October 11, 2011

The Affordability Solution

It’s not that difficult to address the high cost of Vancouver housing, says the Urban Development Institute. It just takes some political coordination and willingness.

Maureen Enser is executive director of the Urban Development Institute

Comparing local housing markets in Canada, “Vancouver really stands alone in its extreme unaffordability across all housing types” (Royal Bank of Canada, August 2011). As any aspiring home owner will attest, this is not a surprising statement by RBC in reference to housing costs throughout Greater Vancouver. To solve the affordability problem in Vancouver – and the good news is that it can be solved – it is important to understand the most fundamental, underlying root that has led us down the “extreme unaffordability” road.

That is an understanding of cause and effect over a time frame of many election cycles. The effect, unaffordability, is well established. To understand the cause, however, which precedes a lack of supply and unaffordability, we must first look at the breakdown of costs that go into building homes. In simplest terms, the core factors that affect the cost of housing and therefore supply can be broken down into four areas: construction costs, the price of land, government red tape and policy, and taxes. The cost of materials and building labour costs are fairly inflexible at any given time – the price is the price, so to speak.

The price of land in Vancouver is also high, somewhat inflexible and is generally sold at market rates – although, leadership within municipal government can influence this cost. Therefore the major areas of flexibility available to address the affordability crisis fall under the red tape, policy and tax influences that affect housing costs. If we examine the tax component on the cost of new housing supply, approximately $85,000 will be incurred by a family purchasing a median-priced ($538,000) three-bedroom townhome in Greater Vancouver, or roughly 16 per cent of overall costs. This number rises to nearly $168,000 for a median-priced (just over $1 million) single family home. Land costs, representing about one-third of the price of a home can be reduced and managed through policy levers of municipal government. Essentially, density is the most efficient use of Vancouver’s limited land base and policies that encourage density can have a dramatic impact on this component of home prices.

Regulation and planning assessment time frames for new housing projects is the other major influence on the price of your home. After all, we’ve all heard the phrase “time is money,” and the longer local councils take to approve new projects the more new buyers have to pay. Accountable and transparent government must streamline these processes as much as possible to demonstrate a political willingness to address unaffordability – to not do so would be disingenuous. So what is that underlying root that grows into a lack of supply and becomes the unaffordability “effect” experienced in Greater Vancouver? It is definitely not the price of land or construction costs. Not even red tape, $168,000 in taxes on a median family home, or existing government land-use policy – rather, these are indicators to an obvious solution.

The subtle, most base cause that inevitably leads to the “effect” is simply a lack of coordinated and effective political willingness to act on obvious solutions. When you cut through the political distractions and layers of convoluted analysis on this topic, it is actually not that complicated. Reduce taxes, remove over-regulation and red tape, and implement robust land-use policies. That’s the affordability solution. That’s all it is.

Read more from Advice & Opinions, UDI

Comments are closed.