0.65 Measured FSR 0.80 Gross Buildable Area 4,800 sf Below Grade Area 1,785 SF Number of Storeys 1.5 Efficiency 100% Number of Parking Spaces 2 stalls SF per Parking Space 200 sf Total SF of Parking 400 sf Parking Type Surface parking/ Garage Revenue Assumption Whether Rental Yes 1 Gross rent-medium $ 2.23 Capitalization rate 3.5% Vacancy 5% Operating Expense 25% Financing costs Construction Loan to Costs 75% 12 months Land Loan to value 60% 12 months Developer profit 15% Table 7: Development assumptions: Duplex-B-Conversion (Rental) 23