NEWS: Village Triple-Bottom Line Woes
Vancouver’s desire to make the Olympic Village a triple-bottom line success story has taken more beatings in the past few weeks.
Environmentally, the Olympic Village is a jewel in the crown of green development. However, economically, the project is all but bankrupt, while socially, the affordable housing outcomes fall far short of their goals.
City taxpayers are now the owners of the Millennium Water project at Southeast False Creek after the project went into receivership on November 17. Ernst & Young Inc. has been appointed the receiver for the market housing development, officially known as Millennium Southeast False Creek Properties Ltd.
Both the city and Millennium tried to put the best possible face on the agreement – even going so far as to call it a “best case scenario for all of us.” But the fact remains that city taxpayers are now completely on the hook for the entire $740-million project.
Developer Rob Macdonald’s assessment of the factors that drove up the costs of the Olympic Village places the current value of the assets at $570-million. Other development experts believe this figure is somewhat generous, and the city could lose as much as $300 million when all the dust has settled.
Despite assurances from the mayor that all 737 units will eventually sell, it now appears certain that many will have to be sold at a substantial loss. Following the 2010 Olympics, sales have been very slow as buyers held back due to the uncertainty over the project’s future and a market already saturated with similar product at more competitive prices. Widespread media speculation that prices at the Olympic Village would soon be slashed has also put prospective buyers into let’s-wait-and-see mode.
It has been reported that Vancouver condominium marketer Bob Rennie had been seeking approval from the city and the developer to cut prices. Now that Millennium is out of the picture and Ernst & Young is handling the project for the city, many observers expect to see price cuts announced within weeks.
There has been much debate over what caused the cost overruns on the project and who is to blame. The Reader’s Digest version is that a series of bad decisions made by the Coalition of Progressive Electors, the Non-Partisan Association (NPA) and Vision Vancouver council majorities all contributed to the False Creek fiasco.
In particular, the city’s decision to award the entire project to one developer rather than breaking it into separate parcels, the decision to select the highest bid from a developer who lacked the resources to complete the project, the decision to “build a model sustainable community”, the decision to upgrade the green building certification from silver to gold standard, the decision to do design simultaneous with construction (which drove up the number of expensive change orders), and the overtime and labour costs of working to meet an Olympic deadline were all important factors in driving up development costs.
Since the last flickers of the Olympic flame, further delays and poor decisions have burdened the project with millions in additional operating costs and debt service charges as the overpriced condos have sat empty for the last eight months.
According to Rob Macdonald, when the city took over the project financing, it borrowed at an interest rate of about 2.5 per cent – a significantly lower rate than the private sector developer could obtain. But instead of passing this rate along to the troubled project, the city chose to charge Millennium Water rates that were approximately $30 million higher. Given the city’s stake in the project (at that point it was the ultimate guarantor and was still owed $170 million for the land), its decision to add to project’s debt load imposed another unnecessary cost.
In addition to the financial woes, city hall’s social development goal to create more affordable housing in Vancouver has also fallen far short of what was promised in the 2010 Games bid book. The affordable housing component has fallen from two-thirds of the entire village site to less than 20 per cent.
First the NPA knocked down the requirement for one-third social housing, one-third subsidized, middle-income “modest market housing” and one-third market housing to 25 per cent social housing in December 2005. Then, in April 2010, Vision Vancouver divided the 25 per cent social housing segment into two equal portions of partially-subsidized rental housing and social housing.
Now, seven months later, the Vision council announced the third affordable housing configuration for the troubled development. The Co-operative Housing Federation of BC (CHF BC) has been selected to establish a non-profit housing co-op in one of the city’s three non-profit buildings. The other two buildings will be managed by COHO Management Services Society, a branch of CHF BC, as partially-subsidized rental housing.
Under this new plan, the number of partially-subsidized rental housing spaces rises to 168 units. At the same time, the social housing component will be reduced from 126 units to a share of the 84-unit co-op. The balance of the co-op will be made up of market rental units.
These 252 units represent a tiny step towards meeting the demand for housing that is affordable for those not pulling in six-figure incomes. In the future, however, taxpayers will demand that any affordable housing projects be built more modestly. Decent affordable housing can be built for about one-third of what these monuments to Olympic hubris cost.
Whether there is the political will and the developer confidence to take risks after the Olympic Village debacle is another question entirely. What’s for certain, the triple-bottom line approach that privileges environmental standards over social and economic goals will need to be reconsidered.