By Gord Price
The economists are not impressed:
“I hate it. To be very clear, I think it’s really bad economics,” said Tom Davidoff of the University of B.C.’s Sauder School of Business.
“Big picture, it’s a step in the wrong direction. We have too much demand chasing too little supply.
Davidoff said the move could be an attempt by government to prop up a real estate market that is at risk of a sharp decline in 2017.
Given that the provincially backed loan program that matches up to $37,500, or five per cent of the home’s purchase price, applies to houses worth less than $750,000, how much effect will it really have on the most over-heated markets in Metro Vancouver?
In other words, isn’t this really another Liberal program to extract wealth from the Lower Mainland and target it to assist those elsewhere in the province?
And, in this case, is that so bad?
Oh that just made my day. Surely the Liberals’ policies aren’t part and parcel with helping out the burgeoning middle classes? Say it ain’t so Joe!
Since Ottawa trimmed the CMHC rules and forced banks to underwrite sub 20% down loans using the rack rate of 4.7 to soon 5% as opposed to a real interest rate of say 2.5% it is getting tougher to get CMHC loans. Ottawa also took away the ability of non-ban lenders to get CMHC insurance. As such loans are tougher to get and CMHC insured loans lower, and as such it makes sense to me that the BC government tries to counter balance that federal move, once, for each home buyer.
$750,000 gets you a condo or a townhouse further out in MetroVan or a basic house even on the fringes of MetroVan.
Seniors can already delay the provincial portion of their property taxes, so why not support juniors, i.e. entry level buyers, too ?
As to supply: plenty of it in MetroVan. Just in Vancouver proper due to too many SFHs (single family houses) will condo prices be higher and houses ever more expensive. It is a myth that Vancouver can achieve affordability with more supply. More supply is just more expensive supply as land costs are so high. The only way to lower prices are government subsidies, aka free land to developers, or ever smaller units aka micro-condos.
With land so high, the common strategy would be to divide it into smaller pieces. You correctly point out that SFDs are an issue, but I wouldn’t say there are too many. What the real issue is in terms of land use is that so few detached SFDs occupy too much of our constrained land supply. Mountain Math puts it at 80% of all private land in the city.
You can still have freehold SFDs, but an increasingly common theme arising today is that we must now explore attached SFDs using far less land in RS districts. There are one or two major political and planning blockages to this, but the geometry is really quite simple.
Assuming a minimum of quality heritage / character homes and few healthy veteran trees, three standard lots could be subdivided into:
– at the low end, six two-storey basic rowhouses on slab at grade (no basement, basic interior finishes, two rooms up and two rooms down), essentially starter homes on 16-foot lots
– at the high end, six four-level terraced rowhouses (basement suite, main floor suite, and two-storey upstairs suite) where rental income significantly elevates an upstairs family’s income
– add six flats over single garages in the lane and you’ve got a total of 12 basic homes at the low end, and 24 homes of varying status (rental and fee simple, basic and more expensive) at the high end, all on land where three detached houses once stood
– add an allowable additional unit or two as an incentive to retain and possibly move character homes and dismantle and to recycle the materials from non-heritage homes
– I believe the above housing offers the ability to avoid the Strata Title Act if all structures were independently supported (possibly with a small air gap between) to in turn avoid load-bearing party walls and common space, and if the number of suites per house does not exceed three
All it takes is a bit of creativity.
Taking a $3.5M house on a 50 ft lot and making it into 3 TH lots is $1.2M per, plus $800M to build is a $2-2.4M TH.
Even if you do 12 you might get 12 $1.0 to $1.2M condos.
Not exactly affordable either !
The issue of affordability is land prices.
In my neighbourhood small lots with SFDs go for about 1/3rd less than the same house on a standard lot. This has been the approximate ratio over several years even with upward-trending rises in prices. Houses on small lots with suites have the capability to offer a SFD as well as concurrently increase the family income. The price-to-income spread is reduced from both ends. I think there is great potential to diversify that trend by developing a new design standard for attached single-family houses on smaller lots. When compared to today’s standard lots, these houses (especially with suites) are relatively more affordable.
To stabilize housing prices in this town you have to stabilize land prices. Until that happens (interest rate rise anyone?) more creative ways to use the expensive land more efficiently are necessary. That ability is being constrained by overly-conservative zoning policy. By “overly-conservative” I’m not referring to one side of a bubble diagram filled with left-right artifice, but to the lack of will by a bunch of scaredy cats at city hall.
Then there is the issue of building more rental. This is where the public sector can affect real positive change.
Indeed it would help if say 50% of SFH zoned areas in the city would be zoned at least duplex, or up to 4-plex. Keep in mind though that this policy would force up SFH prices as they get scarcer and scarcer. Upzoning along most arterial road, say King Eddie, 76 Ave, Fraser, Knight, Hastings etc would help too, say 6-8 stories. Far too many SFHs along those major thoroughfares. A subway under Hastings would be in order, too to reduce traffic.
I think the crux of the issue is to continue to increase the supply of freehold single-family homes, but to focus on developing our own West Coast Rowhouse. That is, to finally acknowledge that the single-family detached home is now obsolete and that single-family attached homes should be allowed to take their place naturally.
Of course this evolution to better land use should be accompanied by better transit and walkable retail urbanism on our arterials. The Missing Middle needs to be found first.
I agree Alex. We need to let home owners decide what they want to do with their land. If they want to build 3 buildings, let them do it. Tokyo does this, and they have no housing problems. Are we in denial? Are we trying to deny the biggest problem facing society today? Can you say the words “homelessness”? I bet Thomas you can’t say those words.
If this is truly the biggest problem, should we still try to maintain the “character” of our communities? Are we trying to hang on to a vision of the 1960’s Vancouver? Are we trying to stop change from happening, when the status quo would lead to more people flooding out of the city?
We provide affordable housing ( mobile home parks, townhouse developments ad apartment buildings – tens of millions of it ). Do you ?
I pay massive amounts of taxes. Do you ?
I have been frequently pointing out the excessive salaries & benefits of provincial and city employees, despite far lower layoff risk, shorter hours and higher pensions. That grotesque overpayment is the #1 reason for the lack of funds for fighting homelessness in Vancouver.
==> What is your solution? What is your contribution to homelessness ?
Thomas,
Affordable housing is different than “market based “for profit” rental housing which typically consumes a large percentage of a low income. Not affordable from the occupants’ perspective.
Your business model does not address the issue of homelessness, so you should not imply that you are doing so, you are not the answer to homelessness. Homelessness is addressed through one main channel in society; CHARITY as in unconditional, non-transactional shelter support that is provided by;
A charitable person.
A charitable non-profit organization.
Through a corporate sponsorship program.
Through social safety net public policy.
[I pay massive amounts of taxes. Do you ?]
Why brag? Are you trying to be a “Big Shot?”, Santa is going to notice the bully behavior.
You pay the same personal and business tax rates as everyone else. You are not special.
You are holding a grudge against city employees’ over compensation benefits and wages. Why be nasty? The Grinch is going to notice.
[What is your solution?]
The civilized solution is; be nice and Santa will bring you a present, a present just for you.
Be naughty and you are going to continue getting “massive thumbs down votes”.
We have several handicapped or very low income folks in many of our buildings, many of whom are supported by charity or governments.
I haven’t noticed I am naughty. I am merely blunt and direct, by pointing out, for example, that non-tax paying bloggers’ opinions are often naive or unrealistic.
Blame CUPE as the biggest reason for homelessness in Canada as their polices suck up much of the tax $s that could otherwise be used for transit or homelessness. Monopoly employers are being sucked dry for cash as they can’t go bankrupt like GM, AirCanada, Apple or Nordstrom could.
I also have to say that I find subsidizing developers a non-starter, unless a government agency negotiates the funding of social housing or public facilities within a developer’s project.
Demanding a % of affordable units in exchange for lower CACs and/or subsidized land is an option for cities, as is lowering salaries of civil servants, as is densification, as is increasing revenues through parking fees in residential streets or raising property taxes. Cities have many tools, but many are not used.
Have you studied economics? If there was sufficient supply, there wouldn’t be any housing bubble at all. Look at Tokyo. There is no supply problem there. The housing prices have gone down over the last 20 years just as population tripled.
I guess you read that article on Tokyo in the FT a few weeks ago. I’ve been circulating around. It would require a virtual state of anarchy compared to the iron grip that Vancouver city hall now has on what is built. It could not happen with the present administration. As the last planner told us, they have a very ambitious agenda.
Population tripled ? Where did you see that ? Japan’s population is declining as they do not allow any immigration, and like most western societies do not have enough babies per female. Tokyo is very dense, and not only high rises but many low-rises too and certainly Vancouver can learn here.
Kyle, google Japanese asset price bubble. Prices in Tokyo have declined over the last 20 years not because of supply but because they were in the throes of a huge bubble at the start of the 1990s.
As with the non-resident buyer fee, this poorly-thought-out move is going to help the Liberals regain power next year. Unlike the NDP, they are at least pretending to do something about affordability.
The guaranteed loans (AKA Freddie Mac and Fannie Mae) is what caused the housing bubble and collapse in the USA. This is not what we need. We need more supply, and that comes from eliminating restrictive zoning laws, and clearing up land.
The housing bubble in the US was mainly caused by lose lending standards, and that is very very different today in Canada.
The 5% or up to $37,500 subsidy was a good move in my opinion !
Since Ottawa trimmed the CMHC rules and forced banks to underwrite sub 20% down loans using the rack rate of 4.7 to soon 5% as opposed to a real interest rate of say 2.5% it is getting tougher to get CMHC loans. Ottawa also took away the ability of non-ban lenders to get CMHC insurance. As such loans are tougher to get and CMHC insured loans lower, and as such it makes sense to me that the BC government tries to counter balance that federal move, once, for each home buyer.
$750,000 gets you a condo or a townhouse further out in MetroVan or a basic house even on the fringes of MetroVan.
Seniors can already delay the provincial portion of their property taxes, so why not support juniors, i.e. entry level buyers, too ?
As to supply: plenty of it in MetroVan. Just in Vancouver proper due to too many SFHs (single family houses) will condo prices be higher and houses ever more expensive. It is a myth that Vancouver can achieve affordability with more supply. More supply is just more expensive supply as land costs are so high. The only way to lower prices are government subsidies, aka free land to developers, or ever smaller units aka micro-condos.
You haven’t been improving your reading skills in your haste to make repetitive points.
Where is there a workable precedence of supplying free land to developers in other older cities who have dealt with this issue for a lot longer than Vancouver? Show us the research, the real, peer-reviewed economic studies that prove subsidizing developers to utter saturation with taxpayer’s money to develop private housing on public land has led to nirvana.
What is your motive here? To lower public sector wages across the board and divert the money into your own pocket by affording you the opportunity to build private projects on “free” land? To rob from CUPE member Peter who fixes public roads and water lines to enrich Thomas?
According to real, honest to goodness independent economists, folks who have actually done the math without the influence of vested interests (Davidoff, Pastrik, Chakrabarti …) our main issue is with land use zoning that has failed to meet the demand for a far more diversified housing supply on a constrained land base.
Note the word “diversified.” We have detached freehold homes and strata titled condos / townhouses but absolutely nothing in between in the private market. That has to change.
And ranting on and on about “outrageous” public sector wages and government subsidies while concurrently calling for billions more in subsidies for fantasy transportation schemes and a massive giveaway of land free to developers has to be called out for what it is: hilariously ludicrous. You don’t have an economic leg to stand on.
Free land tied to conditions will lead to affordable housing for a few.
Due to high land prices medium density might make sense in the east or south of E-Van, but not anywhere else in Vancouver. Rezoning a 50×125 lot into Triplex will result in two new expensive homes.
It’s just economics 101.
Cheaper housing exists in MetroVan’s outer regions as land is cheaper.
Lower public sector wages lead to surplus $s that can be invested into affordable housing, transit or homelessness related issues. The wage debate is part of the solution, but like most issue not a standalone issue. But you correctly point out CUPE as the robber.
Please stop your cyber bullying, btw. I have no personal motivation here so why do you insinuate it ?
@Thomas
You’re right; if you rezone one single-family property into a highrise, it won’t lower affect the housing prices, because one highrise in a city is a drop in a bucket.
But that’s not what we’re saying.
The biggest problem is the zoning codes that force *entire neighbourhoods* to be single family homes. These areas such as Strathcona, Shaugnassy, West Point Grey, etc., if there were no zoning laws, these areas would be all midrise and look like the west end. There would be enough increase in supply to lower the prices substantially. I
Zoning laws are very successful at preserving the “character of our neighbourhoods”, but they are snakes that choke supply and balloon housing prices.
@Kyle: any city needs a mix of zoning. Rezoning some of the current SFH zoned streets to higher density makes sense, as we see along Cambie or Granville now. However, it does NOT create affordable housing. It just creates more ( expensive) housing at $1000/sq ft or more. Only cheaper parents of E-Van might create more affordable housing say along Hastings, Terminal Ave, Fraser, Commercial, 76 Ave etc but do not expect it to be very cheap either. The affordable housing train has left Vancouver unless government subsidizes it. Even west end has no affordable new housing. Everything newly built is well over $1000/sq ft now. Cheaper housing exists further out in MetroVan, but we need more rapid transit.
Great electoral ploy, terrible economics.
One expects no better from Christy Clark and the BC Liberals.
Agreed! It does make some sense when you look at the last Provincial Budget….land transfer and increased property tax were the two driver’s of the surplus. Rather than simply profit off of a Lower Mainland real estate run up, might as well extend it to the Fraser Valley, Victoria and Kelowna. Fill those coffers and pretend you’re doing something about affordability at the same time.
Surplus? Perhaps on paper. But it’s an illusory and a very weak diversion when the provincial debt is approaching $65 billion and $20 billion in wasteful mega-highway projects with no possible return on investment have been built in the last decade or are on the books.
The surplus is a BC Liberal accounting methodology bragging point that bears little relation to sound economics.
Best performing economy in Canada. Budget surplus. CO2 taxes even. The highest in Canada.
http://www.cbc.ca/news/business/conference-board-canadian-growth-1.3633173
http://www.cbc.ca/news/canada/british-columbia/b-c-forecasts-larger-than-expected-budget-surplus-1.3873164
Indeed it could even be better if we actually reigned in those excessive salary packages of provincial employees Fair pay for fair work .. not 20-50% more please !
https://www.fraserinstitute.org/article/reining-civil-servant-pay-packages-one-way-control-government-deficits
What’s the better alternative ? NDP type tax hikes, even higher and even more civil servants a and a slumping economy with rising energy prices like ON or AB ? Trump-style tax cuts ? Higher PST but lower income taxes ? No more new bridges for perpetual gridlock ?
Thomas, you keep harping about civil service salaries – did it ever occur to you that private sector salaries are too low? Also, I posted research which shows that BC NDP had better economic outcomes than SoCred or Liberal so please stop the nonsense about NDP tax hikes. The bragging of conservative governments that they are better stewards of the economy is not borne out by any facts.
Private sector pays what the market demands. Why pay $65,000 if enough qualified candiadtes at $55,000 show up ?
Ever heard of competition ? Feel free to open your own airline, car manufacturer, coffee shop, restaurant or plumbing company and pay well above market, and see how long you last. That is not illegal, you know ?
As to NDP: only overpaid civil servants benefit, as we clearly see in Alberta right now, and everyone else is paying for it. Plus the NDP wasn’t even elected in Alberta, the PC party was de-selected and NDP slipped in due to right of center vote splitting between WR and PC That will likely be correct in 2019. NDP knows how to spend and raise taxes. That is their only skill. That is why they do so poorly in every province in Canada or on the national level. MB was the last province to throw the bums out this year.
But yes, BC is like the US .. a close 50/50 split between “deplorables” in rural and suburban ridings and enlightened city dwellers. We shall see how the pendulum swings in May.
Stephen Quinn put it succinctly in his column in the BC section of Saturday’s Globe. He noted the most important thing was not that Christy and her Minister of Gas — er, Housing — announced a subsidy to private housing, but where it was announced. In front of a townhouse development in the suburbs. He wisely tied housing to transportation and said in his view it’s not realistic to build higher density in the suburbs without much better transit service.
He also noted that the premier wouldn’t go anywhere near Vancouver city with this announcement because the lack of affordability is already too deep there (and requires more complex solutions than is possible to explain in a 10-second sound bite), so she tailor-made it for the BC Lib’s own suburban voters who, if they continue down this ill-advised path, will fill up vast new bridge and highway lanes until the province has been bankrupted.
Some suggest that restrictive zoning across substantial areas of Vancouver obviate the possibility that any new home, other than a condo, is in reach of first-time buyers, except in the growing outer regions.
This is insanity IMHO