Cities can improve housing affordability but they need help
“Time is money” – it’s a phrase you might hear when the boss is complaining about your productivity (or the lack of it). In that instance, you might understand it to mean: “Let’s not be standing around when we could be doing something productive.”
But in economic theory, the same aphorism might be a reminder that it’s just as expensive to let your money stand around when it could be out earning a return. In that sense, people talk about the “time value of money” – and it’s a factor that is making Metro Vancouver’s housing affordability crisis a great deal worse.
The problem is the high cost of developing new homes in our hyperinflated market. Some of those costs are now structural and unavoidable. Obviously – and especially in Vancouver proper, where the average home price now tops $1.4 million – land prices are outlandish. Absent a (potentially catastrophic) collapse, that’s just the way it is. Material and construction costs are also beyond the control of developers or regulators. The only way government can intervene to counteract those expense items would be to subsidize their purchase – an expensive and controversial option that can also push prices even higher.
Apart from land, labour and materials, there are other factors inflating home prices, including regulation and regulatory delay. A recent Fraser Institute red-tape report pointed out that permits and fees add an average of $52,000 to every new home in Surrey and $78,000 per home in Vancouver. No one likes those costs, but many reasonable people are also unwilling to give developers free reign to knock down the house next door and build whatever they want, however they want, whenever they want, without regard to environmental, social or design impact on the neighbourhood. Again, it’s a controversial option.
But in addressing regulatory delay, we could make huge gains, or forestall large future losses. There is a time value to money, regardless of whether developers are using their own (in which case there is an “opportunity cost” of letting it stand around too long) or they are borrowing it from the bank. Interest or opportunity costs can be staggering, especially for large-project developers who might tie up tens or even hundreds of millions of dollars and then be forced to wait an average from six months, in Richmond, to two years or more, in Vancouver, for permission to proceed.
Regulatory delays distort the market in two ways. First, opportunity or interest costs get added to the bottom line – and those can be considerable. Second, and sometimes worse, long waits for development permits, building permits, rezonings and every imaginable kind of inspection prevent developers from meeting housing demand in a timely way – and we all know what happens when a product (like housing) is in limited supply: the price goes up. And once it rises, every other homeowner becomes invested in the new price; it’s a train that doesn’t back up.
Now, notwithstanding the Fraser Institute’s suggestion that we should roll back regulation across the region – a move that could turn Vancouver into Houston and let the floodwaters invade where they may – we are never going to remove regulatory delays completely. Development is complicated. And the more dense, safe, sustainable – and desirable – the city, the greater the complications.
But that doesn’t mean that current delays are acceptable: we need an intervention. First, every city needs to be trying much harder to speed and harmonize their processes. No one in any municipality should be caught sending applicants away with a shrug and a tired “that’s-just-the-way-things-work-around-here” rationalization.
Second, the provincial government, which campaigned on a promise to tackle housing affordability, could help clear the regulatory logjam. In addition to investing in low-income housing – a necessary, blunt and expensive intervention – the province could create and empower regulatory ‘swat teams,’ as they have in the past to help municipalities adapt quickly to new building codes. These teams could help process the backlog of development applications, large and small, stemming the cost of delay and clearing the way for new applications – and new construction that will help meet demand.
We have an untenable problem, a potential intervention, and a real need to act quickly. Time, after all, is money.
Published in The Vancouver Sun newspaper on November 29, 2017.
Gordon Harris is a practicing professional planner in Canada, an international consultant, and the CEO of SFU Community Trust, the developer of UniverCity, the award-winning low-carbon community on Burnaby Mountain beside the campus of Simon Fraser University.