The developer of the McKinley Beach development has applied to have just over 800 units previously approved as multifamily residential be rezoned as 800 units of single family residential, built over an area of nearly 100 hectares that presently hosts a low elevation open ponderosa forest.
ERRATUM 2021.08.24 22:07. It was pointed out that the developer only intends to build about half of the remaining units as single family residential. The area of land used is about 100 hectares, as stated above.
The application was presented at a public hearing on August 10, 2021. The proposal details are part of the agenda package for this public hearing. The public hearing was suspended on a technical issue, and is resuming on August 24, 2021.
I personally think that we should do whatever we can to protect the remaining low elevation ponderosa forest that remains in this valley, particularly larger tracts that can provide ecological services that fragments and strips scattered through our suburban developments cannot.
I also think that the most recent conclusions of the Intergovernmental Panel on Climate Change provide a strong argument for assessing the climate change impacts of the decisions we are making, and more car centric large home urban sprawl isn’t consistent with reducing our climate change impacts. My bias is therefore against this project.
A Cost Benefit Analysis
I have done something of an exploratory cost-benefit analysis to weigh the pros and cons in the way that the economics profession typically does. The analysis as at August 23, 2021 is here.
ERRATUM 2021.08.24 22:07. Updated analysis is here.
Cost Benefit Analyses (CBAs) consist of identifying all the impacts of a project relative to an alternative that would be undertaken if the project did not occur. In this case, the project is the buildout enabled by the zoning change, and the alternative is the currently approved higher density development of the same number of primary housing units. The single family residences will allow for secondary suites that are not permitted in the multifamily residential.
The costs and benefits of a project are typically not distributed equally, sometimes with one or more groups made worse off, even as the overall benefits of the project are positive. Benefits can be transferred from those that are made better off by the project going ahead to those that are made worse off. CBAs need to carefully avoid treating transfers that shift the final benefits between groups as costs or benefits, to avoid distorting the results.
The primary benefit of this rezoning would be a bit over 800 single family homes that have a higher market value than the already approved multifamily homes.
There are a variety of costs.
- Additional cost for building larger homes.
- Additional cost of building infrastructure (roads, utilities, etc.) to service the more spread out and larger homes.
- Additional infrastructure operation and maintenance costs over time.
- Additional trips taken by single family home occupants relative to those in multifamily residential, and longer trips taken by occupants of secondary suites who would otherwise be housed closer to Kelowna.
- Additional time taken for travel and knock on congestion impacts on the entire area transportation network on account of the additional traffic.
- Additional injuries and deaths resulting from traffic accidents, accidents that are a function of total distance travelled.
- Additional GHG emissions.
- Loss of high quality suburban forest habitat.
Some of these costs are easy to measure, such as construction costs for homes and infrastructure. Some, such as traffic impacts on congestion time and accident rates, are fairly well researched, but not commonly considered as costs to weigh against the benefits for development projects. Some, such as the loss of habitat, is difficult to attach monetary values to. Much research has been directed at attaching dollar values to represent how much worse off people are if habitats are lost. These values are often quite large.
Transfers are exchanges that rebalance the distribution of costs and benefits between affected parties. One transfer from the proposed rezoning would be the gift of a parcel of agricultural land from the proponent to the city for use as a park. Most of this land is already protected from development through the provincial ALR zoning, and much of the rest is unsuitable for development. This gift creates little additional value, but it does transfer ownership of an asset of value from the developer to the public, as represented by the City of Kelowna.
Another important transfer is through the taxation of corporate profits. This project will result in additional corporate profits that are taxed by provincial and federal governments, and much of this tax revenue will make its way back to the people of Kelowna through government programs like healthcare, grants from provincial and federal governments to the City of Kelowna, etc.
The Bottom Line
Based on the assumptions used, approving this rezoning may have an overall net benefit relative to developing under the current approval. This depends on how large the present value of the additional infrastructure operation and maintenance costs are, which I have not included.
Given my personal desire to see the remaining low elevation ponderosa pine forest protected, and my view that we should be living in more compact communities that have smaller environmental impacts and encourage active transportation, this result is disappointing. However, CBAs are based on the best estimates we have of the values people put on the things included in the analysis. I discuss several likely mistakes below. This result leads me to the question of what the role of government is. Is it merely to collect taxes and provide services, taking the values people have as given, or is it to recognize that in a time of a global climate and ecological crisis, should governments make decisions that lead, rather than follow?
The numbers I have used are certainly wrong. The critical issue is not whether the numbers are wrong, but what changing them will do to the final conclusion.
The overall benefit generated by the rezoning, relative to the approved development in place, hinges on the difference between how much the price of a unit increases with the zoning change, relative to the total cost, including infrastructure, of building it. If I have underestimated the cost or overestimated how much more the average single family home can be sold for than the currently permitted multifamily units, then the overall benefit of the project is less, possibly negative.
If I have overestimated the increase in build cost per unit , or underestimated how much more a single family home can be sold for relative to a multifamily home, then the overall benefit of the project is larger. Since most of the benefit transferred from the developer to the public occurs through the corporate tax system, the share of the overall benefit of the project captured by the public would be less.
This analysis ignores what would be done with the roughly $200 million that investors would put into this project if the rezoning is not approved. It assumes that nothing would be done with this money. This is almost certainly wrong, as the investors will look for other investments. Therefore, I have ignored benefits that the public would receive from this alternative investment if the proposed rezoning is not approved.
The largest cost absorbed by the public comes from additional travel time. This rests on two assumptions, one that people who live in low density suburbs make more trips than people in high density settings, and that the people who would occupy the secondary suites allowed under the proposal would otherwise live in Kelowna and travel shorter distances. Whether high density development equally far from services results in less trips not as obvious as the documented fact that less trips are generated from dense urban areas than from less dense suburban areas. If the slightly over 800 currently permitted multifamily units are not sufficient to justify frequent public transit or setting up local retail businesses, then the difference in generated traffic is likely not that great, and the social cost likewise not as great.
The possible mistake in the transportation related costs points out that other alternatives to the current proposal should be considered. Perhaps protecting the entire wildlife corridor as park and building more high density units along a transit corridor west of the protected area could both preserve the ecological value and reduce trip numbers relative to more sprawled out single family residential development. These multifamily units would have views and proximity to nature that is typically captured by single family residential housing. One of the reasons that single family homes provide a substantial price premium is that multifamily homes are typically built in less desirable areas and are not supported with amenities that substitute for the absence of a large private yard. Maybe rather than thinking about capitalizing on changing market conditions, we should change those market conditions to reduce the relative attractiveness of single family homes.
ERRATUM 2021.08.24 22:07. When the total number of single family units is reduced by about half, and the remaining units are build as multifamily units, the overall benefit of the project is about break even. Most of the benefit of the project is because homes with higher value are built. With a reduction in this benefit, the lost value of the environmental services is relatively more important. Once additional infrastructure operation and maintenance costs are considered, this zoning change amounts to an increase in benefits to the developer that are almost all paid for by reduced benefits to the public.
In the end the vote to support the proposed zoning amendment was tied, which is defeat.