The Link between Density and Affordability

 Since its launch, one of the three primary goals of Vancouver's EcoDensity Initiative has been to use density, design and land use to strategically assist with the City's growing challenges around affordability. Over the course of the long public dialogue, we've heard many comments and questions on the relationships between density, supply, type of housing and affordability, and it's been a very hot topic.  

As part of the recent summary presentation I gave to Council on what we had heard in the public consultation on the second draft of the EcoDensity Charter and Actions (before Council approved our recommendation to direct us to prepare a third draft), our Vancouver Housing Centre Director (and active EcoDensity Steering Committee member) Cameron Gray gave a definitive presentation on affordability as it relates to densification. Because I found it particularly clear in addressing many of the questions around affordability, I thought I would post it verbatim below, for other cities to consider. Here as well is a link to the resulting Vancouver Sun story.  

Presentation to Council

ECODENSITY

April 15, 2008 

As Brent pointed out, EcoDensity is intended to improve affordability along with environmental sustainability and livability. 

But we need to be clear what "improve" means.  It does not mean that EcoDensity will result in housing costs, either prices or rents, lower than they are now.  It means that housing developed in accordance with EcoDensity will be more affordable than housing that is not.    

The relationship between housing supply and housing affordability was one of the major questions raised by those who responded to the EcoDensity consultation and who spoke at Council's public meetings. 

There were some who challenged the basic supply/demand equation, who argued that supply has no impact on housing costs and perhaps the reverse.  A few argued that "if we don't build it they won't come", and that the new housing that has been built in the city caused the recent escalation in housing costs. 

However, most of the speakers who raised the question of the relationship between new supply and affordability did not challenge the fundamental equation that price is a function of supply and demand, and recognized that if there is increased demand without an increase in supply, prices have no where to go but up. 

The issues that most of these speakers raised related to what kind of supply was being built, for who, and where.    

The concerns raised included the fact that the new housing being developed in Vancouver seems to target high income households or investors, and that developers are not building housing affordable to those who live and work in Vancouver, especially modest and middle income families with children.   

The concern is that the City is in danger of losing its social diversity and becoming a city of house rich if cash poor empty nesters, double income no kids couples, yuppies, second home owners, etc. with everyone else scrambling to make ends meet, paying too much, living too far away, or living in housing that is inadequate and insecure. 

The revised actions and subsequent implementation for EcoDensity, needs to address whether the market needs more direction regarding the kind of housing being developed.  For example, do we need to require that all new projects include a percentage of 3-bedroom units?    Should a percentage of the units be restricted to market rental?   

We also heard the concern that if new development results in the demolition of older affordable housing, then, even if the supply of housing increases, affordability will be lost.  We heard the need to make the best use of existing infrastructure so that affordability is preserved, and the need for new supply to be focused where it results in the least loss of existing housing. 

We definitely recognize that, unless it is heavily subsidized, new housing is not as affordable as older housing, and we agree that the affordability contained in existing affordable housing needs to be preserved.  This is why, EcoDensity has been focused away from existing multifamily districts and Council put in place expanded Rate of Change restrictions for purpose built rental housing. 

The EcoDensity Charter and Actions identify secondary suites, lane houses and the development of housing along arterials, all of which either make use of existing housing or add new supply where little housing exists now, as priorities, but the revised Charter and Actions need to address the issue of the preservation and reuse of existing older and affordable housing specifically. 

We also heard concerns about speculation, especially about speculators buying units and leaving them vacant.

Speculation is a two edged sword.  On the one hand, in an environment where demand is outpacing supply, as it has been here in Vancouver, speculation adds to demand and drives up prices even faster.   

On the other hand, most investors who buy condominiums rent them out.  There has been little purpose built rental housing developed anywhere in Canada for the last couple of decades, and investor owned rented condos are an important supply of rental housing.   And from this perspective the purchase of housing by investors has a positive impact on affordability.   

Obviously, this is not the case if speculators buy units and leave them vacant.  We heard from one speaker that 18,000 units in the city are consuming only enough power to keep a never opened refrigerator cool.  We will be following up with BC Hydro to confirm the data, what it means and to see if we can't find out where the vacant units are, whether they are all expensive units, all condos, or what. 

Council has instructed the Housing Centre to undertake a comprehensive analysis of market rental housing for report back by the end of next year.  That review will include an analysis of investor-owned condominium rentals, and will address the role of real estate speculation.   

I did want to return to the question of the supply of housing, density and their relationship to affordability.   

EcoDensity is not the first initiative undertaken by the City to address the need for new forms of housing.   The new neighbourhoods pioneered by the City in the 1970s on the south shore of False Creek and in Champlain Heights were a response to rising housing costs, and the fact that young families with children would not afford to live in Vancouver. 

The City pioneered higher density forms of housing such as stacked townhouses, clustered and courtyard housing that would be more affordable than single family housing.  And that housing remains more affordable than single family homes today. 

The fact is, as a former colleague put it, "not all dense housing is affordable, but all affordable housing is dense".  And yes in part the affordability is achieved because the units are smaller, as they are, relative to single family houses, on the south shore of False Creek and in Champlain Heights.  And in part because of lower land costs, less exterior wall, shared roofs, less parking, etc. 

I mention False Creek South Shore and Champlain Heights for another reason.  And that is to make the point that EcoDensity or any other kind of density will not, alone, ensure affordability for households of incomes.  The only way to do that is to ensure that tenures are available that are inherently more affordable, such as market rental, affordable homeownership, and especially social housing funded and subsidized by senior government housing programs, all of which were developed in those communities. 

The fact is we need higher density development opportunities both for market and non-market housing development.   

And one last example to respond to those who still believe that supply drives demand and not the other way around, it is worth considering the state of purpose built rental housing in the city.   

We aren't building rental housing, and certainly not affordable rental housing, and renters are still coming, renters who can only afford rental housing.  Not building rental housing has not deflected rental demand, which is the reason our vacancy rates were only 0.3% in 2006 and 0.5% in 2007 and are likely to still be below 1% when this year's survey is undertaken. 

The reality is that housing supply is absolutely essential to housing affordability, that it is a response to and not a driver of demand and that without new supply, the affordability hole we face will only grow wider, deeper and darker no matter how much government funding or subsidies are poured into it.   

The market has provided and provides over 90% of housing in Vancouver and it must be able and made to work.  It may need to be better managed to avoid the excesses of speculation and to ensure a diversity of housing types and tenures, but the market and non-market both need opportunities to increase the supply of housing of all sizes and costs if Vancouver is to remain a socially inclusive city, and in Vancouver that means higher densities.