Housing affordability is now the No. 1 topic in Vancouver – particularly with the announcement of the Mayor’s Task Force on Housing Affordability. Bob Ransford adds some helpful perspective in this week’s column in the Sun’s Homes section. But I have a few questions.
(1) “The Community Amenity Contributions equate to as much as 75 per cent of the estimated incremental land value that is created by a rezoning,” Bob notes. “Last year, the City of Vancouver collected $58.1 million from charges it imposed on new development, much of it on residential development, to fund public benefits, community amenities and growth-related facilities.”
First question: Who instead should pay? Or should the city forgo those benefits in the expectation of lower housing prices?
(2) Bob quotes business prof Michael Goldberg: “At a general level, our restrictive and purposely underzoned city provides a huge restriction in housing supply and therefore increases price. The city keeps outright zoning densities low so that it can negotiate rezonings and in the process realize 75 to 80 per cent of the expected uplift in land values associated with rezoning to a higher density,” Goldberg explained.
Second question: Across-the city upzonings? No more negotiations – just assume the increased value from higher densities will go into lower housing prices and not to the landowners?
(3) Third question: What happens across the City of Vancouver’s borders? Is there a substantial drop in housing prices, reflecting the disproportionate effect of Vancouver’s policies?
You needn’t be Bob Ransford to respond.
2) Either way. I’m convinced that upzoning large sections of Vancouver would lead to lower housing costs (as land with favourable zoning becomes much less scarce, the price premium should shrink).
However, upzoning is ideal even if you’re not convinced by that and you believe that a huge amount of value would accrue to property owners. That’s still a huge increase in wealth, and the City could easily capture some of it with taxes to use for any purpose (subsidized housing if you like).
I have tremendous respect for Bob and appreciate his many contributions to the housing debates in Vancouver through his thoughtful articles in the Sun, but this one disappoints and vastly simplifies a much more complex issue (as Gord’s 3 questions illustrate so well). Yes, CACs and other development charges add to the cost of housing supply, and absolutely how Vancouver regulates land use and development intensity determines the type, location, and character of new housing. However, what remains to be understood is how influential these policies and regulations are to the final cost of what is almost entirely a market commodity.
In general, the strength of the Community Amenity Contribution (CACs) system is that it is a pro forma-based evaluation of the increased value of land generated by the increase in allowable development (‘density’). It is the most market-responsive system that I am aware of in North America and is sensitive to the market price. The lower the final anticipated market price, the lower the CAC (and the higher the market price, the higher the CAC). In this way, CACs ensure that some of the increase in private value from a rezoning is translated into public benefit (usually to offset the local impacts of the increased density). The argument that CACs inflate housing costs and are simply passed on to the home buyer reflects a pretty simplistic assumption that the developer would sell for less than what apparently the market will support, and I just can’t see that. I do believe that the CAC program is so well-developed and so well-refined, that we can find cases where the City expects more than a development can support (particular in the case of a developer who has overpaid for land – a common occurrence in a city with limited supply), but the fact that a CAC is negotiated softens the impact of that problem.
Where I am deeply concerned with CACs (and reform is needed) is that they are so well-refined in relationship to typical development is that they can make more unorthodox development (something like 60 West Cordova – although that is not that atypical) more difficult which we can’t have if we are going to address the supply side of the affordability challenge.
And certainly zoning controls do distort the housing market, but the other side of the argument is that neighbourhoods are, and have a right to be, concerned with the rate and character of change from new development. Downtown can’t support the lower density and more ground-oriented housing choices such as townhouses (stacked or otherwise) or other attractive multi-family options because land prices downtown are too high. That means neighbourhoods are the frontier to look at new zoning controls that allow them to evolve into higher-density and more diverse (in terms of housing types) areas. But that is something to be done carefully. So Gord’s questions about how that happens are spot-on.
And finally, I do believe (from my data sources) that Vancouver’s development permit numbers stay consistently strong and perform as well as, if not better than, any other municipality in the lower mainland.
We need to get past this simplistic development-industry centric platitudes about Vancouver needing to just loosen up. Reforms and innovative thinking on housing is needed and the first step is to move the debate past the CACs are bad and zoning is the problem, or alternatively, the development industry is bad and the City is in their pocket, generalizations. They do not come close to accurately or honestly address what is a very complex and challenging problem in Vancouver.
There are examples of cities with relatively large amounts of regulation that have been saved significant fallout due to oversupply. I know builders want to build but they should be careful what they wish for.
The “less regulation means more supply” and “lower taxes means lower prices” mantra, a leg of the supporting argument being that landowners will simply hold out if land values drop, is not borne out with data or common sense. The effects of marginal land use decisions have been unduly amplified under supply-side demagoguery.
Developers know that CACs need to be paid. The real problem is the uncertainty on how much the city will be asking for and in what form (cash/daycare/etc). Fact is there a lack of consistency and transparency in the system for both the developers and the public. Heck even with the current policy one agreement at 70% lift as opposed to the same at 80% could be a swing of millions of dollars.
A new arrangement needs to be implemented which takes the guessing game out of the equation. Personally I favor a system with a fixed price attached to new density. If $65psf is what the system values density at according to the density bank, then perhaps the city could charge $50psf for all up-zoned density (proposed density-current allowable). This would speed up the process, and make it clear to all parties how much will need to be payable. I’d go one step further and require all CACs be payable in cash form only, in order to avoid the perception of the city getting shafted on some trades.
I am not an economist, but…
CACs are similar to a land value tax. Ideally, they would be levied on the increase in land value resulting from a rezoning and charged just once at the time of rezoning. Annual property taxes apply to the value of improved land, while a land value tax applies only to the unimproved land.
http://en.wikipedia.org/wiki/Land_value_tax
The wiki article describes some of the theoretical reasons for charging a land value tax instead of or in addition to other forms of property taxes. A land value tax “is often said to be justified for economic reasons because if it is implemented properly, it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do.” A land value tax applied generally is said to reduce the amount of wasted land, though I think that should only apply to ongoing/annual taxes. Such a tax should also reduce speculation.
There are some issues with charging land value taxes in general, but a tax on the change in land value at rezoning would resolve some of them. The land value before rezoning should be well known, but the value after would have to be separated somehow from the value of the buildings. If a tax included the value of improvements, it would not be a land value tax and it would not have the benefits mentioned above. The entity to charge the tax to, the developer, is well-defined.
It is also fair to tax increases in land value that result from the construction of rapid transit, parks, and other infrastructure, and such a tax would increase the amount of tax collected where land values have increased and development pressure is great.
Obviously there are issues with CACs being applied unevenly and the rates being uncertain. I think an even way to apply this tax would be to charge some fixed percentage of the increase in land value resulting from the rezoning.
Interestingly, Vancouver used to have a modest land value tax:
“Land value taxes were common in Western Canada at the turn of the twentieth century. In Vancouver LVT became the sole form of municipal taxation in 1910 under the leadership of mayor, Louis D. Taylor.[42] Gary B. Nixon (2000) states that the rate never exceeded 2% of land value, too low to prevent the speculation which led directly to the massive 1913 real estate crash. All Canadian provinces now have moved back to taxing improvements.”
Regarding item (1), where did money for construction of community amenties come from before CACs? Community centres and public libraries, etc. are not recent innovations.
If the money came from general property tax revenue, then why can’t it do so (again) over all property owners? That could reduce the “barrier to entry” aspect for new developments? (That of course, assumes that “property virgins” are buying those new developments rather than in older buildings or in more established areas.)
New developments, would generally result in an increase in property value (land and improvements) post-development – so that’s where the City would get its property tax increase (that also assumes its residential lands be upzoned for intensified residential use) – there would just be a delay in the City getting revenue (i.e. no immediate upfront windfall). If the lands rezoned were industrial or commercial there may be a net reduction property tax after redvelopment (due to the higher commercial property tax rate.