The Tyee
OPINION
Good Idea! BC’s Cities Vote to Make Homes Affordable
The Union of BC Municipalities supports a Mandatory Inclusionary Housing Bylaw. What’s that?
by Patrick Condon,
26 Sep 2022,
TheTyee.ca
Patrick Condon is the James Taylor chair in Landscape and Livable Environments at the University of British Columbia’s School of Architecture and Landscape Architecture.
Excerpts:
Voters at the UBCM conference earlier this month weighed strong ideas for taming land inflation. One passed, the other did not.
Housing affordability is a provincewide concern, a fact made clear earlier this month at the Union of British Columbia Municipalities 2022 conference. Two motions with potentially big impacts went to vote. One won, the other narrowly lost. Let’s take a look at how both measures were designed to address out of control rent increases in the province.
Mandatory Inclusionary Housing Bylaw
Tabled by Saanich council, this was a request to the province to amend the Municipal Act to allow all B.C. municipalities to put in place a requirement that major new construction include a certain percentage of permanently affordable units. Municipalities are not presently allowed to do this, and so they often resort to unwieldy taxing authorities such as Community Amenity Contributions, or CACs, which can be applied to affordable housing as well as other “amenities” such as parks or community centres.
Inclusionary zoning ordinances are used in other provinces and in the U.S., especially California, to ensure that a set percentage of new units are permanently affordable — locked in by housing agreements or by deeding units to non-profit providers.
Count me among proponents for this approach. Supporters argue that inclusive zoning requirements do not increase the price of market units in the same project, but rather lower the “residual value” of the land under the project. Thus inclusive zoning requirements put a brake on the out of control urban land price inflation of 200 to 1,000 per cent we have seen in Vancouver in recent years.
The fact this motion passed overwhelmingly is a hopeful sign. Over to you, provincial government, to make law what the UBCM has requested.
Vacancy control
Tabled by Victoria council, the vacancy control motion, had it been passed and then accepted by the province, would have controlled rental rate increases between tenancies.
Currently the act only limits rent increases for current occupants. But when one tenant moves out and another moves in, the landlord can raise rents to “market level.” Rent rises between tenancies are often over 50 per cent, gradually pushing average rents further out of reach as the normal churn of vacancies eventually opens up all units to major rent increases.
Tenants thus have a disincentive to leave their rent-controlled apartments because vacant units are not controlled and thus typically much more expensive than their current home. Evidence for this consequence is manifest in Vancouver’s typically eight-year-long tenancy, compared to an average tenancy in the U.S. of approximately three years.
Many B.C. elected officials are aware of this issue and Victoria city councillors sought to address this problem by calling on the province to restore vacancy control to the Residential Tenancy Act. The 1974 BC NDP government led by then premier Dave Barrett created such a clause in the act but it was removed by the Socred government after they returned to power in 1984.
The motion at the UBCM conference was contentious with representatives of LandlordBC speaking in opposition and echoing a published opinion piece, contending that vacancy control removes incentives to build new rental buildings.
Defenders of vacancy control point to Manitoba where vacancy control has been the law of the land for decades. There, landlords can raise rates to cover major reconstruction amortized through rent surcharge over three to eight years.
Additionally, the act only applies to buildings more than 20 years old, which clears most of the typical amortization period for new construction. Rent levels in Manitoba are the lowest in the nation. Manitoba has also seen a recent increase in the construction of new rental buildings, not unlike the spike in rental building construction in Vancouver in recent years. This fact, in my view, calls into question LandlordBC’s arguments.
Proponents of vacancy control further argue that it does not disincentivize rental building construction. Rather, it lowers inflationary pressures on existing rental real estate parcels and thus lowers the likelihood of local housing stock being acquired by national or international real estate hedge funds.
The final vote was 136 in favour and 143 opposed. Victoria Coun. Sarah Potts, who offered the motion, was quoted in the Capital Daily expressing her disappointment. “It is always really disappointing to see something fail so, so close to the margin — just seven more votes would have really, really changed the landscape here for a lot of people.”
Indeed.
Tackle land price inflation
Taken together these two motions are one step forward and one step backward on the path to solving our housing crisis. Both motions address the core problem: when it comes to high home prices in the city, it’s not the house that costs too much, it’s the dirt under the home that is the problem.
Straightforward planning and housing policies are available to address this critical flaw and to stop the raging land price inflation that is barring our young families and vital service workers from securing suitable and affordable homes close to their jobs.
When the UBCM gathered this month, the crisis of housing affordability was top of mind. The discussion was vibrant, the concepts were solid. Hopefully we will see more of this good thinking coming from member municipalities in the near future — and the province will follow their direction.
Comment:
Good news indeed. Following a favorable vote by the Union of BC Municipalities, B.C. cities are now enabled to adopt Mandatory Inclusionary Housing Bylaws. Patrick Condon makes a point about the root at the problem of the lack of affordable housing: when it comes to high home prices, it’s not the building that costs too much, it’s the land under the home that is the problem.
Is Condon correct? Yes, and furthermore it’s not the inclusionary requirements that increase home prices. Economist Rick Jacobus, author of a Policy Focus Report published by the Lincoln Institute of Land Policy comes to a similar conclusion.
When a city imposes inclusionary housing requirements, it may increase a developer’s costs. Developers can’t really pass those costs on to homebuyers or tenants because the local real estate market sets the prices of market-rate units, and developers of one project can’t change the overall market price or rent. Instead, over time, land prices will fall to absorb the costs of the requirements. Therefore, the costs
associated with construction of inclusionary housing is either absorbed by modest declines in land prices or reductions in developer profits, or some combination of the two. But of course, the requirements must not be too exacting as to discourage participation by developers. If carefully crafted, inclusionary zoning bylaws can help increase the volume of affordable housing – sorely needed in the face of private developer preferences for luxury housing, both owner and rental.
Considering this strong propensity for maximizing developer profits, take the example of the South Lake Union district in Seattle (involving my recollection of events). In the mid-1990s a consortium of real estate interests proposed a community revitalization financing (CRF) district to redevelop this area’s mostly vacant and underutilized parcels, with the city’s participation in building a centrally located park: the ’Seattle Commons’. Following an acrimonious debate among interested developers and local residents, voters on a ballot measure rejected the proposal.
The loss of any public control over new development left the entire area north of downtown open to land speculation. Microsoft cofounder Paul Allen, who already controlled a number of parcels in the area, quietly began purchasing more land until his Vulcan Real Estate amassed a portfolio of over 60 acres mostly in the Denny Regrade district. The company manage to get the city to up-zone the district to allow for construction of 40-story towers in mixed-use urban development. Eventually the giant corporation Amazon occupied much of the office space, and its office staff much of the residential space. As a result the entire area went upscale and Vulcan reaped a massive financial windfall. Had the city gained control of the district through the CRF mechanism, it could have imposed inclusionary housing requirements and recaptured some share of the ballooning land values to finance affordable housing for the work force needed in complementary service businesses.
Back to Professor Condon’s point on taming land price inflation: it’s not the building that costs too much, it’s the land under the home that boosts housing prices to unaffordable levels. If this is the case, the best answer would be found in a method of lowering land values. Inclusionary housing requirements may well have the effect of capitalizing the marginal cost of below market priced units into modest declines in land price, but a land value tax will exert even more downward pressure by taxing land at high levels. The B.C. Legislative Assembly would do well to take this next step toward addressing the housing affordability crisis.
Tom Gihring, Research Director, Common Ground OR-WA
