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Ransack the Toolbox

April 21, 2011 | by  |  Features

In British Columbia, there are now over 20,500 real estate agents – that’s one for every 226 people.

Since 2001, the median house price in Vancouver has increased nearly 200%; the median family income, 30%.

And in 2010, the price of a detached family home in Vancouver eclipsed $1-million.

Here, the insanity that gripped North American housing markets before the 2008 financial meltdown is still alive and well. Fueled by low interest rates, foreign investment, and the belief that Vancouver is fundamentally different, housing prices in the Big Smoke have nearly doubled over the last decade. And even after the market collapse of 2008, which saw housing prices in North America plummet, March prices here have set another new record.

For the generation that frequents this publication, the boom that’s padding our parents’ portfolios leaves us with an uncomfortable legacy: there’s little hope of providing our children with the childhood provided for us. For many, it’s struggle enough to make rent, let alone support a family.

So then, a sentimental question for you: is this the place you’ll raise your kids?

And now, a practical one: will it be a place you can?

“I don’t have a snap answer or a silver bullet, but I think it is the critical question facing the city,” says City Councilor Geoff Meggs. “It’s not just a question of social inclusion – which is sort of a pompous way of saying the city should work for everybody in it, including everybody who works in it – but it’s an economic question, because the current housing prices and market rents are out of reach of precisely the people we need to build the future economy.”

Take the example of Uta Stolben, an on-call librarian at the Vancouver Public Library, and a near-perfect example of the struggle of ordinary Vancouverites. Stolben and her husband, a college professor, live with their two children in a rented townhome in Champlain Heights. A year after they moved in, the strata passed a bylaw forbidding rentals in the complex. For the past five years their existing agreement has been grandfathered, and the owner, who lives out of country, has kept their rent low so as to continue profiting from the property. According to Uta, the cost is the only thing keeping them there – the unit is too small and in poor repair, and they’ve been forced to upgrade appliances at their own expense. Stolben says they would move out if only they could afford it.

They’re living in what the Canadian government refers to as Core Housing Need: the academic term for households whose accommodations are overly crowded, crumbling, or costly. If your bed touches more than two walls, your bathroom sink doubles as a laundry machine, or you spend more than 30% of your income on shelter, you qualify. No need to be sheepish, though, in this town you’re in good company: according to 2006 census data, nearly one in five Vancouver households is living in core need right now. Even educated, double-income families like the Stolbens.

While the numbers paint a grim picture, Vancouver is not alone, and there are lessons to be learned. A phone call to Tim Wake, three-year Whistler municipal councilor and former head of the Whistler Housing Authority, reveals that the resort town a short way up the road experienced a similar crisis over a decade ago, and they’re on their way to fixing it.

“Up until the early 90’s, people like you and me, people who were earning a reasonable wage, could afford to buy a home in Whistler. After ‘95, it was pretty much out of the question,” Wake explains. “Prices went from about $200,000 to $500,000 to over $1 million dollars and more.”

At a time of explosive tourism and service-industry growth, the spike in prices had some unexpected consequences:

“We were at risk of not being able to get enough people to fill all the jobs that we had. We were also at risk of losing all the volunteers and all the great people that make up a community. Even people like doctors, nurses, firefighters and police were having trouble finding a place to live.”

In response, Whistler established a local housing authority and laid out an aggressive plan to house 75% of its workers inside the municipality by 2020. The Whistler Housing Authority was tasked with creating and managing a parallel housing market restricted to residents only, and with overseeing the ingenious program designed to deliver much of it below market rates. 2020 is still a long way out, but so far the program has been a rousing success.

To understand what they did, we must first understand some development basics: plots of land are zoned by cities and municipalities for uses and densities. “Use” indicates the type of building allowed on a property – in downtown Vancouver, we favour mixed-use zoning: retail at the street-level, offices a few stories above, and condos filling out the rest. “Density” dictates how much a site can hold. Translating loosely to height, it’s a major driver of land values – higher densities permit higher buildings, higher revenues, and potentially, higher profits. To ensure the viability of a project, developers create a sort of budget known as a pro forma. Hard costs, like land and construction, along with soft costs, like marketing and architecture, are punched into a financial model and then subtracted from the project’s estimated revenue; another subtraction for profit and voila – an insanely-simplified development pro forma. If it all balances, start building.

And here’s where things get interesting: when a developer arrives at the doorstep of Whistler, the municipality reviews their plans and, if approved, mandates an odd sort of partnership, whereby additional density is granted for the project. But rather than sell the extra units on the open market, the developer is required to sell them to working residents through the Whistler Housing Authority. And since the developer’s pro forma already covers the marketing, architecture, land, and profit for the project, Whistler demands that these additional units be sold at substantially lower prices.

“The concept here is that their margin is generated solely from the market side of the project,” Wake explains. “They’re not giving away the affordable units, they are, in effect, selling them at cost, and that cost is purely the construction cost, because the soft costs are paid for by the market side of the development, and the land is also paid for by the market side of the development.”

It’s an ingenious and effective system for providing middle-income housing.

“When we started doing it in 1997 we had about 2,500 beds of rental housing, and today we have about 6,000 beds of not only rental, but rental and affordable home ownership,” Wake beams.

Whistler isn’t the only local example of a successful middle income housing strategy. The University of British Columbia, surrounded by some of the most expensive neighbourhoods in the city, has long struggled to house its workforce and attendees.

“Largely due to our location – way at the end of the point on the west side of Vancouver – our faculty, staff and students were finding it very difficult to find reasonably priced housing within a reasonable commute distance,” explains Nancy Knight, VP of Finance, Resources & Operations at UBC.

As a result, UBC has taken on the role of developer, building non-market units on campus for staff, students, and their families. Over the last twenty years, UBC has become one of the largest developers of purpose-built rentals in British Columbia. And their reasons go beyond pure economics:

“We had a lot of pressure from adjacent neighbourhoods about traffic going back and forth to campus every day. We also had concerns about the environmental impacts of all that commuting in terms of emissions and greenhouse gases,” Knight explains.

On-campus housing is all part of UBC’s plan to build a unique, vibrant and sustainable university community. To understand how they’re building it, we’re back to the concept of the pro forma and the function of land values: In development, land represents a significant portion of the cost of a project, and UBC is blessed with lots of it. The Vancouver campus covers about 1,000 acres, 200 of which have been set aside for neighbourhood development.

“Because we own the land we’re building the rental housing on,” Knight explains, “in the pro forma we’ve not required a return to the land, and so that allows us to provide it at a lower cost to our faculty staff that would like to live on campus and rent.”

The City of Vancouver has explored similar options. The original False Creek development in the 1970’s saw condominiums built on city-owned property and sold at below-market prices. Vancouver owns a number of properties throughout the city, on which more units could be built in a similar manner.

Councilor Geoff Meggs, who lives in the Southwest False Creek development, sees this type of leasehold arrangement as one of the many possibilities for building what he terms “modest market” housing in the City of Vancouver.

“If we want people to live closer to work, reduce their requirements for automobiles, and make the maximum use of public transit in a cost-effective way, we don’t want to force everybody who makes the wheels turn to commute that long distance,” Meggs says.

“The people that I’m talking about, they’re not looking for a subsidy – they’re working hard – they just want home ownership or stable rental so they can get on with their lives, and the market at the moment is not able to deliver that to them.”

According to Meggs, it’s a valid policy decision for City Council to mandate the creation of more inclusive housing in the city.

“I think there are various ways we could reduce the costs of it. How we do it is exactly what needs to be debated,” Meggs says.

“We really need to ransack the toolbox and see what might work.”

Matt Chambers is the editor and publisher of The Dependent Magazine. He's in way over his head.


1 Comment

  1. Patrick, you make excellent points. You last one is apt. A winery may claim that the SRP is $50, but that doesn’t mean the actual retail price is anywhere close to that.


  1. Museum of Vancouver > Blog > MOVments

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