The Costs of Unaffordability - Affordability in Vancouver

By Erick Villagomez, re:place magazine

So far I’ve discussed affordability and its relationship to population diversity as well as the complex interaction between the environment and housing costs. As I’ve written these pieces, I’ve attempted to weave in relevant issues pertaining to the subject - such as economics and the implications to urban development – and tackle some of the myths pertaining to the price of housing.
It is worth mentioning at this point that I’ve steered clear of mentioning the important issues of density and Vancouver’s specific approach to tackling affordability. And the reason I’ve done so is because I believe that it is something worth investigating in its own right.

At this point is it worth briefly looking back at some of the major local developments in affordable housing. As I’ve mentioned in past articles pertaining to affordability, to-date Federal and Provincial government funding has been what governs the creation of affordable housing. Thus, it is these upper levels of government, in conjunction with nonprofit or co-operative societies that build non-market dwelling units. Their operation and maintenance are necessarily assisted by government subsidies to ensure a continuing stock of affordable housing.

Within this context, Vancouver’s “affordable housing” explosion occurred between 1947 and 1986 when potent government programs encouraged their creation. Funding has since diminished significantly and, consequently, so has the affordable housing.

As a result of increasing home costs and minimum Federal and Provincial funding, efforts have been made by the City of Vancouver to mitigate exponential increases housing costs. Unfortunately, these attempts have had only limited success. For example, the well intentioned implementation of the rate-of-change bylaw, that requires a one-to-one replacement of rental units for new developments in certain areas across the city, protects rental housing stock in a very limited capacity since it does not have the capability to prevent landlords from continually raising rents. This, in turn, has led to a number of superficial upgrades and tenant evictions across the city with those in Kitsilano being some of the most recently publicized.

The City’s approach to engage affordability was outlined most recently in their Ecodensity Charter. Within the document it clearly outlines the strategy they intend to use in order to lower the price of housing: more specifically, that an increase in density and provision of the a greater mix of housing types will necessarily offset the costs of homes while accommodating a wide range of households that will ensure a healthy diversity of people within Vancouver.

I’ve already argued in past articles that the fact that no direct measure, definitions, or targets are given to ensure affordable housing is built as densities increase make the claim inherently questionable, and that affordability has a strong connection to construction and building type. Furthermore, I’ve also described in the last article how the provision of compact housing types - laneway homes, in particular – will not necessarily lead to lower house costs because of the spatial needs of the target demographic currently being forced out of the local market (families with children) and the direct costs associated with building larger homes despite smaller footprints.

With this in mind, there is no need to spend much time reiterate what I’ve stated elsewhere. My purpose here is to critique the very foundation of the argument: the typical belief that densification and supplying more housing necessarily leads to a drop in housing prices.

Although I definitely acknowledge that this is sometimes the case, by no means is it the rule since circumstances change from place to place. Locally, such a belief is unconvincing, at the very least. This is plainly clear in the accompanying graphic showing the population growth and densification (upper graphs) and alongside the average costs of housing in all major Canadian cities.

Given that vast amount of data represented, the information graphic requires explanation. The population growth charts at the top of the graphic – subdivided into Westside, Downtown and East Vancouver for clarity purposes – depicts the census data of Vancouver’s growth from 1971 to the 2006 (the most recent information available). Looking at the pattern within the charts, 1986 is shown as a key year that began Vancouver’s population explosion and construction of buildings to house them. This coincides with the time when zoning and regulatory frameworks created by the City allowed higher density building to be constructed in specific locations throughout the city - Downtown and East Vancouver, in particular - and the beginning of the tower construction phase of Vancouver.

Below these charts, the pivotal year of 1986 is shown amidst real estate and financial data showing the average price of homes across all the main cities in the country (from Jan. 1980 to Feb. 2008) along with monthly interest rates (in gray along the bottom) since 1974. Furthermore, the graphic is annotated with the years and events that many people believe had a particular impact on housing prices.

The inclusion of interest rates is the means by which I’ve chosen to simplistically show the status of our national economy. Without delving into the depths of monetary policy, interest rates are used as a tool to control investment, inflation and unemployment. In very basic terms, increasing interest rates is used to combat a hot market and resulting inflation since high rates discourage spending. Such an instance is evident in the graphic in the early 1980’s, when Canada’s bustling economy led to inflation and the rise of interest rates to an unprecedented 22.75%.

Conversely, lowering interest rates is used to encourage spending and investment in times when the economy is doing poorly and/or unemployment is high. An good example of this is in 2001-2002 where post 911 threats of economic turmoil led to a significant lowering of interest rates to the base rate of 3.75% (as depicted on the graphic) so that the masses would continue to spend money and keep the economy steady.

With this in mind, the graph shows a relatively solid and steady Canadian economy over the past 10 to 15 years. From this it would be fair to assume that slightly inclined trajectory of most of the Canadian cities reflects the latter, since most follow approximately the same rate of increase of house prices.

Two main deviations are readily visible. Firstly, Calgary’s vast jump house prices within the past 3 years. This is explained by the the economic and population growth to many Albertan towns and cities brought about by the decision to aggressively mine the Athabasca Oils Sands. Secondly, and most visibly, is the how different Vancouver is from the rest of Canada.

What can account for such a deviation?

As discussed above, the increase associated with the economy only partially explains the difference. Surely, speculation has played its part, but given that other cities are subject to the same type of process, I don’t believe this is enough to explain such a radical departure from the norm.

In conjunction with Vancouver’s increasing importance as a gateway to the Orient, an analysis of the information pattern even points to the possibility that densification, itself, is a least partially responsible to the increase in housing prices. Evidence of this is potentially given by the slight lag of price increase 1 to 2 years after 1986, when densification regulations were granted. Thus, 1987 and 1988 coincide with the completion of the first densification (high-rises, etc.) projects within the city. This point marks the beginning of Vancouver’s jagged rise in house pricing – continuing well beyond its Canadian counterparts. Insofar that the construction of new buildings increase surrounding land values, such a pattern makes logical sense.

Thus, encouraging new construction around the city is can be seen as one of the culprits of our housing price woes. Given that this is inherent to most City led initiatives - Ecodensity included - one can only assume that prices will continue to rise (or not substantially decrease) unless other efforts are made to counteract the process.

Taken as a whole, this graphic shows that housing prices have increased with densification and the growth of housing supply. This ultimately brings into question the fundamental assumptions behind the City of Vancouver’s strategy to combat the affordable housing issue: more specifically, that housing becomes more affordable with an increase of (compact) housing supply.

This is simply not the case in Vancouver.

Towards this end, responsibility must be taken by our leaders to ensure, at the very least, that median wage earners within this region can afford median rental or ownership units within the city. This requires structuring policies and development regulations for this purpose. Donald Elliot, the well-known environmental and and author of A Better Way to Zone, said it best when he wrote that City’s must acknowledge “that the affordability of housing (not just the supply) is a zoning topic.”

Please check back next Wednesday for the final part of this five-part series.

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Other series articles:
The Cost of Affordability - Introduction
The Cost of Affordability - Affordability and Diversity
The Cost of Affordability - Affordability and Environment
The Cost of Affordability - Epilogue

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Erick Villagomez is one of the founding editors at re:place. He is also an educator, independent researcher and designer with academic and professional interests in the human settlements at all scales. His private practice - Metis Design|Build - is an innovative practice dedicated to a collaborative and ecologically responsible approach to the design and construction of places.