City of Vancouver is Targeting the Wrong Housing Objective
City of Vancouver’s objective in refreshing its housing targets shows they have lost sight of their purpose.
On May 26th Vancouver City Council approved a proposal to revisit its housing targets. The objective of Councillor Hardwick’s proposal was to revise the city’s housing targets downward to align with low historical population growth.
City staff are expected to present their updated population projections by the end of July, but the objective of the report is alarming on many levels.
In Desirable Cities, Housing Supply Contributes to Population Growth
Councillor Hardwick cited the City of Vancouver’s low 1% average growth and average household size of 2.2 as the rationale to support her concerns for overbuilding.
However, the average population growth rate and household size are significantly higher for the rest of Metro Vancouver. Over the past 40 years, Metro Vancouver has had growth rates as high as 3% and has an average household size nearer to 2.5.
The gap in household size between the City of Vancouver and the surrounding municipalities is strong evidence that the City of Vancouver has shirked its duties by historically not building enough family-sized 3 and 4 bedroom condos. In 2018, 13% of condo units approved in by the City of Vancouver had 3+ bedrooms, but 24% of households in Metro Vancouver have 4 or more residents. The lower household size in Vancouver is likely symptomatic of families moving to the suburbs to find affordable family-sized homes.
The chicken and egg circularity of using historical population growth to plan future housing supply should be apparent to city councillors. With vacancy rates near zero and people living out of camper vans parked in alleys, I would argue that population growth is low within the city limits because there are not enough homes built to support a higher population growth rate.
The City has tried supply management and failed for over a decade. Attempting to fine-tune a failed policy approach is likely to result in more failure. Perhaps it is time for a new approach that targets outcomes (increase vacancy rate) rather than inputs (units of home supply). The City can still provide minimum guidelines, including requirements for family-sized apartments.
Forecasts Are Educated Guesses
No one could have predicted the current pandemic and temporary freeze on immigration. We can reasonably expect that, in the future, the federal government will raise immigration targets dramatically to support our healthcare and pension system and to pay for the debt incurred in the current recession. Likewise, the current struggles in the Alberta Oil sector could lead to a potential surge in population growth. An analysis of historical growth rates will not help the City to anticipate demographic shifts like these, nor will they help to accurately assess future growth.
Forecasts are, by nature, estimates and the more specific their prediction (e.g., 1% growth), the more likely they will be wrong.
As well, since new multi-family developments take 4 to 6 years to complete, if the City forecast underestimates growth, it can not correct its housing targets in a meaningful way that brings relief to residents.
The typical lifecycle of new housing development is also longer than an election cycle, and the ability of voters to hold councillors accountable to the outcomes of housing policy.
As Public Servants, Housing Targets Should Serve to Establish Minimums not Caps
As public servants, the City should primarily concern itself with encouraging the supply of homes that developers are not willing to build. Instead, the City has chosen to pursue annual quotas and supply management, approving only what Councillors believe will be required to support population growth in 4 to 6 years.
Why is the City concerned with preventing oversupply? Are they trying to protect developers? If we were to encounter a situation with oversupply and pre-sales were struggling, then developers would scale back new construction until the market improves.
The appropriate and most reliable measurement the City should use to assess whether to provide incentives for new construction is vacancy rates.
Why target vacancy rates?
Many new condos are purchased with the intention to rent them as long-term rentals. Since new condos can be just as easily used for primary residences or rental apartments, we can use vacancy rates as an accurate indicator of market supply.
As well, the City of Vancouver should target a rental vacancy rate near to the natural vacancy rate, between 3 and 5 percent, that corresponds with a balanced rental market. If the vacancy rate drops too close to 3 percent or below it, the City should open the taps.
They should create incentives to build more buildings until they are achieved and then remove the incentives once the lower bound of the target range is reached.
Why target 3 to 5 percent?
Every city can have a different natural vacancy rate, however, I’ve chosen 3% as the lower bound because CMHC, the Canadian housing corporation, uses a vacancy rate of 2% or lower to identify regions with a high need for rental housing so they can provide those regions with priority access to rental construction financing. For Vancouver, to drop off the ‘high need list,’ the vacancy rate must rise above 2%.
The 5% upper bound is the natural vacancy rate calculated for Seattle by Daniel Hagen and Julia Hansen, two researchers at Western Washington University. Since there is no research calculating the natural vacancy rate for Metro Vancouver, using Seattle’s is the next best alternative. Seattle and Vancouver share geographic, economic, and housing affordability characteristics.
Should we be concerned with overbuilding?
Developers and rental investors should bear the risk of overbuilding.
Target Vacancy Rates and Sustainable Home Prices instead of Fortune Telling
If you care about housing affordability and/or you want your children to be able to raise families inside the City limits then contact and ask the Vancouver City Council to consider the following:
Please do not attempt to predict population growth and manage supply
Target a vacancy rate of between 3 and 5 percent
If the City were to achieve a vacancy rate of 5 percent, then speculative and rental investors would step back. There is no need for the Vancouver City Council to protect big money from overinvesting in housing.
