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.
We are a nonprofit. Donate now to support more research like this!
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.