A vision for Vancouver – what makes a great city · 10/1/2015 · Impact of levers on cost of standard unit Indexed to annualized cost of a standard unit, % 1 Impact of reduced

McKinsey & Company 1 |

Contents

A vision for Vancouver – what makes a great city

Realizing our economic potential


Every city can be a good city

Public safety Healthcare

Education

Transportation

Jobs and businesses

Greens and recreational spaces

Air quality

Entertainment Housing


Great cities achieve environmental, social and economic success

water, emissions, waste, biodiversity

per capita GDP, income, employment, taxes

Environmental protection

Economic growth

THE GREAT

CITY

health, education, security Social progress


Economic, social and environmental performance are correlated

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

60 50 0 90 80 70 110 100

Siemens Green Cities score 20111

Mercer Quality of Living index 2010

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0 30 70 60 40 20 10 50 80

Siemens Green Cities score 2011

GDP per capita Thousands, PPP, 2010

80

30

50

20

40

70

10

0 110

60

100 90 60 50 70 80 0

GDP per capita Thousands, PPP, 2010

Mercer Quality of Living index 2010

North America South America

Asia/Pacific

Afr/Mid East

Europe

Correlation 0.79

Source: McKinsey analysis, Mercer Quality of Life Survey, Siemens Green City Index, McKinsey Cityscope database

1 For Africa, Latin America, Asia Green City Indices scale of 0-4; for European and North American Green Cities Indices, Siemens scores divided by 4 to make comparable

Correlation 0.51

Correlation 0.48


While there are many paths to greatness, great cities do three things well

Grow smart Lead through Do more with less

Great cities

Let’s explore how


Great cities grow smart

Insist on opportunity for all

Integrate environmental thinking

Plan for change

Build competitive clusters


Great cities do more with less

Explore partnerships

Introduce investment accountability

Embrace technology

Question everything


Great cities win support for change

Build a high-performing team

Create a culture of accountability

Forge stakeholder consensus

Craft a personal vision


THE GREAT

CITY

How does Vancouver score across these dimensions?




Economic growth


?


Contents

A vision for Vancouver – what makes a great city

Realizing our economic potential


BC has considerable strengths

▪  Strong overall growth – 2.6%

▪  Positive fiscal position

▪  Solid infrastructure base

▪  Diversified economy

Industry

▪  Highly educated population

▪  Internationally experienced workforce

Human capital

▪  Access to Asia Pacific

▪  Access to West Coast USA Geography

▪  Multicultural community

▪  Strong social norms and support Social fabric


However, to realize our potential, at least two major issues need to be tackled

Low housing affordability

Expanding investments with shift to more productive categories

Address housing costs while maintain growth

Company growth (scale-up)

Economic Mix

Social tension

Talent retention

Low level of investment with sub-optimal structure 1

2


FDI in British Columbia has huge potential comparing to other states…

SOURCE: FDI Markets

921

2015 2014

1,266

2013

1,209

2012

1,606

British Columbia FDI1 FDI1 by state and province, 2015

921

8,820

New York

Ontario

4,117

British Columbia

4,036

California

USD Millions USD Millions

FDI per capita USD

197 299 445 103

1

1 Includes only greenfield investments – Type of FDI where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up Note: FDI figure includes the amount announced by year, updated monthly. The whole investment figure is included in one single year even if the investment took place across several years


… but on a per GDP basis, market capitalization of Vancouver-based companies is 1/3 that of peer cities, representing C$250bn in missed opportunity

SOURCE: Hoover’s, Capital IQ, Moody’s, StatsCan

Size of market cap of HQs of GDP3

Total locally headquartered market cap % of GDP Stock

1 Market cap as of October 1, 2015 2 Latest census figures available 3 Canadian cities 2013 GDP in 2015 dollars, US cities 2015 GDP

103

248

316

Canadian peerset Vancouver

Peer average

US Peerset

Missing CAD250 bn

Peerset: Western US Metro Areas with 1.5-4.5M population, and Canadian business hubs

1


Social benefits from increased corporate philanthropy and volunteerism

Significant uplift in local venture capital and private equity funds, investment tax and pension benefits

An ecosystem of professionals including legal and accounting services with a multiplication effect on academia and R&D

25,000-50,0001+ highly paid HQ executive jobs created, leading to ~50,0002 further indirect jobs created

$8-10bn in additional corporate and personal taxes from primary income

Even by closing half of this gap, Vancouver could experience significant economic and social uplift

C$130bn CURRENTLY

C$250bn OPPORTUNITY

Capturing even half of the C$250bn opportunity

would mean…

1 Average peerset employee-to-$1m market cap ratio of 1-2 (based on Capital IQ data), and an assumption that 20% of these jobs are created in local headquarters 2 1-2x ratio based on IDA Ireland, BC Stats, and desktop research

1


~440M Our affordability challenge is not unique

SOURCE: McKinsey Global Institute cityscope database

1.6B people or at least 1/3rd of all those living in cities will face an affordability challenge by 2025

2


Impact of levers on cost of standard unit Indexed to annualized cost of a standard unit, %

1 Impact of reduced origination and funding costs is quantified; impact of increased access to financing is not.

SOURCE: McKinsey Global Institute analysis

Income available for housing by income segment

23

1678

78

Annualized cost to own a standard unit

100

7

Operations and maintenance Achieving scale efficiency

Development Taking an industrial approach

2 80% area median income

50% area median income

Financing Reducing cost, expanding access1

Optimized cost to own standard unit

Land Unlocking land supply

Four levers can narrow the affordability gap 2


Housing units Thousands

Land use Hectares

By raising density, land for affordable housing can be provided

136 106

37 Residential

Other

143 143

71

2.3

1.0

SOURCE: Nico Calavita and Alan Mallach, eds., Inclusionary housing in international perspective, Lincoln Institute of Land Policy, July 2010; Barcelona City Council; McKinsey Global Institute analysis

1 Calculated based on number of housing units, with a floor area ratio of 1, unit size 78 square meters (average size in Barcelona)

Example Barcelona

2

Floor area ratio

6

61 Affordable housing

12

After development (planned) Before development1

Other housing

Public infrastructure and transit provides important part of solution, expanding accessible region


Lowering cost of delivery and increasing scale with speed

SOURCE: Turner and Townsend; Gardiner and Theobald; Economist Intelligence Unit; McKinsey Global Institute Cityscope database; McKinsey Global Banking Pools; World Bank; UBS Prices and Earnings Report 2012; expert interviews; McKinsey Global Institute analysis

Construction cost1 vs. target cost2 by housing type and city3 $ per square meter

1 Current market cost of construction by building type. 2 Target cost of construction, assuming 30% of 80% median income affordability definition 3 Land cost based on 2013–14 land transaction prices, assuming low end of price spectrum typical for affordable housing; expert adjustments included NOTE: Numbers may not sum due to rounding.

-29

-48 -32 -32 -53 -51

-39 -44 -33 -43

HIGH-RISE APARTMENT BUILDING Floor area ratio ~4.0

Type of unit

Target

Current 2,800

1,900

630

300

850

480

MEDIUM- DENSITY APARTMENT BUILDING Floor area ratio ~2.0

470

700

500

900

280

540

460

750

1,700 Target

Current 2,500

150

300

250

350

New York United States

Riyadh Saudi Arabia

Beijing China

Rio de Janeiro Brazil

Mumbai India

2

Gap to target, % #


TIME SAVINGS2

COST SAVINGS1

Technology can cut costs by 30 percent and construction time by 40-50 percent

SOURCE: Expert interviews; McKinsey Global Institute analysis

1 Based on typical medium-density affordable housing development cost breakdown 2 Based on 36-month baseline schedule 3 Includes foundation, superstructure, and landscaping 4 Mechanical, electrical, and plumbing NOTE: Numbers may not sum due to rounding

10 40

25

25 100

10 70

30% 5 3 5 3

5 0

Value engineering

Industrial construction technologies

20 40

20 20

100

10 45%

50–60

Total optimized

Finishing savings

MEP savings

10

Structure savings

30–40

Design savings

10

Total un-optimized

Finishing MEP4 Structure3 Design and planning

2


Where do we go from here: Raising the ambition – 3 mindset shifts

Success is regional

Investment and achievement are largely incremental

Short-term pressures can often dominate

Aspire to be a global hub

Challenge all orthodoxies

Take a long-term perspective

From To


Vancouver has the potential to become The City of the Future




Economic growth


Vancouver


Thank you ! Miklos Dietz Managing Partner – McKinsey Vancouver


Back up

McKinsey & Company 25 | SOURCE: “Provision of public housing in Singapore,” in Good practices and innovative experiences in the South, vol. 2: Social policies, indigenous knowledge and appropriate technology, Martin Khor and Lim Li Lin, eds., 2001; McKinsey Global Institute analysis

Technological innovation

▪  Pre-fabricated parts, allowing for quick assembly and production at scale ▪  Standardize across construction and typologies ▪  New building materials

Improved procurement

▪  Own and manage several supply chains to provide some of the most crucial resources ▪  Negotiate contracts and specifications with suppliers in and out of country

Labor management ▪  Manage licensing and registration processes ▪  Training support labor supply as necessary

Regulatory oversight

▪  Uniform building codes ▪  Streamlines permitting process to avoid delays

Quality Control ▪  Assess construction against quality system ▪  Reviews sample set of units for initial rating and then adjust final payment against the

quality sale

Role of government

Documents

A vision for Vancouver – what makes a great city · 10/1/2015 · Impact of levers on cost of standard unit Indexed to annualized cost of a standard unit, % 1 Impact of reduced