Affordability Economics 101: high demand + low supply = costly housing

Post by Daniel Fontaine in

15 comments

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Limiting the supply of housing in Vancouver will only make a bad situation worse

Regardless of which pollster you ask, the question of affordable housing seems to be a top issue of concern for most Metro Vancouver residents.

Nowhere is the topic more relevant than in a city like Vancouver, where a tear-down property can easily fetch in excess of $2 million. But faced with this housing market reality, are city governments really equipped to do anything about it?

During the 2008 civic campaign, Mayor Gregor Robertson pledged to make Vancouver an affordable place to live. After three years in office, do you really feel like he’s made any significant progress on this file?

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Despite the grandiose promises coming from our civic politicians, there are only a handful of tools available to them to help make Vancouver affordable again. However, they are controversial, and not always that easy to implement.

Ask any economist and they’ll tell you the high cost of living is driven mainly by factors relating to supply and demand. The reason most homes in Vancouver sell in the million-plus range is simply because there is a pool of people willing to purchase them. If the demand for housing is high, so too will be the price.

City officials are somewhat powerless to quell global demand for housing, but they do have the power to significantly facilitate supply through proper zoning. Increased supply alongside high demand can result in more affordable housing.

Vancouver politicians wanting to increase overall supply as a means of keeping prices down face a major policy conundrum. It’s the fact that most of the land within its borders is already built out with

low-density single family homes. If you want to increase supply you need to either build up or in back lanes. That, folks, is why we will still be debating affordable housing well past the 2014 civic election.

If Vancouver doesn’t want to tackle the supply issue, at least it should reduce the exorbitant fees, red tape and processing times associated with building the kind of homes we need. Reducing the inputcosts of building a home should translate into a less expensive product.

If you want to get a taste of what our civic politicians are saying about affordable housing, you should attend a mayoral debate focusing on this topic being held on Monday, Nov. 7. The event is

sponsored by 24 hours Vancouver and is being hosted by End Homelessness Now. Both Gregor Robertson and Suzanne Anton will be on stage at St. Andrew’s-Wesley United Church located at 1012 Nelson Street. The doors open to the public at 6:30 p.m.

- Post by Daniel. You can follow us on on Twitter @CityCaucus or you can "like" us on Facebook at facebook.com/citycaucus. This column first appeared in 24 Hours Vancouver on Thursday, November 3, 2011.

15 Comments

I tend to agree with your opinion on many issues, but this time, the solutions you offered WILL NOT resolve the problem.

The ONLY solution that can bring immediate results is to ban selling Vancouver houses to overseas customers (FORIEGNERS) for three reasons.

1. Our limited available land.
2. Vancouverites inability to financially compete with foreign buyers.
3. The UNLIMITED market demand when you are open to 1 Billion potential buyers. Some Vancouver developers have opened offices in China to sell building before they are built. That is disgrace for politicians to be complicit.

We are not the first city to implement this ban. There are cities in Europe which have done the exact thing.

I enjoyed your thoughts in the 24H News this morning on the growing and depressingly severe housing issue in Vancouver. I have no solution to this issue as I agree that it comes down to a matter of supply and demand. There is simply a significant population external to BC (and Canada), primarily of asian origin, that find out real estate is worth the price despite the fact that our local wages and salaries are no where close to meeting or supporting the cost of living in this city that is spun as the "best place on earth" and the "most livable city", etc...

I agree with the things you said in terms of what city officials can do and hope that they do take what little steps they can to assist those with no foot currently in the Vancouver real estate market. However, what annoys me the most is the smug manner in which city planners and vancouver spin-merchants build up Vancouver to the most livable city when it is obvious to any idiot that nothing could be farther from the truth. Livability should include in its definition the ability to find housing, cloth yourself, put food on the table based upon the wage / salary you earn. This is not the case for Vancouver and nor do I ever think it ever will be I am afraid to say. Vancouver is an anomaly. There is no way that the demand fueling $2 million tear downs is a demand supported by local wages - they are dependent on foreign sources of income most certainly or generational wealth (the "lucky sperm club").

I am a professional (university educated) who has worked in business development, business operations and project management for 23 years now and I can confirm that my standard of living has continued to erode over certainly the last 10 or even 15 years. When I looked to buy a property, I actually purchased something in Toronto (to at least get my foot in the door and add some diversification to my asset mix) and this property would have been 1.5 million here when it was $320,000 in Toronto (and it is rented out at rates that match or beat Vancouver). What is wrong with this picture?

I am very seriously thinking of where I need to live to have some chance of ever retiring and sadly it won't be here. As a Vancouver native (yes I am one of those although i have lived and worked overseas and in the states), I can say that Vancouver was once a great city but I don't think it is anymore or at least the reality is completely different from the marketing spin by our smug city planners and city PR personnel. I think that this city will continue to be transformed into a city we will no longer recognize. I also note with interest that head hunters and recruiters are acknowledging the fact that there is a brain drain from Vancouver as employers simply will not pay a livable wage in this city (livable meaning it bears some relation to the cost of living).

$ 2million for a tear down is not compatible with any label of "livability".

It's all so very depressing.

Thanks for allowing me to vent,

We must place high taxes on those properties sold in dysfunctional countries like China, house purchases must limited to citizens only

I heard Brent Toderian this morning saying that the city will focus on purpose-built rental housing as a solution for the lack of affordability. He said (something like this), "Middle class people will have to learn to just rent, like they do in other cities."

That's one way to achieve affordability - take away the ability to own entirely.

There is absolutely no evidence for the claim that foreign buyers are responsible for high prices in Vancouver. I hate these comments that display an anti-foreign bias, and wish the powers that be at CityCaucus would moderate this thread.

Remember the BTAworks study that came out a few years ago? Only 6% of condos were foreign owned, and the majority of those foreign owners were American. Stop blaming China.

If we want lower housing prices in Vancouver, we need to increase the supply of housing. The best way to do that is to ease the restrictions on new development. The build-up of 'smart growth' regulations over the years are largely responsible and seriously needs to be rethought.

How many of these regulations actually make the city more livable? What is the cost of these regulations? Is there a trade-off between livability and affordability?

Great post. A few thoughts.

1. It would be great to have real evidence for what is driving demand. Most of what I read is ancedotal and speculation.

2. I doubt that simply increasing supply will really address the problem. We need new models and a reinvention of old models like the co-ops. "The thinking that got us into this problem will not get us out of it." That said, I would like to see more density and more variety in housing options and the city can impact this through planning.

3. I am all in favour of "Reducing the inputcosts of building a home should translate into a less expensive product" but in a demand-driven market this is not true. Costs do not set prices.

Low interest rates are the real driving force,when they finally raise them back up to where they should be and people have to renew in five years prices will plummet.We cant build our way out because at present everything that is built will still be marketed at $500 a foot or more.If we try to fix it with increased density what will be the cost to livability in our neighborhoods.

I don't agree with you on density. I find dense neighbourhoods much more livable. I can't imagine living in a place that was all single family houses.

On interest rates, your point is only true if cash buyers play only a small role in driving demand. This is the research that should be done.

Surprise; more facile, regurgitated analysis that does not even begin to deconstruct the very "supply and demand" dynamics it worships. What a tragic waste of bandwidth. Reminds me of the free-market fanatics in the States...

Here's a question fer ya; What happens to the outcome when you manipulate supply and demand? Is it possible to engineer a self-serving result using an ostensibly objective mechanism?

Leon, why not take your sanctimonious condescension elsewhere and spare us the effort of scolling past your interminable bloviating.

Steven Hong Kong is pretty dense is that suitable for you,I think we should at least draw some sort of line in the sand and as far as cash buyers when a house costs well over a million dollars and a three bedroom apartment is close to the same I think your dreaming.Just because you happen to think this is good for you many people dream of raising their family in a traditional family home,and why shouldnt they.No Steven we live in a city with a finite amount of property and there will never be enough affordable housing to satisfy everyone and thats too bad but destroying neighborhoods to try to be everything to all people is a mugs game.There are things that should be done to help the less fortunate and I would agree and promote that.But I would hate to see people zoned out of their family home.

gman - I agree that there are limits to sustainable density and that we need variety. But it will be hard to maintain large volumes of affordable single family housing in Vancouver. For people that want more space we need to provide better transit options and walkable neighbourhoods scattered across the lower mainland. But we also need more options for affordable housing. And density is only part of the answer. We also need innovate new models of ownership, invigorate co-ops, provide more rental options ...

Most of the suggestions people are making around taxing or prevenitng foreign ownership are not withing the municipal government's mandate and many of them would require that we renegotiate our international commitments.

This one goes out to "everyman", whose nick-name speaks volumes about his status as the least selective libertine on this site http://www.youtube.com/watch?v=taVMcphy_xc&feature=related

False Creek lands from Main to Clark should be used for Public Housing. Because the land was once seashore, high rise development might be a non-starter. Downtown is already shifting towards Main. DTES people need to be somewhere other than the rundown rooming houses with no future.

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