Tax breaks triggered construction of new rental units in Kelowna
Over the past eight years, 2,700 new rental housing units were built in Kelowna. That’s a 70% increase since 2014 when the first tax breaks were given to developers to encourage them to build more rentals.
“Kelowna consistently develops more rental housing than comparable and larger sized municipalities in recent years,” says a report by Daniel Sturgeon, the city’s planning specialist, that’s going to Kelowna city council on Monday, July 24. “The Revitalization Tax Exemption program is likely to be a factor in this success, and as such, should continue given current and ongoing rental housing market constraints.
That’s one of three reports he’s sending to council outlining that program and other rental housing issues.
The tax exemption means developers and owners don’t have to pay property taxes to the city for 10 years, as long as they keep their units in the rental pool.
Kelowna is one of only two cities in BC that also exempts these projects from paying school taxes, which is allowed under provincial legislation. That increases the tax break by 40%. The report doesn’t say who the other city is.
Data from Canada Mortgage and Housing Corporation certainly backs Sturgeon’s claim that Kelowna is a leader in getting rental housing built.
In October 2014, there were 4,729 primary rental units in Kelowna. That means buildings with more than three rental units.
It was an increase of only 274 units over the previous decade, but in the eight years leading up to October 2022, another 2,703 new units were added, a 70% increase since 2014 and a ten-fold increase over what was built in the previous decade.
BC as a whole saw a 15% increase in new rental units (26,797) since 2014. That means the City of Kelowna, which has less than 3% of the province’s population, accounted for about 10% of BC’s new rental housing stock.
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The rental pool in Kamloops grew 25% since 2014 to 3,650 units, Penticton was up 19% to 2,201 units. Vernon’s increase was below the provincial average at 10%, bringing its total to 1,836.
The pace is picking up dramatically in Kelowna. There have been 2,359 units completed and occupied since 2014 but there are 1,209 more under construction. On Monday, city council will be asked to approve exemptions for eight more projects totalling another 1,529 units.
Of those, 490 will replace retail stores in the Dilworth Shopping Centre and 439 are in the Ledge on Lakeshore, the former Hiawatha campground site that’s being redeveloped by Westcorp.
“Current interest rates make the purpose-built rental housing market financially tenuous,” Sturgeon’s report says. “Industry feedback suggests that a Revitalization Tax Exemption can tip the balance of financial viability for a new project by reducing operating costs for the first 10 years.”
The program also provides tax exemptions to commercial and office developments in downtown and Rutland, which brings employment into the area where most of the rental housing is going.
So far, 150,000 square feet of commercial and office space have been subsidized through the program, which includes the Innovation Centre, an office building on Lawrence Avenue, the commercial floorspace on the ground floor of the Ella Building, the Bertram Building, the Block office building on Bernard Avenue, the commercial floorspace at a Willow Park Shopping Centre project in Rutland and a commercial building on the corner of Highway 33 and Rutland Road, Sturgeon said in the email to iNFOnews.ca.
He's suggesting some tweaks to make the program more user friendly but to also drop the option for strata apartments to participate.
“There is limited benefit in continuing to provide tax exemptions to owners who can afford upscale apartments,” Sturgeon wrote in his report.
He’s not recommending the program apply to below market, or affordable, housing projects because the exemptions are not enough to act as a significant subsidy. If it were to apply to a couple of units in a building, that just makes it more complex to administer and adds expense.
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Instead, on the affordably side, the city has $300,000 available annually in its Rental Housing Grants Program.
So, also on Monday, council will be asked to provide most of that to the Society of Hope for a 75-unit subsidized rental complex in the North End of downtown. That was the only application received this year and will take $272,000 out of the fund to offset 27% of the almost $1 million in development cost charges the project is assessed.
The balance will be paid into the city’s Housing Opportunities Reserve Fund that the city uses to buy land on which BC Housing or other agencies can build affordable or subsidized housing.
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