UBC Panel: Is Local Democracy in the Way of Affordable Housing?

Professor Patrick Condon’s Opening Remarks:

Through this series of community events, we hope to contribute to public debates in regards to local citizen control over a shared geography; a civic process better known as local democracy.

Tonight, we start with the number one local issue for this region, safe and attainable housing in our city and others like it, where a pressing concern has emerged. Local democracy, once considered a cornerstone of citizen control over the health safety, and welfare of their city, is now accused of contributing to the soaring housing prices to plague our communities. The province of BC has intervened, passing a host of new bills that collectively removed cities’ power to plan for new housing, citing the need for a more unregulated approach.

This shift is significant, as housing covers a staggering 80% of all city land, and our region’s traditional local authority over city development has dramatically eroded citizens' will. Now, I would suggest direct control of a city's most crucial mission– safe and suitable housing for people of all ages and incomes.

The rationale behind this intervention is subject to debate: was removing city authority over housing an unnecessary measure to make housing more affordable? Or does it signal an unmerited distrust in the ability of local citizens to make the kinds of decisions that benefit the broader citizenry? If distrust is motivation, it stems from the belief that local citizens, through democratic processes, hinder social equity by voting to restrict new housing supply within city borders. By that action, housing is made more expensive, but is that true?

Vancouver, BC provides a unique test case for this theory…

Since the 1970s, leaders in this city have authorized housing policy changes that tripled housing units within city limits. No other North American city has come close to matching this feat. The downtown residential towers are emblematic of this achievement. Less well known, the neighborhoods outside of downtown have incorporated more than half of this new density. Yet Vancouver grapples with housing prices. When measured against average incomes, they stand up as the highest in North America and globally, in the top three.

If increasing the housing supply within city limits is supposed to lower prices, Vancouver should have North America's cheapest housing. Instead, it has North America's most expensive.

We hope this public session can help us answer this important question in arguably one of the most extreme examples of what is a global housing problem. We hope to shed light on practical solutions; solutions that do not depend on false conclusions and solutions that apply to other cities and nations facing similar yet less extreme versions of this horrible problem.

Dr. Cameron Murray 
Fresh Economic Thinking, Brisbane, Australia

I have three things that I want to contribute to help us consider the question more completely. First, internationality in historical context. Second, a deep understanding of the economics at the heart of the question. Third, a view on the politics of cheap housing. Let me start with one of my favorite quotes. “The number of large houses just finished and others building is truly surprising. Nevertheless, everyone complains of the high rents and difficulty in procuring a house,” Charles Darwin noted this in 1836, on his first day in Sydney. The population of Sydney was less than 20,000, and of course, there were no planning rules or local democracy. Housing issues are not new.

1910– The New South Wales government commissioned the University of Sydney academic, Robert Irvine, to investigate the problem of rising housing rents, but it didn't go away. In 1919, the Federal Interstate Commission conducted the Piddington Inquiry– but the problem still didn't go away. 1939– The New South Wales Government repeated the same inquiry.

Key public officials summarized the pre-war housing situation as follows and let me quote, “Cheap houses were built all around, in between the factories, with no legislative restrictions to set even modest standards of space and light or even humanitarian considerations of health and privacy. Row upon row of workers' dwellings were jammed into every street, land values rose with the high industrial potential, and this was reflected in the added rents until this spiral of values reached a stage when one family could not afford one terrace home. These homes were then subdivided to cram into more people, and so began the overcrowding that exists until this day.” quoted from 1947, commenting on the housing crisis in the 1920s and 1930s.

We can also look to the future of online game worlds, where property systems are replicated digitally. The housing crisis and digital real estate are not a new phenomenon. History consistently shows that when digital lands sufficiently resemble the economic properties of physical land, we see digital land speculation, digital housing crises, and even full-blown digital recessions.

Could it be the same economic forces at play here in Vancouver today, rather than local democracy being the problem?

Today, the market is doing what it always does, with pricing cycles that are disruptive at different points in time. Nonetheless, they don't swing too far from a general price and rental equilibrium. You might not believe me, but if we look at the total housing costs for renters in Canada as a share of income since 2001, we see flat lines. It doesn't matter if we look at average housing costs, income, or the median. I've done this same exercise for cities around the world, and we see very flat lines for many decades of rental income ratios with little cyclical variation.

Why don't we look more deeply at the economic forces of property markets? Our concerns about housing rents and prices are not about houses or buildings. They're about spaces to build, which must work for property owners. It's the economic incentive for property owners that matters for this question. The argument that local democracy keeps up dwelling prices at its core is a competition argument about how the property owners will react to zoning changes.

Here's the puzzle. Most times, cities have huge numbers of properties with development potential that can be legally and feasibly developed, yet hardly any of them are. In my hometown of Brisbane, Australia, there are a million existing homes and at least a million new homes that can be built within our current zoning laws because of the flexibility of our planning system. Hundreds of thousands of different people own these developable sites, so how would changing the rules to allow more fit without any changes to the review process? How does that change the competitive dynamic that has so far led to just 20,000 new dwellings per year? What about the glamour strip of the Gold Coast? Many areas of the Gold Coast have not had density limits for decades and very light-touch regulations. After all, their Mayor since 2012 has been Tom Tate, a property developer and investor. You'd expect cheap rents and prices, but asking rents are up 73% nominally in the last three years, and house prices have doubled. They are experiencing one of those rapid adjustment periods that all property markets go through, and here's the puzzle amongst all those high rises.

If we want to understand competition in the property market, we need to understand that for a property owner, the choice to build homes is a portfolio decision or an asset swap. Take an undeveloped property asset like one of those sites, already making a return in terms of its increase in value. Take a cash asset that you would use to build the building that's already making a return in the form of interest and swap those two assets to get a housing asset. Building homes faster means giving up those returns, and suppressing the price of your next sale. What these effects create is a built-in speed limit on how fast new housing production will happen, which closely tracks cycles in home buying. I call that speed limit; the absorption rate equilibrium. To ensure the choice to build makes a better return than not building, asset swaps are built to ensure the buyers exist before you make the asset trade– if you don't, then you wait.

A property owner's choice to build or not is not about whether the revenue from building homes is higher than the input costs. If it was, there'd be a million new homes in Brisbane and dozens of new high rises at the Gulf Coast. Changing the number of feasible development sites doesn't necessarily change the speed limit– though of course, it can change the composition of which sites go, sequence, intention, and what gets built where. It's an error to assume that the production of housing is the same as the textbook model of the fixed sunk-cost short-run supply shock.

Houses are not agriculture– you don't get good seasons in a sudden surplus of houses, having to sell them cheap before the next harvest. This is why wherever a property system is replicated– even in online worlds– we get a similar problem. As you can trade property assets, especially developable property sites, it's always the most patient people who end up owning those sites, outbidding the impatient ones who want to build more quickly and flood the market.

The fundamental economics are fairly undeniable and there are a few more elements to this story. The price of homes is determined by the value of the housing asset, not the supply and desirability. That's consistent with Tom’s statement made in 2016, “Economists sometimes assume that strictly regulated housing markets near mountains and oceans could be expensive to build because they're costly to build. Not because they're nice places with productive firms and workers. US data shows this convenient assumption to be false, even if you could massively increase the number of dwellings with zoning,” is from an earlier version, but I'll still be interested in a discussion. Tom also stated in 2008, “We conclude that individual jurisdictions are unlikely to increase affordability by encouraging more supply and recent house price increases most plausibly reflect demand changes.” Well, I concur.

I think we agree on the economics but here are some economics I've missed, which is the spatial equilibrium. If prices did start falling in Vancouver, then more people would move here until the prices went back up– so there was no value in moving here. You've always got to watch out for that. Now, all of this is perfectly consistent with what many property developers said at another Australian Housing Inquiry in 2020. When responding to the question of whether upzoning could reduce prices by 20% reversing the gains of the past year, I'll quote the response, “It's not going to create that much of a difference.” The chairman of the inquiry, stunned, thought it was funny to say that because after four weeks of hearings, that's all they heard. When they're under oath talking to the politicians at the inquiry, they said uploading is not going to change the price. Interesting, so that's the economics.

The last thing I'd say is politics. The unfortunate reality is that cheap housing in the form of low rents is politically undesirable. Politicians, as a group, must pretend to want cheap housing without achieving it. It's the same everywhere, so you're not alone. We're with you, and it’s so culturally similar. Let's entertain a hypothetical where we get rid of local democracy, we up zone, and massively reduce prices through fierce competition and supply. Well, housing market participants would immediately expect prices to collapse, immediately incorporating the laws of future rents and prices. What do we do when prices collapse? I don't know what happened here, but in the 2008 financial crisis, all Australian governments took immediate action to stimulate house prices by bailing out mortgage holders, providing low-interest rates as the stimulus, and subsidies to homebuyers because the last thing they wanted was lower house prices. We did it all again during the pandemic. We threw money at housing to keep prices up because when the prices fall, we don't like it. Nobody wants prices to fall until they become property owners, but then they want them to rise, which is another element of the political question.

67% of Canadians are homeowners, which is the same rate as Australia. It's an important political constituency if you're in the business of trying to manipulate the price of housing. Let's not forget that the politicians themselves - at all levels - are mostly homeowners and landlords. Do we think this group is going to pass laws that don’t protect billions from their balance sheets? A quick look at the Canadian political disclosure shows that around 41% of British Columbia's elected parliamentarians are landlords, and a similar analysis applies here.

I’m going to leave you with one anecdote and a conclusion. I come from a city where planning and zoning are essentially designed to get things built. Yet, we have the same property prices, rental prices, property cycles, and concerns. When I looked at the Canadian real estate websites, I thought everything seemed quite reasonable by comparison. Every city I've been to always says we're the worst of this. We have the most expensive houses, the worst at building trains, and we always have all of our projects go over time. You know, we're all the same. We're in this together. That's something to leave you with.

Dr. Mark Roseland 
School of Community Resources and Development, Arizona State University

When I got hired at Simon Fraser University a few decades ago, I also had an offer somewhere else, and I wasn't going to take the position at SFU because I couldn't afford to live in the city. This is the exact conversation that young people who are the age now, that I was, are having. Why was I able to stay? My wife was on the waiting list for a housing co-op for years before I met her. While I had these two offers in play, we got accepted into the housing co-op, and I was able to stay in Vancouver where I’ve had a career for many years. So, I look at the audience, and I think of the people who are not here. People who are not in the room, because we don't think about them very often. But there are all kinds of people who have left because they couldn't afford to stay. This issue is of academic and professional interest. It's intensely personal, not only in the past but now as I have young adult children. This housing conversation is not new. Maybe we're not unique, but we've built a lot of housing. We just haven't made it affordable and that's really what I want to get to.

I come at this in a very different way than Cameron. I'm a Community and Regional Planner by training, and my focus is sustainable community development and planning. The question that Patrick asked is an academic trick question, a yes or no question yet academics don't do yes or no. Unpacking this makes it interesting. I’ll run through several things that we know collectively and then focus on one or two of them. One of them is that housing supply is a thing. It's real, and we are short nationally-- around 3.5 to 5 million units. We are short on housing for a whole variety of reasons, and a whopping number of units need to be built.

Local democracy, which is the local authority, is being blamed for the housing crisis. Local democracy is under attack in many jurisdictions– North America and Canada included. There's some merit to these attacks from a wide body of research on the fact that property owners are deeply overrepresented in local political proceedings, especially those related to housing and land use. Again, I'm not telling you anything new. Municipal decisions about providing new housing are typically made based on lengthy processes, which ironically, is undemocratic and makes building more expensive for housing developers, whether they be public, private, or nonprofit. Public hearings on housing systematically underrepresent the interests of renters and those who have been priced out and excluded from communities. As most of you know, an enormous amount of our land is zoned for single-family dwellings. We ran out of land for single-family detached dwellings except at the very outskirts of the urban region, where we shouldn't be growing anyway, due to the environmental, economic, and social costs of automobile-dependent sprawl, which is completely unsustainable. There's lots of room within our urban boundaries for more housing, but a different kind that will require changes in zoning, among other things. The zoning requirements and regulations we currently have, for the most part, came for good reasons. Sometimes they came for bad reasons, but reasons regardless. We need to be careful throwing the baby out with the bathwater. If we do, we will suffer from predictable as well as unintended consequences. Those predictable consequences are related to streetscapes, forestry, water, utilities, transportation, emergency services, public safety, noise, and other community planning concerns. Acknowledging that housing supply is necessary, it’s not sufficient for housing affordability.

We see that we have more units being created, but they were also more expensive. The housing game has lots of players yet in my view, there are not enough types of players. We have the usual suspects as the developers, builders, financiers, realtors, and so on. Yet there are some missing actors or at least some actors we don't have enough of. My view is that to increase housing affordability, we need to not only increase supply but also need more actors who can remove land from the speculative market.

Now, people don't usually talk about the several tools to do this, including land banking, transfer development rights, shared ownership, arrangements established in law, and community land trust, just to name a few. I want to talk about community land trusts because they’re not well understood. Coming out of a tradition called George-ism, Henry George was an immensely popular thought leader who ran for mayor of New York City in 1886, coming in second to Theodore Roosevelt. In his 1879 book, Progress in Poverty, George articulated the idea that people should own the value they produce themselves, but the economic value of land should belong equally to all members of society. The idea here is that you didn't make the land, so you shouldn't benefit simply from owning it. George would say that if you built a structure on bare land, and that land increases in value due to the improvement, then yes, you should benefit from the additional value you have created. However, if you hold on to a piece of land and don't do anything to improve it while it increases in value, then that increase in value should belong to everyone. That's George's perspective and this idea in various forms has inspired many people around the world who are concerned about civil rights, social justice, racial equity, and affordable housing.

One intellectual offspring of George-ism is the Community Land Trust. Community Land Trusts operate as a not-for-profit organization that owns land on behalf of a community while serving as a long-term steward for affordable housing, community gardens, civic buildings, and commercial spaces, along with other community assets for the community. As a form of shared equity ownership, CLT organizations use public and private investment funds to acquire land on behalf of a specific community. The CLT then owns the land in perpetuity, forever, and community residents can purchase their homes, but not the land on which the houses sit.

The origin story of the CLT's is really interesting. In the late 60s and early 70s, a group of people in New England were wrestling with exactly the kinds of things we're talking about here tonight. In particular, access to land for people who had been excluded and disenfranchised from land ownership generationally. Able to articulate a land tenure model, they went out exploring every social experiment that might provide a piece of the puzzle. They looked at Gandhi's village economics, the Israeli Kibbutz system, and land banking in Sweden. Piecing all this research together, they came up with the Community Land Trust model. We can do this in conventional market housing. If you sell your home after eight years, as the standard occupancy for most homes, the next buyer is going to need a lot more money to buy that home than you did, unless there was a recession. In contrast, using a limited equity model as somebody sells a CLT home after eight years, the next person can purchase it at essentially the same price as you did. That's how it ensures perpetual affordability.

Providing an example inspired by this and applying it to our context, when I was serving on the board of Simon Fraser University's University Development I said to Michael Geller, the CEO of the University’s development, “We've got to try this idea to create an affordable housing project.” We did, and it's called Verdant. Completed in 2007, it’s a 60-unit development that's a partnership between a community developer, Vancity Enterprises, a public landowner, and a third partner called reSource reThinking Building Ltd., who brought development management and green building expertise. To ensure the homes remain affordable over time, there's a resale agreement that requires units to be resold at the same below-market discount to market value. The trust was able to provide this affordable housing option by leasing the site to Vancity at a 30% discounted market rate, and that 30% is built in forever. Information on the partnership

In conclusion, some places appear to be addressing the housing crisis better than we are, so we can and should learn from their tools and approaches. Patrick's written in detail about Vienna but with the possible exception of our largest cities, most communities don't have the knowledge or capacity to conduct this kind of research. It's foolish of us to expect that each community should have to figure this out on their own, because the province and other funders, such as businesses, foundations, and philanthropists, can help by providing technical assistance directly to local governments or through funding to hire staff, researchers, or consultants needed for guidance. We know. We just need to be better at mobilizing it.