PAPER: Relaxing Upzoning Restrictions to Increase (or Decrease?) Livability Costs in our City: Rethinking the Economics relationship of Supply and Demand and Reassessing the Driving Force behind Gentrification

A discussion of housing and rental prices in Vancouver inevitably leads to a discussion of which market incentives increase supply. The Economics principle of supply and demand has been touted as the reason behind increased prices, with the suggestion that widespread rezoning and spot upzoning in Vancouver can decrease prices by supplying the implied real estate demand. I decided to investigate this concept along with the process of gentrification, a key item spurring new Vancouver development.

Modern urban geographers recognize that gentrification is no longer an isolated instance, but a widely used urban planning device to increase allure of city centres and suburbs that is “defined no longer by social reproduction but by productive capital” (Neil Smith, New Globalism, New Urbanism: Gentrification as Global urban strategy, Antipode, 2002). Gentrification, put simply, is movement. The movement of wealth (or the urban ‘gentry’) into a primarily low-rental, low income area (BusinessDictionary.com). After the post-WWII movement of higher tax brackets into the suburbs, many cities are now experiencing a redevelopment of their core with a resurgence of the wealthy once again living downtown. The original movement to the suburbs caused economic depreciation of some inner-city areas. It is argued that this depreciation in value mixed with the current “rise in potential ground rent levels produces the possibility of a profitable redevelopment” that attracts wealth back to an area for this redevelopment (N.Smith, Toward a Theory of Gentrification: A Back to the City Movement by Capital, not People, Journal of the American Planning Association, 1979). An alternate but linked hypothesis “focuses on the difference between property value as rental and owner-occupied”, with the shift from rentals to ownership (and ensuing rise in real estate value) being the force attracting wealth to an area (Eric Clark, On Gaps in Gentrification Theory, Housing Studies, 1992). Regardless of how it occurs, the influx of wealth brings upgrades in local infrastructure, increased housing development, decreased local property crime, and opportunities to expand certain local economies. Gentrification has also been tied to an increase in rents, house prices and property taxes which displaces the original residents, decreases average household size, diminishes heterogeneous character of the neighbourhood, and can reduce the number of historical buildings through demolition for new residential developments. How each community is specifically impacted by gentrification depends on how development is monitored: if the character of the original neighbourhood is respected and retained or if it is completely forgotten and changed.

As gentrification is more widely used for city redevelopment, local government is becoming more involved in its process. Some argue that this involvement is due to the “continued devolution of federal states [that] places even more pressure on local states to actively pursue development and gentrification as ways of generating tax revenue” (Jackson Hackworth and Neil Smith, The Changing State of Gentrification,Tijdschrift voor Economische en Sociale Geografie, 2001). Others raise concerns that though local governing of gentrification may have “commendable aspects”, that “those state mechanisms which might manage the unjust aspects of gentrification [such as low-income population displacement] are inadequate” (Mark Davidson, Spoiled Mixture: Where Does State-led `Positive’ Gentrification End?, Urban Studies, 2008). I ask the question here: will Vancouver’s approach to supplying housing demand through widespread rezoning and redevelopment really decrease house prices? Or is this widespread development a mere attempt to artificially accelerate gentrification citywide without proper development monitoring? Depending on the answer, Vancouver may be dealing with a loss of community character, heterogeneity and livability.

City Council is relaxing upzoning restrictions and providing rezoning permits around certain blocks of Vancouver*, presumably to supply the demand for condos in greater Vancouver. However, from 2006-2010, Metro Vancouver showed a 7.9% increase in population, while the number of dwellings increased by 8.2% (1). A similar pattern

arose between 2001 and 2006, with Vancouver CMA’s population increasing by 6.5% while private dwellings increased by 10.8%, covering population growth (2). Furthermore, the Real Estate Board (3) shows a higher number of apartment units listed verses sold for most of 2010-2011, alluding to a lower number of buyers than sellers for each month. In contrast, the average price of a Vancouver benchmark** dwelling from 2006-2010 showed between a 16% and 34% increase in price, depending on the month of sale (4), while the median total income for ‘census families’ ** in Vancouver metropolitan area increased by only 9.2% (5). There is also a discrepancy between renter incomes and rent prices, despite efforts to increase the rental pool through programmes such as STIR****. Based on the average renter income and the rule of thirds*****, the average affordable Vancouver rent should be around $916***** per month, but is instead averaging $1500 per month according to the CMHC (6). Moreover, areas in Vancouver that recently had large increases in strata development and upzoning (e.g. West Vancouver, Yaletown, Coal Harbour) show a significantly higher-than-average rent than other areas in Vancouver (7). Seemingly, an increase in the supply:demand ratio for housing is not enough to drive realty or rent prices down in Vancouver.

To play devil’s advocate, one could consider that despite percentage increases in dwellings more than matching increases in population, there was never an ample supply for the demand in the first place. However, in 2009 there was a record low number of new development starts (8 and 9), with “developers…pulling back until some of the supply of new and resale homes on the market [were] absorbed” (8). Because of the low buying power in 2009 due to the financial crisis, there was an opportunity to catch up in housing supply if it were scarce. However, when buying power returned in 2010 and 2011, there was only average or marginally higher house starts as compared to 2007 and 2008 house starts when prices were at their peak (figure 4, source 10). This data could back two alternatives: the first being that indeed there was always ample supply for demand, making it unnecessary to build more supply when demand decreased further. The other alternative is that developers weren’t willing to sacrifice the historically high real estate prices and so maintained supply at a lower level (regardless of supply:demand numbers) by not building.

Alternatively, if Vancouver were to have an ample supply in housing, perhaps this fact could be driving the prices up depending on the market incentives behind increasing supply. In contrast to the Economics principle of bringing up supply to match demand, a different outcome can happen when one brings up demand to match supply. If one takes into account the North American approach to consumerism (11), it becomes apparent that a small surplus in product (in this case, housing) could actually drive prices higher if one artificially creates demand to match the supply. To clarify, marketing the product successfully to the affluent, convincing them to consume more units of this product for future profit (e.g. local or foreign realty investment) creates inflated demand for more product to be made, but at higher selling prices. As with all products to be consumed, housing developments profit from selling a lifestyle or expectation (11). With years of increasing market prices shown in Vancouver, “the risk is that expectations (of future pricing) become extrapolative, prompting the classic market emotions of fear and greed – greed among speculators and investors, and fear among households that getting a foot on the property ladder is a now-or-never proposition,” (12). Investment in Vancouver is touted as safe, and the resulting and falsely inflated demand for property continues to drive prices up; a phenomenon well known to local realtors, BC Assessment, and property tax payers (13 and 14). Now the question becomes: What is the ultimate goal for widespread Vancouver development: to decrease real estate prices and therefore living costs, or for City Hall and select few Vancouverites to make money by increasing living costs for all? Money may talk here.

Development can produce revenue for the City through rezoning fees paid by developers. However, because developers have to pay large spot-rezoning administration costs, this “erodes the affordability profile of the potential new housing” (6), meaning the developer increases selling prices to cover costs. The onus of paying the bill then falls onto the home buyer. The City can also save money and avoid paying for public amenities through “bonusing or ‘upzoning’ of sites” for developers (6). “Often, large rezoning proposals receive additional development rights…and in turn provide higher levels of financial or in kind contributions [from the developer] (e.g., park, art, heritage or cultural amenity)…however, in the absence of alternative financial streams, cities have increasing[ly] relied on ‘zoning tools’ to fund public benefits. Accordingly, there is competition among various public ‘goods’ for the potential benefits stemming from bonusing” (6), meaning limited amenities to the community wind up being provided. In addition to permit fees, the City gains money from increased property taxes where rezoning and upzoning has increased the ‘highest and best use’ for undeveloped land. This tax may benefit the City, but not necessarily the landowner. A stark example occurs in Richmond (15), where businesses have been caught in the “hot zone” of land speculation for potential strata development along the Cambie Corridor due to recent rezonings from commercial to residential and mixed use. This has drastically inflated business property taxes to the extreme of forcing the businesses to demand tax breaks from City Council. As a residential example, average Westside ****** property taxes have increased by 17.6% in the last year (15). These concerns are quickly moving into the Eastside, with some Mount Pleasant homes paying up to 115% increase in taxes over the last 5 years *******. Eastside business will soon feel the pressure through increased rents meant to cover elevated property taxes.

A future example of cost to Vancouverites is the proposed 19-story development for the Kingsway and Broadway block which goes against the neighbourhood’s current, allowed FSR********. If this drastic change in height is allowed, the prospective value of surrounding land (an area filled with independent shop owners and 20% of Vancouver’s home renters – 6) could increase quickly, especially with further City plans to increase building height around Kingsgate Mall and nearby IGA mall (16). Taxes, rents (business and residential) and realty prices will surely increase, and as the City increases its property tax income, the onus will again be put on the business and landowner to pay the extra costs.

To bring this paper full circle, with supply seemingly matching or outweighing demand, house prices still rising, and an increasing pressure on city dwellers to pay inflated property taxes, should Vancouver keep a widespread, premature and unchecked gentrification plan going? The 2010 Rental Housing Synthesis Report recognizes that “in some circumstances, the amount of incentives [to developers], particularly density and parking relaxation, may not fit with urban design standards or community considerations…Another critical trade-off is the community acceptance of increased densities and concern for neighbourhood character and adequacy of civic amenity”. In the specific example of the tower proposed at Kingsway and Broadway, the tower is replacing independent artist studios with a community art space that will be rented at market value, which will likely be unaffordable for the average artist in the neighbourhood (17). Additionally, the height of the proposed tower will overshadow one of the oldest heritage blocks in Vancouver (Please read The History of Mount Pleasant on RAMP site), which could negatively impact the feel and allure of the neighbourhood. On a city-wide scale, gentrification can become dangerous, as values for strata development land increase at a faster pace than the value of rental apartment land. This overvaluing of land pushes up residential and business rent and makes it less viable for rental-purpose buildings to be developed; thereby pushing out renters which make up over half of Vancouver’s population (56.2% – 18). When considering city-wide upzoning as well as rezoning, high-rises can add extra stress to communities through traffic, shadowing, crime, energy consumption and other factors, and they don’t necessarily add density compared to well-planned, mid-rise communities (please read Debunking the High-Rise Myth in Vancouver on RAMP website). New York has undergone similar changes in its market and has been called “homogenous…suburban…exclusive…” and “expensive”, with established artists making bold statements like “New York has closed itself off to the young and struggling” (19).

To elaborate on these statements, gentrification on a city-wide scale means displacement on a city-wide scale due to rising living costs. “Displacement, weather via urban renewal and the bulldozer or by market forces, is an act of force [that is] anti-democratic because it denies self-determination to an existing community (20). If the City of Vancouver were really invested in making the city affordable, this goal is possible through setting aside pockets of land throughout all of Vancouver’s communities and restructuring the ownership of this land and any buildings on it. A great example is housing co-ops and community land trusts or “non-profit neighbourhood membership organization(s) [where] restrictions are placed on the price or rental of dwellings” (20). This concept goes farther beyond Vancouver’s currently used restrictions on rental increases to properly ensure that housing will always be affordable.