Dale McClanaghan

Vancouver Housing Affordability: Choosing Our Destiny/Density or Accepting Our Fate?

Vancouver’s destiny on housing affordability over the medium term will be determined by the city’s residential density. Vancouver is in high demand by virtue of its natural amenity, a stable economy, and its national character, as stated in our constitution of “peace, order and good government”. Demand has been fueled by the city’s hosting of the Olympics, its natural beauty, and consistently high rankings as one of the most livable cities in the world. The City has inherited and worked assiduously to create this high level of demand. It now faces the supply challenge of fulfilling this demand.  Specifically, can Vancouver respond to this endemic growth while sustaining what is valued and addressing current social problems?

To be successful, Vancouver, both regionally and within the city, needs to respond in a myriad of ways. It needs to foster employment opportunities, ensure recreational and cultural services, protect environmental quality and create sufficient housing supply.  A successful housing system should enable mixed income neighbourhoods with a diversity of incomes, family types, ages and cultural backgrounds.

In order to attain these housing goals, housing has to be affordable. For housing to be affordable, we need more supply; much more supply. Land supply (zoned capacity) complemented by senior government programs that are targeted to higher-need households would go a long way to improving housing affordability in the city. This commentary focuses on housing affordability and acknowledges the overarching need for public support for an expansive Physical Plan for Vancouver.

Presently, the Vancouver housing supply system is under-performing in total unit production and has a distorted housing mix that fails to provide sufficient supply affordable for middle income earners, renters and the impoverished. Alleviating these defects of the supply system will require large-scale change with higher densities and taller/bigger buildings that is only possible with a high level of public support.

The chance of attaining public support improves with the creation of a comprehensive Physical Plan for the city. The process of engagement and debate will illuminate challenges and solutions as the Plan is formed through open dialogue between City staff, technical specialists, Vancouver’s citizens and public interest groups and neighborhoods.

Land Supply is Central to Housing Affordability

Many aspects of the housing supply system are out of the City’s control. However, one “necessary” but not always “necessary and sufficient” condition of housing affordability is the amount of zoned and serviced residential land [1]. Bluntly stated, the City has a monopoly on zoning and development permits and accordingly has to resist the temptation to restrict supply and to exact a taking for those permits (a potential source of revenue). Succumbing to excessive levies on housing or restricting the amount of serviced, zoned land imposes a “tax“on housing consumers and often creates a barrier to potential consumers. Generally speaking, we know how to restrict supply and induce “unaffordability.” One of the difficult but important tasks of a city-wide Physical Plan is to arrive at a community consensus of where additional housing can be built, in a way that doesn’t exacerbate land costs [2].

Housing – A Policy Orphan but the City’s Problem

At a government and policy level, responsibility for the housing supply system is fractured and therefore no level of governmental or specific entity is entirely accountable.  Federal responsibility for taxation, housing finance and investment incentives has disadvantaged new purpose-built rental housing supply [3]. The Province’s responsibility revolves around incomes policies and subsequent to federal devolution of social housing responsibilities, the Province has been the primary source of funding, albeit highly variable in the amount of funding. The Province also has responsibility for land tenure and the taxation of inputs to new housing and property transfer taxes.

In many ways, the issue of affordability has been “residualised” at the City level with visible homelessness, a high proportion of renters living below the core-need income threshold, and steady increases in single housing prices becoming part of the City discussions on how to respond, or induce others to jointly respond, with concrete solutions. The City’s long history of partnerships in housing with both Federal and Provincial levels of government has yielded significant benefit to many city renter households and the community at large. It has provided non-market housing for 8% of Vancouver households.

In order to create more non-market housing the City will need senior government funding. A strong statement by the City in a city-wide Physical Plan would be a further inducement for senior government participation in future housing programs. Pre-zoned residential areas lower the delivery costs of both market and non-market housing and reduce permit risk, time delays and exposure to cost escalation.

Embracing Housing Innovation

Ideally, the Plan will incorporate additional residential capacity providing for increases in the amount, density, diversity of built form and quality of residential land. The Plan should permit innovation, particularly experiments with medium-density (4 to 6 storey) areas. Similar innovation regarding tenures (zoning lands for “rental-only” or mixed tenure zoning) could be part of a solution to the chronic under-production of purpose-built rental housing. The large feasibility gap facing new rental supply will also need senior government assistance through investment policy (tax credits) or dedicated rent supplements. Having a Physical Plan that is pre-zoned for this purpose would improve the chances of developing new partnership programs for market rental and social housing.

Conclusion: How a Physical Plan Can Help Housing Affordability

There are many barriers to creating a successful housing supply system. Creating a city-wide physical plan for Vancouver can address one critical component – that is, an adequate amount of serviced and pre-zoned land.  In order to achieve this outcome a high degree of public support will be needed. The primary risk for Vancouver and housing affordability is that we reject increasing zoned capacity in favour of a passive default to yet more housing “unaffordability.” We can default to the status quo and accept numerous adverse social and economic consequences. Or, we can ease Vancouver’s affordability problems by confronting the housing challenge through significantly increasing zoned capacity and creating programs to provide affordable housing for high-need households.

Notes

1.    The City should prepare a reliable estimate by neighbourhood and zone of zoned capacity that evaluates the amount of practicable, not just theoretical, amount of residential space/units achievable under current zoning and policy frameworks. Anecdotal evidence and the high proportion of permits now going through costly and uncertain re-zoning processes indicate that there is a shortage of suitable multi-family zones/sites.

2.     For the next round of major projects the City’s plans to use a large proportion of “zoning lift” to finance infrastructure and community amenity will have less potential financial yield. The major project area plans of the previous era (Expo Lands, Coal Harbour and various industrial “let-go” areas) were done from a very low cost base and often were fully remediated by either the original polluter or the Province. Re-zoning in established areas with higher land values will not provide the same level of financial lift for non-basic infrastructure, particularly if resources are directed to improving housing affordability.

3.    McClanaghan & Associates, City of Vancouver Rental Housing Strategy – Research and Policy Development – Synthesis Report pdf icon, August 2010, p. 30-35 Discussion on the link of Federal taxation and purpose-built rental housing production levels.


Biography

Dale McClanaghanDale McClanaghan is a housing, real estate and public policy consultant providing advisory services to a large number of government, private and institutional clients. After earning an MBA, Dale was a corporate and international banker with Bank of Montreal in Vancouver and Toronto. Dale became a real estate developer in 1988 and was CEO of VanCity Enterprises from 1995-2001. Development projects total over 110 and range from residential (non-market housing, multi-family condo projects and single family) to commercial and land development. His other business interests include ventures in the mineral exploration sector where Dale has served as CEO of two TSX-V listed companies (2004-present).

Community board appointments have included: Granville Island Trust, Langara College, Vancouver Heritage Foundation, Vancouver City Planning Commission (Chair), Dr. Peter Aids Foundation and Katherine Sanford Housing Society.