Last summer, the Canadian Centre for Policy Alternatives (CCPA) prepared a report to the Vancouver City Council on the city’s EcoDensity Initiative pointing out the initiative’s weakness on affordability.
The backers of EcoDensity, a City initiative to make environmental sustainability a primary goal in all city planning decisions, argue that increasing supply by adding density will result in a decrease in housing costs. That follows basic economic principles, but we have also seen that increasing density, by itself, does not necessarily lower the price of housing. It’s well know that dense cities like New York and San Francisco aren’t very affordable, for example. According to the CCPA report, the same is true of Vancouver.
The good news is that Vancouver is a poster child for increasing density and smart growth. In fact, Vancouver is actually Sightline’s model for avoiding sprawl through compact development, and our studies show that Vancouver has led the region in actively promoting density (although recent data shows that Vancouver’s edge may be slipping). As one measure of increasing density, the mix of housing in Vancouver made a steady shift away from single family and toward multifamily housing.
The bad news is that Vancouver has become increasingly unaffordable. The monthly cost of a standard condo (as defined in Royal LePage’s historical database) in Vancouver rose from Can$1000 per month in 2000, to Can$1600 per month in 2004 to Can$2200 per month at the end of 2007. That is an increase of more than 100 percent in only 7 years.
It is tempting to draw a causal link between density and affordability, but reality is much more complex. I don’t think there’s a simple answer as to why more units in a city like Vancouver don’t automatically decrease prices. (By the same token, it’s not clear why the increase in supply of houses in ever-expanding suburban sprawl didn’t automatically decrease housing prices in the US Sunbelt.) My guess is that housing price is affected by more than a simple supply-demand curve set exclusively by number of housing units. Materials, the mortgage resale market, inflation, and regional factors also play a part. My colleague Eric de Place did a great three part series on affordability and growth management that sheds some light on these issues.
Consider also that housing prices throughout much of Canada showed the same hyper-escalation they did in the United States. In fact, in Western Canada prices rose 79% from 1996 to 2006 and, like in the United States, prices are now falling in Canada as well. The big price run-up and subsequent decline isn’t obviously connected to density, sprawl, or other land-use patterns. It is possible that as housing prices fall back to earth across Canada that housing in Vancouver’s compact neighborhoods will follow, thereby fixing some of the city’s affordability problem. It’s just too hard to tell what caused prices to rise so dramatically, but saying that density leads to increased housing costs is probably just as dubious as saying more supply automatically leads to lower prices as the EcoDensity proponents argue.
Regardless, there’s clearly a serious affordability issue in Vancouver, and it’s one that greens should take seriously. Among the many problems with steep housing price increases in the city is that the lack of affordability encourages people seek housing farther from employment centers and other major destinations, which in turn increases driving. As one recent study of Toronto shows longer drives by people living farther from job centers is a major source of emissions, a phenomena which could erode the environmental benefits of the EcoDensity Initiative.
So how to fix Vancouver’s affordable housing problem?
The CCPA report recommends several policy changes:
- Require 20 percent of all new development be affordable
- Reduce parking requirements or more density in exchange for meeting affordability targets
- Designate city owned land and facilities for redevelopment into affordable housing
- Increase property taxes (which are low in Vancouver compared to other Canadian cities) to pay for affordable housing
CCPA’s solutions have been proposed elsewhere, but each carries political costs for elected officials and they can be a challenge to implement. What’s more, programs like inclusionary zoning (requiring developers to build affordable housing in new development or pay a fee in lieu of including units in their project) have had mixed results in part because many developers have opted just to pay the fee instead of building affordable units into their projects. In fact, Seattle is trying the same kind of incentive zoning program and there has been skepticism on all sides about the results.
Incentive zoning is a good idea because it could increase the supply of housing by allowing more density even while it captures some of the additional revenue created by the new density and uses it to subsidize public benefits like affordable housing. But because each development project has a different set of financial assumptions, developers can sometimes find that the incentive acts more like a tax that discourages them from adding density.
It will be interesting for Vancouver’s policymakers to see whether Seattle’s incentive zoning program actually creates additional housing or if developers shy away because the program doesn’t offer enough flexibility.
The challenge in each of Cascadia’s major cities is to do what most everyone agrees is beneficial for the climate, the environment, and even human health: create more opportunity for people to live in our cities.
Matt the Engineer
//I don’t think there’s a simple answer as to why more units in a city like Vancouver don’t automatically decrease prices//Sure there is: supply is only one factor in prices. An increase in supply will always tend to decrease prices. If everything else is fixed, prices go down, but you never get such a case in the real world – in this case there were cheap loans that led to a housing bubble, increasing prices far faster than supply could hope to pull prices down.Regarding strategies to create affordable housing, I’d like to see a square-footage based incentive. For instance, we could have a rule that the lower the square footage (down to a reasonable level) for each condo/apartment, the taller the building is allowed to grow. One problem with recent housing stock is that the condos are huge, which won’t ever turn into affordable housing. But if units were small, then in a recession or in a few decades when the condos are worth less they will be much more affordable.
joshuadf
I think some originality in design could help. For example, the proposed Workforce Housing at 975 John St in Seattle has shared laundry rooms and residential lounges at each floor which make up for the absolutely tiny apartments. This sort of shared space for conference rooms and so on seems state of the art in business, why are we building “single-family detached condos”?By the way your link to I’m Not Buying It: The Numbers (part 3) is broken.
Niko
“My guess is that housing price is affected by more than a simple supply-demand curve set exclusively by number of housing units. Materials, the mortgage resale market, inflation, and regional factors also play a part.”What on earth are you talking about??? Housing in vancouver has become an object of a wild speculation game, and that is THE ONLY reason.
Jim Crowfoot
To have a diverse and functioning city requires economic diversity within the workforce. These lower wage/salary workers deserve a living wage that can purchase proximate shelter that is affordable to a living wage worker. Furthermore sustainability isn’t just an environmental matter but also requires increasing social and economic equity if human settlements and their societies are to be sustainable.So affordable housing is a requirement and should be achieved through a combination of revenues and cost sharing. What you have proposed to do this in relation to developers/builders will be necessary but not sufficient. In my judgment an increase in graduated/progressive taxes will also be required to create a needed funding base to achieve sufficient affordable housing. Businesses and consumers should share this added tax. Without these measures the increased density will force low wage workers to subsidize it and at the same time increase their own economic privation and that of their family. As this negatively impacts children’s health and education and that of othr family members this will over time producing increasing societal liabilities that will in the aggregate be more expensive than insuring living wage jobs and related accessible and life nourishing housing for workers at the low end of the salary/wage scale. Also, the taxes I recommend will be required along with the affordable housing to meet the shelter needs of unemployed people and senior citizens on low and fixed incomes. Unsustainability in major part is due to exploitation of the environment and people and the attendant economic inequity (poverty and affluence) are interconnected with affluence equally a problem along with the poverty that it in large measure causes.
Andrew
“Lower wage/salary workers deserve a living wage that can purchase proximate shelter that is affordable to a living wage worker.”No one “deserves” proximate shelter. You either can, or cannot, afford proximate shelter. Cities should free up zoning such that, if it is economically justified, proximate shelter will not be impeded merely because of zoning regulations. “Sustainability is not just an environmental matter but also requires increasing social and economic equity if human settlements and their societies are to be sustainable.”Increasing social and economic equity are not a requirement for society to remain viable. The market will work out whether or not increased social and economic equity are viable because workers can flex their power either democratically or through other forms of opposition to those in power, and right now I do not see a revolution around the corner.”An increase in graduated/progressive taxes will also be required to create a needed funding base to achieve sufficient affordable housing.”As noted previously, increasing economic equity is not a necessity, but even if it was for equity purposes that would not make it a necessity for increasing affordable housing. Building more affordable housing, while not necessarily a mandate of government, could likely be achieved without increasing taxes by just having government build rental housing and then rent it out to people and lose a marginal amount of money. This is NOT, however, the role of government. You know what will increase housing affordability? Government not intervening in the market. Government having pretty lax zoning requirements would help, by allowing people to densify as much as they wanted. Government getting rid of CMHC would help, because then the price of homes would not rise just because of the elimination of mortgage risk in the hands of banks. That would help. Do you know what will happen if you end up putting all of these new taxes in place and trying to force those who aren’t poor to pay for everything for everyone else? Those people who are productive will leave and go elsewhere and be productive on their own. Socialism is not the answer. A lot of the problems with capitalism are a result of market intervention and government’s attempts to intervene. Housing bubble? CMHC, Fannie Mae, Freddie Mac and unrealistically low government rates. Government is not the answer.
Daniel Henderson
“No one “deserves” proximate shelter.”Good point. And owning isn’t even the best option for some people.”Those people who are productive will leave and go elsewhere and be productive on their own.”No, the people who are productive and who don’t care about anything but themselves and their own interests will go elsewhere. I can’t wait to buy a house in Portland to enjoy and support what it’s trying to do even more.CLEARLY the market does not know right from wrong. Let’s not even debate that, it’s beyond common knowledge. If government doesn’t work, fix it.
Rebecca
There is a proven financing structure in place to help low & moderate income people purchase a home & keep it affordable eternally. It’s called the Community Land Trust model. Seattle’s is Homestead Community Land Trust, and there are many CLT’s around the country.CLT’s bring public subsidy $$ to the table to either develop new housing or assist homeowners to purchase existing housing. In exchange, the homeowner agrees that when they sell, they sell by an equity limitation formula which assures that the subsidy stays with the home & the next family benefits from it, and so on, resale after resale, generation after generation. The home is sold to a family who is also income-qualified as low or moderate (currently defined as at or below 80% AMI or area median income).This is the most responsible, and conservative use of subsidy dollars around. The homeowner benefits from SOME equity appreciation, but not the windfall profits that has so skewed the market as of late. The homeowners can also win the lottery while in the home, it doesn’t matter how much wealth they accumulate. What matters is for how much they sell.The resale is managed by the CLT, who has title to the land and leases the land back to the homeowner for a very low fee. The homeowner owns the dwelling. This allows the CLT to steward the public investment in the affordability of the home at resale, and assist the homeowner to re-sell by pre-qualifying the next buyer.This model has been used in many places for over 40 years, and is sound, legal, and sensible. In each community that has an active CLT, there are homes being held in trust which will always remain affordable. It is an answer to this pricing dilemma we see on the open market.