You Might Not Want to Maximize the Density of Your Site

By Mike Harrison

With new provincial legislation mandating minimum densities in Transit Oriented Areas, municipalities updating Neighbourhood Plans to align with SSMUH and cities generally being more comfortable with increased density due to collecting bonus density fees, I see more and more property owners chasing higher densities not realizing the land value could actually be lower.

Here are a few examples I have seen lately:

• A condo site in Surrey near a proposed SkyTrain station currently designated for 4-6 storey 2.5 FAR development is now allowed up to 4.0 FAR and up to 12 storeys due to being in the second tier of an official Transit Oriented Area (TOA). The owner wants to sell the site and is now expecting the market to pay the same price per buildable on 4.0 FAR. We ran comparison proformas and even ignoring the inefficiencies of mid-rise concrete development, the site is worth 17% more at a 2.5 FAR wood frame density. There also isn’t a market for mid-rise land in the Fraser Valley, so practically, it just wouldn’t transact.
• A condo site in the Township of Langley is designated for 4-storey development, but the Township is encouraging 6-storey instead. The site constraints require 3 levels of underground parking for a 6-storey development; however, the increased construction cost from a deeper parkade plus bonus density fees produce a lower residual land value.
• A townhouse site in the Surrey/Langley area that the City would permit 4-storey development on, which is technically higher density but results in a residual land value that is 19% lower than the baseline townhouse land value.

It’s counterintuitive, but higher density doesn’t always translate to a higher land value in the Fraser Valley like it would in Vancouver or other more urban centres. Incidentally, the inversion on land values has gotten more extreme since land values declined starting mid-2022.

Recommendations:

• If you’re programming a development site and think you may sell the land rather than build the project, be sure you’re pursuing a design that actually produces the highest land value. Or,
• If you own land in a neighbourhood plan area where the plan is being updated, you may not want to push the City for a higher land use designation. You could drive the value of your property down. Or,
• If you’re about to market a development property for sale, be sure your broker is highlighting the development potential that produces the highest land value assumptions.

Reach out at the contact information below if you’d like another opinion on the value of your development under various scenarios.