Edmonton uses a carrot, Calgary eyes a stick to convince home builders to move out of suburbs

BY FRANK O'BRIEN

Calgary's new mayor, who hammered an anti-urban sprawl plank into his election campaign, is said to be considering a punitive tax to change how consumers buy homes in Alberta's largest city.

In Edmonton, which is committed to a green planning concept, the city is using cash incentives to move builders and residents from the suburbs back to the inner city.

Whether the carrot or the stick proves the most successful is not the question, however. The question is whether either strategy can convince home buyers to change their housing preference, which leans heavily towards a detached house in the suburbs.

Under a new municipal plan, Edmonton has set a goal of having a minimum of 25 per cent of city-wide housing units located in downtown and mature neighbourhoods and around transit centres. Based on current building activity, this would mean about 2,250 high-density homes a year built close to the core. But, despite a generous housing incentive, less than 40 units have been attracted to the targeted areas in the past eight months.

(Editor's note: At our press time, Edmonton announced long-range plans to transform its 530-acre former city airport land into mixed-use urban projects on a grand scale. See www.westerninvestor.com for an update.)

Last June the city began offering grants under a $2 million program that gives up to $12,000 per housing unit to developers who build infill market housing. The program is aimed at long-established city neighbourhoods such as Alberta Avenue, Chinatown, Little Italy and Stony Plain and requires that the projects include a mix of retail and residential. Builders can also build stand-alone multi-family units in the neighbourhoods and receive up to $7,000 per suite created.

How it works is that the approved developer has one year to present expenses to the city, which then issues a cheque to cover the incentive. For a 36-unit mixed-use project, the maximum allowed, a developer could pocket $432,000. Yet take up has been slow.

"We have had three applications," said Iris Li, manager of Edmonton's Development Incentive Program. One is for two units and two for 18 units each. None of the projects have been approved as of yet. Li said the low number of applications is likely because it is a new program that is not yet well known. That may be an understatement. Two City of Edmonton communication officers expressed ignorance about it, as did many real estate professionals contacted for this article. However, senior city planner Ken Zahara is convinced that the program, which also offers smaller cash incentives to retail developers, will be fully subscribed by the end of this year.

Still, even if the incentives are fully taken up it would create no more than 200 homes in the core. For some critics of urban sprawl it is not enough.

At a recent public meeting on Edmonton's "Way We Green" urban plan, some speakers called for nailing taxes onto suburban houses to convince people to move back to the core.

"We can't be paralyzed by waiting for the perfect political environment to show up," said Pong Leung, principal adviser to Natural Step Canada - a sustainability framework for communities. Leung advocated "taxation shifting" or increasing taxes for families who buy larger homes while rewarding sustainable "right-sizing" behaviour with lower taxes. "The status quo is not working," he said.

Real estate industry officials, however, say there is a good reason for the slow response to the city incentives, and higher-density housing in general.

"People simply want to buy a detached house in the suburbs," said Paul Chaput of Avison Young.

Two suburban houses are built in Edmonton for every condo or rental apartment, other realtors note, arguing the trend will not likely be changed through social engineering.

The demand is also seen directly in the market. After the 2009 downturn, it was single-family subdivisions that came back quicker and stronger, representing the bulk of the 34 per cent increase in residential construction permits last year.

Land prices

Residential land zoned for detached housing sells for from $850,000 to $1 million per acre, showing no slump from two years ago, despite a large inventory of such land, Chaput noted.

On the other hand, there is a glut of condominium apartments in Edmonton and some developers have slashed prices on wood-frame multi-family projects. According to Canada Mortgage and Housing Corp. there are about 5,900 new multi-family units either built and unsold or under construction in the city, most of them condo apartments. But the desire for a suburban house continues.

As 2010 ended, the average price of a condo had fallen 7.2 per cent, while prices of single-detached houses were down just 2.5 per cent from a year earlier.

Ayaz Bhanji, principal of Re/Max Commercial Edmonton, said the city's incentives have not increased prices for land in the inner city - where land values are around $85 per square foot, down from $110 per square foot two years ago.

He added, though, that the city has a vision for the downtown that includes a new NHL hockey arena and other large public projects that could make the core more attractive to investors.

Bhanji pointed to the government-funded $42 million three-phase YMCA complex, which includes 150 social housing units, a community centre and other facilities in the Quarters neighbourhood as a potential sparkplug.

In the Quarters, the city has waived parking requirements, reduced development cost charges and provided bonuses such as zero-lot lines for retail and residential developers who build "architecturally attractive, LEED-standard" buildings, according to MaryAnne Debrinski, who is heading the Quarters project for the city's planning department.

So far, the incentives have attracted a new $40 million Hilton Hotel, by BCM Developments, which starts this year; and a proposal for a twin 30-storey tower/200-unit condo complex where one-third of the units will be non-market housing.

A Calgary developer is also looking at refurbishing the old York Hotel into market housing, according to senior city planner Walter Trocenko.

So far, Edmonton believes in the carrot, not the stick. Raising levies on suburban housing is not being considered, Trocenko said.

But the biggest challenge to attracting Edmontonians from the suburbs to the city is perhaps best summed up by Debrinski, who admits she lives with her young family in a detached house in the suburbs. "I can't think of any reason why we would move downtown," she said.

Calgary

Calgary is known for its urban sprawl, perhaps the most pronounced in Canada. Under its new Plan It document, the city is looking at how to control growth in a city where the population is forecast to double over the next 50 years. For city planners, the answer is higher density.

Last year nearly 6,000 single-family detached houses were built in the region, most in the suburbs that now radiate in all directions, while only 3,000 multiple-family units broke ground. During the boom times in 2008, a 102 detached houses were being started every day in suburban Calgary.

Now Calgary's new mayor Naheed Nanshi is looking at higher property levies in the suburbs, some say as high as $10,000 per detached house, to cover costs for new water and sewer lines.

The mayor apparently believes the levies could encourage home builders and buyers to move into higher-density city homes.

According to anti-sprawl advocates, Calgary should be encouraging green, compact housing options that rely less on automotive transit. And, according to a survey by the Calgary Real Estate Board, that is exactly what consumers want.

"Green homes" in "walkable, mixed-use, sustainable communities" will be the hot commodities this year, the board forecasts, "as there is a vast shortage of product in these areas, and sellers who own homes in this category can expect top dollar."

The price of residential land in suburban Calgary rose just 1.6 per cent this year, as compared with 2010, according to Canada Mortgage and Housing Corp., so building sustainable communities could help developers increase profits, the board study suggests.

Shawnee Park

One Calgary developer says its plans for a 300-acre "green" subdivision in the city's southwest could be just what the mayor and consumers are looking for. What the developer fears is that, like Canada Land's Garrison Green pedestrian-friendly subdivision, it could take a long time to achieve city approval. Canada Lands spent seven years in public hearings and Calgary's bureaucratic maze before the first-phase of the successful Garrison project broke ground.

"We are now in the rezoning process," said Les Humphries, senior planner for the Shawnee Park development by Geo Energy. Humphries said the concept plan is distinct from the "bulldoze and build" mentality that characterizes much of Calgary's suburbs. Yet the project has already run into resistance from local residents, because the development will replace the existing Shawnee golf club and increase local densities.

Humphries is not surprised that Shawnee Park is controversial. "Nothing like it has ever been seen in Calgary," he said.

Working with architectural firm Aecom, Geo's plan is to create a self-sustaining community that integrates clusters of housing into the existing landscape, rather than changing the landscape to fit the housing, Humphries explained.

The plan costs more than conventional subdivisions, but Geo believes the green space, links to an existing transit station and a village-type retail centre that will be included, will result in higher house prices. "This will be a premier community of very high standards," Humphries said.

The fact that Shawnee Park fits within the city's Plan It policies reflects the fact that city planners and progressive developers are now on the same page, he added.

The 302-acre master-planned development uses the landscaping of the old golf course to provide parkland, a pond, trees - 2,200 mature trees will be saved - and public pathways.

Altogether about 25 per cent of the development will be set aside for green space, compared with less than 10 per cent for conventional suburbs in the Calgary region. The development's 50,000-square-foot retail centre - think Starbucks and chic storefronts - and the first phase of 1,400 homes will be linked to the Fish Creek LRT station, which is about 20 minutes from downtown Calgary.

The vision is for a mix of homes, all set in distinct, walkable neighbourhoods, Humphries said, and framed by acres of trees and green.

Now that hard part starts, however. The rezoning application for Shawnee Park is in front of city council and it will then work through technical reviews and ultimately public hearings before a decision is made. Geo is hoping for a resolution in about a year.

Shawnee Park may show whether the City of Calgary, and home buyers, will support an alternative to urban sprawl.

from Western Investor, March 2011