Just in case you missed this thoughtful comment from Jimbo – a young PT reader – below the Kluckner video, I’ll reprint it here. I’m sure he’d welcome your further thoughts.
.
I’m a young guy, and I am
certainly no expert on any issue. However, I’ve got to make a point. I’ve been
confused for a long time about commonly expressed opinions surrounding condos
and gentrification in Vancouver. Although I hear attitudes that differ to mine,
I sometimes don’t understand what the evidence is to motivate certain attitudes.
I think it’s safe to say Michael Kluckner values housing affordability,
historical preservation, and neighborhood character and considers gentrification
to be a force that works against those things. A common notion (expressed not
just by Michael) is that condos are a symbol (and cause) of
gentrification.
But I’m just confused by the economics. In the graph
near the end of the presentation, condos ranked the most affordable (admittedly
to buy) compared to single detached homes and townhouses. Also, the most
conventional story in economic theory suggests that increasing housing supply
decreases housing prices (with a ceteris paribus assumption). If a condo tower
increases the density and population of a neighborhood by adding 150 units, in
the long-run it doesn’t make sense to me that prices should be caused to rise.
I think what might be going on is a correlation-causation fallacy. Housing
prices rise, so there is increased pressure to build condos; it’s NOT that the
building of condos causes housing prices to rise.
Some of the ideas
expressed in Michael’s presentation stuck me. He said there is a strong
connection between housing affordability and deferred maintenance, so much so
that they are synonyms. He also said that gentrification leads to depopulation.
Of course I may be wrong, but I just don’t think the data backs up these
points. I recently read a piece in the Atlantic about the affordability crisis
in San Fransisco, which, much more than Vancouver, has pursued a policy of
preservationism over housing supply growth. Left wing neighborhood groups have
succeeded in preventing construction of new housing in the hopes of preserving
their neighborhoods and preventing gentrification. In reality, it has
exacerbated the problem.
Economic theory suggests that it’s not
necessarily quality of the product that determines price, but the relation
between the quantity supplied and quantity demanded. Historians and economists
are sometimes at odds, but I think the more compelling story is simply that
Vancouver has become a more desirable place to live over the past half century
and growth in demand for housing has outstripped growth in supply. Thus, the
building of condo towers could actually be a method of “de-gentrification”, and
preservationist, neighborhood groups may be the true agents of gentrification.
Vancouver is a victim of its own success and desirability, and gentrification
on commercial drive can be resisted, but as long as the well off can buy what
they want, it cannot be stopped. The only way to keep prices down is to make
room for the newcomers.
I can see how people might think condo
development is a cause of gentrification and stopping it will stop
gentrification. The newcomers will live in these buildings, right? So stopping
these buildings will prevent the newcomers from coming? Perhaps to a limited
degree, but unfortunately not entirely. As long as newcomers come and there
isn’t room made for them in the neighborhoods they want to live in, economic
theory suggests they will bid up the prices in those neighborhoods and drive out
the current tenants anyways. Counter intuitively, perhaps the best way to help
the poor and prevent them from getting evicted from their neighborhoods is to
build housing for the gentrifying rich.
Here’s a short piece giving the
economists’ perspective:
This was an excellent read. Thank you Gord for posting it in a more prominent location.
What most preservationists actually want is not just to control supply, but also control demand. Ultimately they want the gentrifying rich to go away and not settle here at all.
Terrific read. I hope Jimbo is represetative of the millenials; and thay they can indulge in clear and critical thinking, their minds unclouded by the mainstream media. I hope that the young like Jimbo can look at the so-called discipline of ‘economics’ and see what it has evolved into – manipulation of a social science by sprious mathematical models and analyses.
And a thousand people a month are moving into Surrey…..
Great post, Gordon.
I have to post something at least mildly critical of some of the points made in the above piece. It’s not that it’s not well thought out or generally factual, as it is. And yes, supply and demand do play a large role in housing prices. But I don’t think we can look at supply and demand at a macro level, as if we just look at the total number of units in a neighbourhood, then we are blind to the types of units in that neighbourhood. This young PT reader touched on this when he discussed deferred maintenance, pointing out more run-down units tend to be more affordable.
The problem isn’t so much the added supply, it’s the type of added supply. Number one: condos are for sale. Yes, they are cheaper than other forms of housing that are for sale, but houses at least come with mortgage helpers in the form of basement suites, which also provide much-needed very affordable rental in a neighbourhood, something much cheaper than condos. At the same time, our affordability problem stems from people who can’t afford to even rent in Vancouver, let alone buy. What is a condo going to do to help those people?
And not just any condo, but condos, as primarily investment properties, tend to have high-end finishings. Marble countertops are common, as are ensuites in units with as few as two bedrooms, and especially walk-in closets. These are not the kinds of features that predominate in affordable housing, and tend to push up the costs. That’s not even mentioning the underground parking Purpose-built rental housing could be made much more affordable, but often times, what’s even more affordable is the housing knocked down to build a new development, if that is the case.
Finally, condos are almost always one bedrooms, maybe two. Yes, condo developers have been building smaller and smaller in the name of affordability, but the truly affordable housing in Vancouver is shared housing, where three or four or even more roommates share a space. This is never seen in condos today.
Secondly, when condominiums destroy older commercial buildings, the same process repeats for the commercial tenants. Older, more run-down commercial services are replaced with more expensive services that don’t cater to poorer residents, or maybe they’re just replaced with nail salons. Either way, it makes the whole neighbourhood a bit more pricey to live in.
What condos do is they make a neighbourhood appear safer for a new class of people to move in, people who might not be interested in living in the existing housing stock. I expect newly built condominiums also provide an incentive for other neighbourhood landowners to fix up their buildings and do that maintenance they were deferring.
In any case, my point in making these comments is to point out that simply citing supply and demand is misleading. It doesn’t address the whole picture. A condo tower can increase supply while for example making a particular neighbourhood more desriable, and thus increasing demand by just as much in that neighbourhood. While the city as a whole may be more affordable because there’s more units on a macro level, that neighbourhood may become more expensive, directly as a result of the new condominium buildings.
But more importantly, what if all those condos were instead purpose built rentals? Or even a third of them? The city would, I believe, be much more affordable as a result of that. We really have to change our mindset about home ownership if we want to seriously address the affordability crisis gripping Vancouver, in my mind, as well as built larger suites that people can share, maybe even including apodments, something much more popular in Seattle.
It is very important when discussing supply of condos in Vancouver to understand that there are very few companies that build them. They own more sites than are currently occupied or developed, and most of these are being kept off the market, in order to prop up prices. No developer would build more if the only result would be to reduce the apparent shortage and hence reduce the pressure on prices to rise.
The finishes used in condos have very little impact on the price. Look at any property valuation statement and you will see that land is the biggest single component – not buildings and certainly not fixtures and fittings.
The reason we have a shortage of affordable housing is that governments (provincial and federal) have tried to get out of the housing business as much as possible. The main reason is that government policies are directed at increasing the welfare of the very rich at the expense of the rest of us – but most especially by removing all of the gains that were made by ordinary people in the post war period (roughly 1945 – 1980). Canada used to be a leader in public housing provision and innovation.
Jimbo: “I can see how people might think condo development is a cause of gentrification and stopping it will stop gentrification. The newcomers will live in these buildings, right? So stopping these buildings will prevent the newcomers from coming? Perhaps to a limited degree, but unfortunately not entirely. As long as newcomers come and there isn’t room made for them in the neighborhoods they want to live in, economic theory suggests they will bid up the prices in those neighborhoods and drive out the current tenants anyways.”
That phenomenon is certainly true in my personal experience. As house prices were soaring ever upward in 1979-1980, we found ourselves having to look more and more eastward (from Kitsilano) in ordre to find a house – not a condo – that we could afford. Luckily no displacement was involved, as the family who lived in the house were the venders, not renters. But paying the going price doesn’t necessarily signal gentrification, as I’m fairly certain the family that sold the house to us were wealthier than we were at the time.
So, the question is, just what is gentrification, especially, in our case, if “poorer” folks replaced richer folks, and, additionally, there wasn’t any impact on phyiscal charactr of the neighbourhood.
I like the way the commentary is written – well thought out and articulate. However, a few points:
1. “Left wing neighborhood groups”
Careful, your bias is showing 😉 I am a left-wing guy, and in some places I’ve lived I would be considered a gentrifier. I am also generally in favour of increasing population density.
2. Gentrification, densification, and condos are not the same things. You can have one or two without the other(s). For instance, I’m OK with gentrification, generally like densification, but would not buy a condo. I would rent one, but I wouldn’t own one.
Generally speaking, I also think that much of Vancouver could (and should) be made denser without using many condos.
3. IMHO the biggest productive factor that would make Vancouver housing cheaper to buy is for there to be an equally attractive place to live nearby. If Victoria were a larger city, or if Calgary were more livable, I think Vancouver housing prices would go down.
Wait a minute – a semi-anonymous comment from someone with the handle-ish sounding name “Jimbo” who says he is a “young guy”? Fair enough in a comment, but if it’s to be headlined, the poster should be asked to identify him (or her?) self. “Young” is rather relative – how do we know it wasn’t written by the young-compared-to-Queen Elizabeth Bob Rennie?
That said, I’m highly in favour of thoughtful densification and I agree with much of what Jimbo wrote, though I’m not sure that a wholesale degregulation of condo-building would prevent gentrification any more than anything else. He’s probably correct, though, that building them is better than not. If only we could build them with developer-community cooperation. That may be a pipe dream, though.
The point I was making in the talk was the historical one: that condos represented a new way to intensify ownership in areas that had been multi-family rental or were in downtown or brownfield areas where there was little chance of a ‘citizen’ owning a place. They represent gentrification now because they’re often the way old rooming houses and shared houses get fixed up; the city’s rate of change rules for apartments are reducing the kind of ‘gentrification’ conversions that were characteristic of the 70s and 80s.
While I agree with the general proposition that housing prices in Vancouver continue to rise because the supply of housing has failed to keep up with the demand, particularly of the steady stream of incoming residents, I think a good part of this argument ends up at the “trickle-down” theory of affordability. In particular the closing claim that “perhaps the best way to help the poor and prevent them from getting evicted from their neighborhoods is to build housing for the gentrifying rich.”
Does an increase in the supply of new Mercedes cause a decrease in the price of a used Civic? You can stretch a bit and paint a picture where the (assumed) decrease in price of Mercedes causes a few more people to buy a Mercedes rather than then next-level down car, which in turn causes those cars to drop in price, etc, etc, until we get a slightly decreased demand for used Civics and thus a cheaper price. But the more direct way to decrease the price of a used Civic is to put more used Civics on the market.
Flooding the market with new condos might decrease their cost, but the price of most new condos in Vancouver is already so far above the reach of most people that even a reasonable decrease in condo prices will have no real effect on affordability for everyone else. Not to mention that it’s extremely hard to get people to sell their homes at loss unless they’re out of a job. A used car salesman can afford to drop the price on his Civics, since they only amount to a portion of his overall inventory, but to most people their home represents a hugely disproportionate part of their overall worth, which greatly amplifies the effect of taking a loss on that sale.
It just doesn’t really work to treat housing as a simple commodity like gold or apples. The market for high-end condos is pretty much completely separate from the market for more affordable housing, and given the historical lack of wage growth over the last few decades, the markets are likely stay separate. What’s needed then, is a way to increase the supply of affordable housing–which right now seems like something that cannot be done without some form of government intervention.
Government intervention has done a good job of reducing supply (via restrictions on developement in desirable areas) at the local level, reducing areas to develope in general via the ALR at the provincial level, and continuous immigration at the national level that in Vancouver (and many of it’s suburbs even) even your Civic (if your lucky) property will be had at Mercedes prices (if you look long and hard).
While some regulation is good perhaps something goverment invention is also part of the problem.
This whole discussion is clearly confined Vancouver’s overpriced real estate market and yes, it is a semi-victim of its own location city desirability and hemmed in geographically by mountains and ocean. Doesn’t look as if there’s going to be drastic rectification of the local estate prices for affordability. Ever. (Unless an earthquake hit…)
I know 2 young folks, each are in their mid-20’s and have full-time jobs. They each just bought a single family home to live in, within the last 3 months. In Calgary. In the ‘burbs where it’s cheaper but not necessarily “prettier” to live nor in walkable neighbourhoods. Yup some millenials are used to car driving, etc.
We must not fool ourselves: in huge other chunks of Canada, millenials may have it quite differently in terms of their lifestyle, housing choices.
In general, it’s not cheaper to live in the suburbs than in the city. It may seem cheaper if we forget to account for transportation, health, social subsidies, etc., but it’s not actually cheaper.
Also, Calgary is the exception in this country, not the rule. Check median incomes in Calgary and compare them to anywhere else in the country. You wouldn’t believe how many 20-somethings in Calgary think it’s normal that they are paid $90k a year in their first career job.
Well, I’m absolutely flattered that Gord chose to repost my comment. I enjoyed reading the replies and different opinions. A lot of valid points.
I was born in 1992, so I classify as a Millennial I guess.
Although I grew up in the suburbs, I don’t want to live there anymore. I want to live urban and cheap. For that reason, it’s really quite predictable that those neighborhoods most on the verge of gentrification are the ones in the crosshairs of folks like me. It’s because I am a gentrifier – I am what neighborhoods fear. Watch out Commercial Drive, Main Street, Strathcona…
Unfortunately, it’s likely my choice to compete for housing in those neighborhoods would drive someone else out of the neighborhood. If housing supply doesn’t increase to accommodate another individual, then it *necessarily* means that, doesn’t it?
I know people feel passionately about their neighborhoods and don’t like newcomers and gentrifiers, but from my perspective the debate sometimes seems as one between affordability for some and aesthetics for others. Middle aged folks who own their homes don’t want to see see tall, unsightly buildings in their neighborhoods. It’s not about keeping prices low and people in their homes; it’s about keeping the newcomers out and things the way they are.
I will not live in a condo any time soon. But, building condos relieves pressure on the “deferred maintenance” basement suites that I want to live in. This runs contrary to the narrative we hear all the time. “Condos push people out of their homes and destroy existing housing stock”. But the most controversial condos do not destroy any existing housing stock, as far as I’m aware. Think of the Oakridge redevelopment, the hyper-controversial tower above Commercial Skytrain, or the proposed condos around the Viaducts. These examples would add thousands of new housing units to the city and relieve pressure on thousands of existing basement suites. It’s justifiable to argue (and I do) that these projects would make the city more affordable. With what legitimacy can they be protested? Is it about aesthetics and “neighborhood feels”? If that’s the issue then come out and admit it; don’t hide behind a hypocritical veil of “social justice”.
What I read in the comments is that, in some way or another, there is a failure in the housing market that requires government intervention. This market failure redistributes wealth from the poor to the rich. Stephen Rees (who studied at London School of Economics, no slouch) seems to suggest there is an oligarchy in the housing market causing higher prices and reduced supply. These traits are consistent with the nature of an oligarchy, but I still disagree that there is one. Housing supply, once built, does not perish easily. We have housing supply from 100 years ago still kicking around. This fact will destroy any oligarchy’s market power. There are millions of housing suppliers and millions of housing demanders in the city – this is more consistent with a competitive market than an oligarchy.
It reminds me of the tale of Alcoa, the aluminum monopolist. What destroyed Alcoa’s monopoly power in the market? Not government intervention, it was recycling. Suddenly aluminum did not perish and remained on the market for others to resell. The same premise is true for housing stock.
So, I still remain confused about how condos contribute to higher housing prices or gentrification and why there is a need for governments to curb development to the extent that they do. If there is some market failure, which is certainly possible, that would justify government intervention. As of yet, I do not understand what that market failure is.
Jimbo wrote: “But, building condos relieves pressure on the “deferred maintenance” basement suites that I want to live in.”
I’m very skeptical about that, because I think the people looking to live in condos are different than the ones looking to live in basement suites. If you tear down some basement-suite houses to build condos, what you’re doing is importing new “condo people” into the neighborhood and driving at least some of the “basement suite” people out. In fact, you’ve actually increased pressure on those basement suites because fewer of them are available. This is exactly what anti-gentrificationists fear.
The people buying/renting new condos are not the same people renting old basement suites…..but….imagine a new condo with 10,000 units comes onto the market in a neighborhood. Obviously this will flood the high end market and prices will come down, probably not enough for the basement suite renter, but for the older condo renter looking to upgrade. That reduces the price of older condos….now some of those basement suite renters can afford to rent older condos, that reduces the price of basement suites.
Ah, but why don’t we see prices dropping in Vancouver? To a large extent Vancouver and not individual neighborhoods are the market. Someone who would prefer to live in Yaletown but can’t afford it can still buy at Oakridge. Bottom line demand is greater than supply and price goes up. The only situation I could see where this would not hold true is if an area was so stigmatized it was not considered part of the same market…take all the law enforcement out of the DTES and watch prices there drop (obviously I joke) but that would increase the pressure on other Vancouver neighborhoods. I have some sympathy for antigentrifiers but apart from encouaging rental apartments I don’t see keeping condos out as keeping prices down. In fact I am pretty sure in any place people want to live it has the opposite effect.
“It’s not about keeping prices low and people in their homes; it’s about keeping the newcomers out and things the way they are…. If that’s the issue then come out and admit it; don’t hide behind a hypocritical veil of “social justice”. ”
You nail it right there. In fact there’s nothing you’ve written that I can disagree with. Please start writing a blog, because it’s a view point that us boomers badly need to be hearing.
And I’d take Strathcona out of your crosshairs. It’s already gentrified and firmly in the grip of the Car-Driving-Concerned-Citizen IMBY lobby (not all of whom are boomers).
I’m at the older end of the Millennial curve, and represent a left-leaning data point. I agree with the essential point of the original post, whatever its many caveats: that more housing is better that no new housing where affordability is concerned. All too often it seems that well-meaning residents of desirable neighbourhoods offer no real alternatives that will address affordability by way of increased housing supply. There really is no better argument for this point than the city of San Francisco, where stern BANANA (build absolutely nothing anywhere near anything) development rules and rent control have successfully preserved the city in state while many thousands more people seek to live there. The result is astronomical rents and only slightly less astronomical housing prices. Without the vertical stacking of the downtown core, and the raw housing supply it represents, home prices and especially rents in Vancouver would be even higher than they are now.
There is, however, an insidious bootstrap effect of desirable condos and housing costs, as so many here have alluded to. The rise of Coal Harbour and Yaletown has doubtless contributed to a concentration of wealth in Vancouver real estate, whether by upwardly mobile yuppies seeking safe investment or speculators outright, which in turn makes existing stock more expensive by land value. This then puts pressure on existing housing stock, likely more affordable stock, to develop and go upscale.
In the end, I think we’re debating the relative importance of these two patterns. Which is more important? Does the affordability resulting from increased supply outweigh the “desirability premium” that Vancouver real estate now represents? Only data can really answer that question. My personal feeling is that the increased supply of condos is the more dominant force, and that Vancouver would be cripplingly more expensive in the absence of our glass towers, just like San Francisco. People move here because they want to live here — heck, that’s exactly what I did. They all need somewhere to live. Despite the empty apartments in Shangri-La and similar, the vast majority of apartments in the city house people. Encouraging more managed rental buildings might help. So will densifying existing residential neighbourhoods in ways that are sensitive to their setting.
Unfortunately Jimbo repeats the same old pro-development bafflegab: “if we only we can build more condos prices will go down”. Right, that has worked really, really well in downtown hasn’t it. Maybe if we just need to build more of them and faster, so city councils should just cave in to developers’ demands in order to faciltate this grand quest of affordable homes for all.
Market based approaches will not work in Vancouver where demand to live here is constantly rising.
1. Take an area where no re-zoning is allowed. Static supply causes prices and rents to increase.
2. Take an area where limited re-zoning occurs. This increases the supply in the area, but new construction typically costs significantly more than similarly sized units in older buildings. Thus prices and rents rise. Compounding the problem, re-zoning causes all surrounding property owners to think their land is worth as much as the re-zoned properties. Speculation drives prices and rents up in anticipation of further re-development.
This last effect is clearly visible along Broadway and west 10th Avenue where rents have gone up dramatically since planning for rapid transit got serious. The land is now too valuable to be occupied by small businesses and low income renters.
That is what is feared in Grandview Woodlands: that the whole area will become too valuable for the people who live and shop there to stay. Of course that’s going to happen anyway if no new development is permitted, but it will happen much more slowly. If the Safeway property is rezoned to permit a 40-storey tower, the rest of the area will feel the impact immediately.
It sounds like the cat is skinned, for better or for worse, either way.
http://www.theglobeandmail.com/news/british-columbia/anti-density-protests-in-vancouver-rooted-in-hypocrisy/article15099356/
Hypocrisy.
I love the “if we build more condos the price will come down” argument, which presupposes that developers, who are generally the smartest guys in the room, can be sucked into overbuilding, thus causing a price crash and the loss of their equity/profit. Might happen, but you might also believe in the tooth fairy.
So if developers are an oligarchy restricting supply through collusion, why are they constantly begging to develop more?
Either:
1. Housing supply is not an oligarchy and there is actually plenty of competition to supply housing. Under competitive markets, suppliers supply until they make no economic profit.
or
2. Restrictions prevent oligarchical developers from even supplying the quantity that they’d want to under these oligarchy conditions! Then we are really in dire straights!
Great read. I see this in the context of what is “fair”; Vancouver land is scarce so its allocation is an economic debate and unfortunately installing one resident necessarily displaces another. And in a regional context we cannot say more supply in Vancouver proper relieves stresses region-wide, it could mean less supply in say Maple Ridge where land supply is truly marginal.
Creating new supply seems to be naturally gentrifying, even if they’re stripped down, due to the unit age and better rent terms. If you want to avoid gentrification that seems to mean first someone pays for the subsidy suppressing market price and second demand for the subsidy will outstrip its supply, so you have to determine who gets it. IOW who “deserves” subsidy, and now you’re back to scarcity and “fairness”. Around we go.
@pricetags & young man might review @AtlanticCities article http://bit.ly/W5FbDl+Cdn with related Cdn data ( 2013 study) on Vancouver income disparity & gentrification b4 “theorizing” and glorifying condo-ization: http://bit.ly/XoS9IJ Proper planning methods with measureable results for true affordability ( 30% of avg. incomes) and the densification needed in Vancouver to maintain vibrant, diverse and thriving communities.