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Affordable Housing

Affordable housing is a complex challenge. Nobody’s solved it yet as far as I know.
I think that’s because we don’t look at the whole picture, and without looking
at the whole picture we can’t really even decide what the problem is. It’s likely,
and in fact probable, that what some people see as a problem isn’t as serious as they think. In fact, it’s possible that it’s not even a problem at all.

Let me prove my point.

Affordable housing and homelessness are not the same issue, even if they are often
brought up together. Affordability may cause some homelessness, but it doesn’t cause all homelessness. What’s more, affordability embraces everything from purchase prices to rental costs. A solution to expensive purchase prices isn’t necessarily the solution to high rents.

A discussion of affordability requires a comparison of price, value and income. That entails a discussion of money and the market economy. And that begs the question of what kind of market we want to live in and what rules we want to play by.

I know that sounds very philosophical and divorced from the real world, but I’m a rent man, and have been for years and years. I know about affordability. The talk never really changes, and the solutions never really appear. That’s because we don’t have widespread buy in, especially from those footing the bills. We need to ask some fundamental questions, and if we get the right answers we can get the buy in and put some hard edges on the problem.

The first question about affordability that needs to be answered is this: why should someone who is able to afford housing in an expensive city be forced to subsidize someone who can’t? A lot of people won’t want to even ask the question, but it needs an acceptable answer.

There are lot’s of possible answers. If we divide the people who can’t afford housing in the Lower Mainland we can quickly determine that there are some who can’t compete in the market economy due to mental health issues or addiction problems. A large percentage of homeless people experience these challenges. It doesn’t matter how much affordable housing we create for them – their problem is not one of affordable housing, and won’t be solved by tweaking the market. Theirs are health issues and should be dealt with on that basis. They don’t have a claim on tax dollars because they can’t afford something. They have a claim on tax dollars because they are sick. If accommodation is part of the cure they should receive it regardless of how expensive it is.

In other words, if the local real estate market crashed tomorrow the homeless problem that originates from mental health and addiction challenges wouldn’t disappear. Affordability is a function of cost, always. Homelessness is much less so.

There are other people who choose not to compete, or not to compete fully in the market economy. Recent Occupy events highlighted people who choose not to work, or who choose to work at jobs that do not maximize their incomes. At the same time, in the same city, other people do jobs that they don’t enjoy in order to pay their bills. This applies to the barista at Starbucks to the banking executive in the downtown tower. Taking money by force from people who work hard to earn it so that it can be given to those who choose not to work is wrong. It’s that simple. We have too many important bills to pay as a community already. Spending money on the person who is homeless or couch surfing through choice takes money away from the person who is homeless because of addiction.

So if housing the sick is a health issue, and housing people who choose not to work is a non-problem, who are we left with? People who work who aren’t able to buy, aren’t able to rent, or who must spend an exorbitant amount of their income on either one. This doesn’t reduce the problem to insignificance. In fact, it just sharpens the focus. Hard working people trying to build a life in our society should have a reasonable chance of success, and being able to create a safe and comfortable home plays a large part in that.

Real wages are not rising. Household debt is. Inflation has been held in check through a combination of good management and through the perverse good luck of a global economic slowdown. If we ever see high interest rates again it will cause a great deal of pain to a great number of people. Housing is one area where that will be keenly felt.

Low interest rates contribute to real estate price increases. Higher prices lead to higher rents, but also lead to less rental accommodation being built or purchased. A crash in real estate values won’t help. If we chopped 75% off the current market we’d return to an environment where rental rates would justify investment, but there would be so much fear and so little equity that nobody would invest. Housing stock would deteriorate in quality, sit vacant, and stagnate. We’ve seen that happen in the US over the past 4 years.

As a society there are a few things we can do. First, we must recognize that living in a beautiful city is attractive. More to the point, in the new global economy our potential purchasers compare our city to everywhere else in the world, and on the basis of many things, including safety, rule of law and politics. In short, the kid who grew up in Kerrisdale has to compete with the kid who grew up in Beijing, Shanghai,Dubai or Mumbai.

Before we consider restricting the entry of foreigners to our marketplace we have to also realize that everyone is competing to pay a Canadian homeowner money for property that is theirs to dispose of as they like.

Locals also compete with each other, but the competition isn’t always fair. Children of renters do not have access to the paper equity of property owning parents. That paper equity has contributed to increased purchase prices across the Lower Mainland. Hot Asian money doesn’t explain everything, and taking it out of the equation may not be the fix.

If legislation can’t solve affordability, what can? Traditionally affordability has been achieved for any product two simple ways: the seller sells less for the same price, or else makes it easier for the buyer to pay. We’ve seen both with increased density and favourable interest rates. It actually works, but it doesn’t solve everything, and can contribute to the problem as well.

Consider the example of basement suites. 30 years ago they were illegal. Today they have not only been widely legalized, but have in fact become a necessity in new homes. The extra income generated by a mortgage helper has simply contributed to higher house prices.

The same thing will occur with laneway housing. If you have two houses side by side and the only difference between them is that one has a rentable laneway house, that house will sell for more money. The price will be determined y the rent it generates, and that rent will be determined by how many people are lining up to rent the unit.

There is a sweet spot. Many argue that zoning laws artificially restrict the supply of accommodation. Restricted supply results in higher prices. If every house in Vancouver was allowed to put in a basement suite, a laneway house or any other type of accommodation that could be imagined, regardless of site coverage and subject only to fire and safety bylaws, supply would stabilize when the cost of building equaled the net present value of the projected rental income stream. The problem is that we’d see tree houses with composting toilets and solar panels – fine if they’re ours, but terrible if they’re our neighbours.

Similarly, if there were no zoning impediments it would be possible to house people in containers in multiple locations across the city. It would be possible to make the containers attractive and cosy, and to maintain safety as well.

Considering these options, however, threatens our cultural assumptions. It means, after all, that we might find ourselves living next to a collection of containers, or we might find our backyard vegetable patch suffering in the shade of everyone’s laneway house. The fact is, however, that density is coming. The city is already filled with basement suites, and some houses have two basement suites – each one consists of a bedroom, kitchen and bathroom, with the living and dining are sacrificed.

Which choices can we make? Relaxed zoning or higher prices?

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