The Unaffordability Syndrome 
 

 

I’ve been trying to put paper to pen on this subject for a long time, and every time I try, I get bogged down. Where should we start, what should the structure be, and what is it that I am trying to accomplish? Initially I thought I wanted to teach people about development and the factors that impact affordability. We will cover some of these subjects, but I have decided that my opinion doesn’t matter. In fact, none of our opinions matter.

 

Despite the fact that no one’s opinion matters, (More on this later), We are going to start by outlining the 3 main positions on the subject. My hope is that by doing so, we will be able to see the scope of the challenges that we are facing, and maybe determine some actions that could be taken if we decided we wanted to solve these problems rather than just complain and point fingers. 

 

 

This is the simplest opinion with the simplest solution. Affordability is a matter of a lack of supply, we need to build more units, and prices, and rents will stabilize. Typically, this opinion is held by people in the real estate business or the business community at large. They have a solid understanding of the drivers of development costs and believe strongly in the power of markets to govern themselves. This is where I started my journey, and I am still largely sympathetic to this position. Unfortunately for all of us, while supply is a big part of the problem, we are wrong to believe that we can solve the issue of affordability for all people by simply building more. No matter how much we build, some people will not be able to afford to buy or rent any form of market price real estate, no matter how dense the project is, or how small the unit. But, even though this is not a panacea that will solve everything, it could make a big difference, especially for young professionals.

 

Young professionals typically earn $30,000 to $50,000 a year after taxes. If we take the position that affordability is represented by applying 30% of our income towards housing, these individuals will likely be able to pay $833 to $1250 a month in rent without experiencing high amounts of stress, frustration or anger. Do you see the problem yet? We have a massive range in this market segment. The result? People compete for rental units, and when there is a limited number of units, the people at the bottom of the pool, are either forced to push up their housing budget, or move away.

 

Another issue is the size and form of units. You can rent a one bedroom in Surrey in this price range, you cannot in Vancouver. The result is that people are choosing to use units in ways other than they were intended to be used (I.e one bedroom apartments housing multiple people) and or spend more than 30% of their income to support their housing expenses.

 

If we were able to build more housing units, vacancy would increase, and as vacancy increased, rents would either naturally stabilize or go down. Once vacancy reaches 5% rents stabilize, and if they go beyond this they decline. We know this to be true because it has happened in other places in the world such as Seattle. It will work, but again not for everyone. If you are an advocate for people who will not benefit from these policies, feel free to skip down to the last section. For those of you who are fans of rent freezes, please continue below.

 

Over the past 10 years, Metro Vancouver has seen immense amounts of development and prices, continue to rise. As a result people are suspicious of the business community, because they believe that the current paradigm benefits the rich and powerful. The position goes something like this. Even if we allowed development at a massive scale, developers will not undercut themselves. New units cost more than old units, so what we need to do is protect the existing inventory of rental units from rental increases.

 

This strategy is currently being implemented by the BC NDP government. Time will tell what the long-term impacts will be, but one of the simplest consequences will be the inability for people to move. In my journeys I have come across individuals who are trapped by their rent control. It works well for them while they are living in their current units, but if they need to move, because they are making a new household with a spouse, or need more space because they have more children, they are stuck. While their rent stays the same, market rents go up, and they are forced to live in inadequate housing. So this is simply not an effective solution.

 

Some people believe that this is a failure of the policy not going far enough. Rents should be tied to the unit, not the individual, so if someone moves out the landlord cannot increase the rent to the market. This outcome is even worse. If owners can’t increase rents, they have no incentive to re-invest in their property or develop more units. Some people think this isn’t a real problem. Who cares if buildings are old, and musky, at least rents are affordable.

 

There are several undesired consequences to this policy: the development of derelict buildings and slums, a lack of growth means we can’t afford important infrastructure projects like rapid transit expansion projects, people becoming dependent on the government providing more affordable units, because developers are unable to add them to mixed use development projects to average out the development costs.

 

Some people don’t care. They say they have character. Old buildings that are taken care of have character. Old buildings that are left to rot, are disgusting and unsafe. I think we can all agree on that. So what the solution? Is it Communism (Spoiler alert its no Communism 😊).

 

 

Now for those of you who skipped the section above, as promised, this is for you. But because I was nice and let you skip section 2, please go back later, or not. We just highlighted how the NDP’s policies are not working, which, unless you are in the market for a $3 Million + home on the Westside of Vancouver, I think we all agree already on that. So back to the real story:

 

 I already hear some of you saying, $833 a month is affordable? Screw you! I am a student, I earn minimum wage, I am on disabilities, or I am a senior on a fixed income. I can’t afford to pay more than $500 a month. What am I supposed to do?

 

I concede that many of these people need support from the community, either in the form of social housing or subsidies. Currently many of them live in SRO (Single Rental Occupancy), dilapidated houses and or experience some form of housing insecurity.

 

While I think it is a whole lot better to live in a place you don’t like than on the street, I think we can do better. So, you might be asking, if all these opinions are wrong, what exactly is it that we should do?

 

My theory, and what I advocate for is a blend of all 3 opinions. I do not believe they are mutually exclusive, and rather compliment each other.

 

Opinion # 1: We need more market units. Correct.

Opinion # 2: We need tenant power. Also Correct.

Opinion # 3: We need social housing. Correct, Correct, Correct.

 

What we don’t need is dogma and division. We don’t need people arguing against each other, but rather discussing together. I realized this when I was talking to my sister. She is an advocate for vulnerable members of the community. After our discussion, I realized that I have some strategies that would work for some people, but there is no one size fits all solution. I believe this is the greatest challenge of the Unaffordability Syndrome. We are all coming at this problem with our own experience and bias, due to the complexity of the issues, we cannot solve anyone’s problems unless we are able to address everyone’s. If we make this a priority I believe we can solve most of these problems.

 

However, this is a not a feel-good piece. In my day to day I help my clients solve real problems by providing real solutions. Therefore, I hope to leverage these problem-solving skills to provide real actions that we can take to make Metro Vancouver a better place to live, work, and play.

 

In future articles I would like to go into further details on:

 

Let’s make Greater Vancouver Affordable Again!