The 50-Year Vancouver Experience with Housing Affordability and Increased Density

Draft
Patrick M. Condon and Thomas Kroeker

Across North America and, indeed, across the developed world, governments are responding to what is generally characterized as a housing affordability crisis by weakening or eliminating zoning controls on residential landscapes. It is argued that these inherently restrictive policies stand in the way of creating additional housing supply in existing cities and city districts, and that these impediments to the free flow of housing supply creates a scarcity of available dwelling leading to increased prices. Several studies and theoretical arguments have become the basis for this argument, including most notably Edward Glaser’s The Triumph of the City.. This author and many other urbanists have published and consulted in this crucial work, with this author’s Seven Rules for Sustainable Communities being a characteristic example of the genre. The past four decades have, with a high degree of probability, indicated that walkable, mixed use, medium to higher density cities perform better than “urban sprawl” on a number of sustainability metrics, such as health outcomes, greenhouse gas reductions, enhanced social connection, reduction in per capita infrastructure costs. These benefits are not in doubt.However, the presumption that adding new density to existing districts would lead necessarily to lower housing costs is not proven. The absence of cross comparisons between North America's established cities has made it impossible to empirically certify the hoped-for benefits of additional housing supply on average home purchase or rental prices. As an alternative to proceeding with uncertain actions which will take, at best, decades to bear fruit a complimentary policy response may be most propitious under the circumstances. Policy precedents are available which can leverage urban land values strong housing markets to secure non market housing on at least a one to one basis, market unit to non market unit. Examples are provided at the end of this text.  

First some empirical evidence on the multi generational efforts of Vancouver citizens and officials to add housing supply in numbers that, it was hoped, would exceed demand. Vancouver, more than any other North American city, has actively tested the  hypothesis that adding new housing density to already built out districts will lower prices over time. Since the 1960s, Vancouver has added a higher percentage of new housing units, relative to its population, than any other central city in North America. Thus Vancouver presents a notable case study against which to test this hypothesis. We compare and contrast Vancouver’s achievements against a large group of other North American centre cities to allow empirical comparisons.

This study focuses on already developed centre  cities like Vancouver. The term "centre city" refers to the primary municipality at the core of a metropolitan region, as detailed in our methodology.

The first illustration below highlights Vancouver’s achievement compared to other North American centre cities, showing that Vancouver increased its housing stock by 200%, despite only a 78% increase in population.

A more insightful representation of the data might show how the ratio of housing prices to median household income has evolved over time. This chart reveals how Vancouver's housing market has far exceeded the North American norm in terms of higher than average residential density, the gap between median wages and median home prices (a measure of housing price stress), and additional housing supply as a percentage of housing existing in 1960. The salient result of this unique analysis reveals that among the centre cities examined, Vancouver has added far more housing than almost any other centre city examined. It also, counter-intuitively, shows that despite exceeding all other cities examined in adding new infill housing, the added supply correlated with much higher than average home prices over this period. .

adding housing units as a percentage of

When attempting to explain this contradiction - where adding supply did not lead to lower home prices relative to lower performing municipalities - one factor not included in the charts above that stands out as the major driver of home prices  is the changing  price of urban land. These price changes are easily charted online, notably on the independent GIS  site mountainmath.ca. There one can see that over the past few decades, the cash value of developable parcels,  of any size, has exploded from a ratio of roughly two times the value of the buildings above to a contemporary ratio of roughly ten times the value of the buildings above.

This raises the question: doesn’t adding new density to the parcel lower the land price component of the final home price? In answering this crucial question looking again at the data shows that higher density buildings, which you would hope be more valuable than the land for this to be true, maintain a roughly similar five to one land price to building value ratio - and that hoped for price reductions assumed when density is added are typically swallowed up by increases in land price. Thus, urban land prices are linearly  linked to the number of habitable square feet zoning allows on a site. In Vancouver this value is easily calculated and has hovered between 600 and 700 dollars per “buildable” sq. foot, and has maintained that price since roughly 2016.

In sum,this evidence strongly suggests those who argue that policy constraints, notably zoning, stand in the way of housing affordability are mistaken. Vancouver, since the 60s, has added more housing, as a percentage of the whole, than any other North American city and is, at the same time, North America’s most expensive. Other factors may be more salient. Our evidence suggests that the capacity of land to absorb most of the new value associated with new density is the more compelling target. This of course raises the question of what to do about it.

My current book, Broken City, gives a great deal of attention  to this question; but let me summarize. There are a variety of ways to use policy levers to prevent urban land price inflation during laudable  urban densification efforts. Vienna is a famous global example of capturing land value for public purpose, so is Singapore, in a different way. The differences are insignificant. The main point is that you can link public growth policy to land value capture. Vancouver did this very effectively in the 80s and 90s through a requirement that 80 percent of newly created land value, due to upzoning, would be returned to the community. This land value was used to fund a variety of social benefits, including affordable housing. A last example is that of Cambridge Massachusetts in the form of their “affordable housing overlay” zone. This policy allows for a doubling of density anywhere in the city over current zoned allowance, but only if 100 percent of units are rented to households making median area wages or below; this holds land prices at stable rates making it more possible for the projects of non profit housing providers to “pencil out”.

These precedents suggest that the policy tool of zoning, rather than being seen as an impediment to affordable housing, standing in the way of more sustainable walkable mixed use affordable neighbourhoods, can instead become the policy lever for ensuring these evolved communities satisfy our common desire for housing equity.

This data and the associated policy suggestions are offered here to open up a more thoughtful understanding of the housing affordability problem. There is ample evidence that “global cities” like Vancouver, where prices are rising out of reach of ordinary wage earners, can capture enough of the inflated value of their city lands for social purposes, and that the social purpose most in most need of attention right now is affordable housing. To mitigate these trends we need to revive the tradition, abandoned in the neo-liberal 80s -  of building housing  protected from the vagaries of global finance - i.e, a “non market” for housing so that ordinary wage earners can access what is, for them, an  increasingly inaccessible housing market..