The Great Vancouver Housing Crisis

This just in: The RGS triggers the Great Housing Crisis! Prices are 12-times over median incomes. Affordability tops out at 3-times. Who is steering the ship?

HONG KOUVER (LNV Webbimage, 2018)

Runaway inflation in land values have triggered a Housing Crisis in Greater Vancouver. House prices in the city and in the Greater Vancouver Regional District (or Metro) have been pushed into the stratosphere. Median family incomes are up 1% over the last 11 years. Yet housing prices have risen a whopping 400% over the same period to stand 12-times over median family incomes. The Canadian dream of owning a home has been put beyond the reach of the middle and working classes. The crisis exposes major flaws in government planning at the most senior levels. The RGS/Livable Region Strategic Plan call for building skytrain-and-towers while restricting land supply. Efforts to jump start the economy after the 1980s recession got us here. Now, nobody seems to know how to get us out. Many mayors didn’t even mention the crisis during the recent elections with predictable results.

First conceived in the 1980s, then passed into law as the Greater Vancouver Livable Region Strategic Plan in 1996 projecting to 2020, and since extended to 2040 as the 2011 Regional Growth Strategy—the Regional Plans sought to:

help maintain regional livability and protect the environment in the face of anticipated growth.

Greater Vancouver Livable Region Strategic Plan 1996, p.8

However, the planners have failed to tell us whether this unquantified goal of ‘livability’ included housing affordability? The Regional Plans are silent on this point. However, if ‘regional livability’ equates with ‘affordability of house the the key objective of the regional plans has been ‘blown into smithereens’, 

.

Some Facts in Land Economics

We have shown how land economists divide real estate into two parts: land and buildings (see Vancouverism @30: The Housing Crisis). Based on this analysis dawns a new approach to measuring government policy.

The right question to ask is whether any given government policy will stimulate the price of buildings, or artificially lift the value of land.

Gentle intensification—renovations, adding an extra floor to a house, a carriage house over the garage in the back, a suite in the basement, and L-addition with a new kitchen over a family room—these changes improve livability, add density, and increase the value of the building or house in proportion to the dollars spent. However, such improvements do very little to increase the value of land.

A government policy supporting improvements of this nature would see the price of land remaining more or less stable. The increases in real estate value would accrue to the buildings in proportion to the money spent in new construction. Then, gradually over time, values would depreciate a small amount each year as the building ages.

Granting hyper-densities produces quite a different result. Government policy adding density, especially when the policy permits towers of 30 to 60 floors, lift land values. The density giveaways have an inflationary effect on the price of land. Also worth noting is the fact that they doom the vernacular built form. Under this kind of policy old houses are held as rentals until such time as the land can be flipped, the local vernacular bulldozed to the ground, and replaced by hi-rise, high-density. A good example of this is the Cambie corridor from Cambie Village to the Mighty Fraser River.

The effects of permitting hyper-densities are visible all around us today in our neighborhoods. Ever wonder why a prosperous region like Vancouver has frumpy looking houses everywhere? Now you know—property owners are holding the land until they can reap the rewards in the casino of consolidation and densification. Gridlock and runaway housing prices always present—sooner or later—in every city or region fool enough to trigger a tower building boom.

Taking it one step further, economists point out that when private sector mega-projects—like towers—are built together with government mega-projects—like skytrain and subways—land valuations go sky-high not only on the tower and transit sites, but also on parcels adjacent.

As we have seen in Greater Vancouver over the course of the past three to eight years, land valuations reached a tipping point where—seemingly overnight—real estate prices region-wide were driven into the stratosphere. The lift of land price was not contained in the Central Business District or even the Regional Town Centers created by the regional plans. The land lift, first rode the rails to the suburbs where it infected the new town centers. Now, the contagion has spread everywhere. House prices all over the GVRD are beyond the reach of median family incomes. They are reported as the third highest in the world after Hong Kong and Sydney, Australia (see Melbourne @ 8 million).

Some regional planning.

Economists see combining private and public sector mega-projects on the same site triggering land inflation throughout a region. In their view building skytrain-and-towers is directly responsible for the runaway inflation we are experiencing in the real estate markets. Making 25% of the urban footprint off-limits to development just increases the pressures lifting the price of land.

It remains for us to understand where this notion of building skytrain-and-towers and restricting development from 25% of the urban footprint originated.

*     *     *

A Crisis Made at Home

The Livable Region Strategic Plan mandated the building of towers in order to put an end to ‘sprawl’. And it endorsed skytrain technology as the right way to take people out of their cars.

All these measures were approved twenty years after the Agricultural Land Reserve (ALR—150,467 acres) put one quarter of the region’s land base off-limits to development. This in an area already hemmed in—spectacularly—by sea and mountains. Yet, twenty-two years after the first regional plan people still prefer to own cars and most wish they could afford to buy a house on a lot somewhere.

In may places the reserved farmland is barely productive. Only 50% of the ALR is under cultivation. Some of that is questionable farming at best. In others plarts the ALR nullifies strategic sites for new towns along feral transportation corridors, fully serviced regional highways and roads.

The ALR has put upward pressure on land prices by constricting land supply’; the towers have driven home prices out of the reach of most Canadians and the train-in-the-sky has blighted the places it crosses while contributing to making congestion worse every year rather than solve it. 

Some plan.

Looking back it may seem hard to decide where to allocate all the blame. Riding the rocket ship of runaway land valuations in British Columbia’s southern coastal cities we find the usual suspects:

• Capital flight from China

• Real estate agents flipping properties

• International buyers snapping up local real estate on the web

• Regional Planning

It is the last bullet point that really matters. The decision to locate growth in greater Vancouver was a decision made by government rather than the markets. The Livable Region Strategic Plan is the government policy passed into law responsible for creating the pressure to go up (lifting land prices) instead of going out (creating jobs and preventing housing inflation). Done responsibly the latter strategy would also be the most effective way of achieving ecological balance between urbanism and nature. Building new small towns puts ‘community eyes’ in places needing environmental stuardship. Indeed, new pockets of urbanism among the vast quantities of land that shape our immense province may offer the only way out.

The regional plan is the real reason why house prices, in real terms or ‘adjusted for inflation’, increased 1,167% or 12-times in the 30 years between 1987 and 2017. The story of how we got here reads like a Comedy where those profiting from selling real estate benefited disproportionately from planner’s predictions of gloom and doom. Policy makers rhapsodized about end of civilization at the hands of ‘Global Warming’.

However, as we have already seen, it appears it will be electric cars that will put an end to the use of fossil fuels (see Electric Cars Expose Major Flaws in Vancouver’s Livable Region Strategic Plan). That writing is on the wall. And the regional plans? The towers-and-skytrain paradigm? What did that get us? Land price lift of 12-times and rising, and a crisis in runaway housing inflation.

.

The Political Facts

The simplest explanation for the runaway housing prices on the west coast of Canada is that government policy has pushed the value of land into the stratosphere. It is less clear whether Humpty Dumpy can be put back together again. The reason for the lift in land valuations is not to be found in the markets, but in the land policy first conceived in the 1980s and later implemented in 1996 as the Greater Vancouver Livable Region Strategic Plan. Later iterations—the 2011 Regional Growth Strategy and updates—have not changed the guiding vision of land restrictions, skytrain and towers.

We have seen that regional plans sought to:

Help maintain regional livability and protect the environment in the face of anticipated growth.

LRSP 1996, p. 8

Of course, the plan does not define what it means by ‘livability’… Traffic congestion? Global warming? Sprawl? Or what about housing prices outpacing median incomes by 3-times, 4-times, 5-times, 12-times and perhaps more? Is the sky the limit?

Here are some concrete and verifiable facts the regional plans must answer today:

1. 300% increase in the value of land between 2010 and 2018 —livability reduced.

2. 1,167% increase in the value of land between 1987 and 2017—livability reduced.

3. Salaries growing about 1% since 2007—livability reduced.

4. Towers have not ‘put and end to sprawl’. Rather, they impact neighborhoods negatively creating: congestion, shadowing, gigantism and exploding land valuations—livability reduced.

5. Skytrain has not ‘lured people out of their cars’—livability reduced?

6. Traffic is worse every year—livability reduced.

7. The regional plans have not made the threat of Global Warming recede—livability reduced.

8. Skytrain technology blights the places it crosses with ungainly overhead viaducts and barbed wire fences whenever trains touch the ground. Running underground skytrain’s narrow gauge fails to deliver equivalent levels of service to a subway—livability reduced.

The incontrovertible fact is this: The regional plans have not delivered on their objectives. Instead, they rained upon us what nobody wanted: our land prices in the stratosphere.

The next political fact is this: the people of the GVRD will be voting with a pencil and a vote-counting machine. Something tells me they will be voting for change.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: