Tuesday, November 28, 2006

affordable housing

source

The other day freako posed this question - Exactly why is it that market cannot provide affordable housing? And what exactly is affordable housing? A nice SFH with a picket fence in a gentrified neighbourhood? Five pieces of plywood? Until we realize that quality of housing is a relative concept, I don't think we can even define the problem. And once we do, how will it be rectified, and who should pay? here.

Good question. One that I cannot think of an answer to, but poses more questions in my mind;

Affordable rental housing?

freako pointed out that the market sets the price, and I am certain that he is reasoned in saying so, but who sets the market?.

SRO's, which are aimed at those with limited income, or on income assistance, tend to be about 50% of the monthly stipend of those receiving benefits. If more than that, they would certainly be unaffordable for the indigent. Underemployed people may take up the slack, or maybe not.

What about the homeowner?

Traditionally, banks have looked to no more than 32% of after-tax income for shelter costs (though I read recently that they are revising that up to 40%). That would include utilities and taxes. But here, we are close to 50% of median household labour income required to make a mortgage payment on a median priced house link. That's with 25% down too. Then another amount for utilities, repairs, taxes, etc. is needed.

So from the lowliest welfare recipient to the median wage earner, things are clearly unaffordable in Vancouver.

What can be done?

Beats me. They (whover they are) have us all by the short hairs. Refuse to pay, and you can try to make it on the street, or go somewhere that you can afford. But what if you can't afford to get to where it is affordable?

I wouldn't expect legislation against foreign ownership (if that's part of the problem) to be very palatable to any but the most disgruntled. Mexico doesn't allow foreign ownership. Mexicans have land rights though, and there is a system of Ejidos where the land is held in common. There is a loophole in which foreign companies can own land, but that feeds a big mess of corruption. It's also quasi-fascist.

Foreigners are not allowed to own land in the United Arab Emirates either, and you can't marry their girls. The state provides a villa to each married couple, and men are permitted to marry up to six women. A villa for each wife. Cool! Emirate men can marry foreign women.

This? source

No, I'm not a communist - just trying to find a dramatic ending to a tedious post. Maybe even provoke discussion.

But really. In the end, who sets the market when it comes to necessities?

16 comments:

Marko said...

Freako responded to one of my posts on VHB that the median income earner has never been able to purchase the median SFH. That might be true, but in the early sixties my Dad, an electrician working for the MOT, purchased a house in Richmond on half an acre of land. He supported our family of 5. My mother didn't work. I have no idea what the solution is either. The people who are buying are not median income earners - they're not even people earning double the median (well, maybe - if it's a condo or 90 minutes out of town or using a big fat inheritance). I'd move away but I have family ties and love my job. I guess we're priced out and just have to hope it isn't forever.

solipsist said...

Thanks for posting marko.

I know what you mean. Bus drivers (before decent union contracts), teachers, milkmen, mechanics, nurses, etc., could all look forward to a decent home on a decent street in the past. The typical Leave it to Beaver family could save for a downpayment and buy a place.

Now, in Vancouver, even doctors and lawyers are stretching to buy.

My grandparents lost everything during the depression years, but had a fine, three bedroom brick house on an acre of land just north of T.O. by the mid fifties. No mortgage ever either.

I'm not priced out, but I see absolutely no value relative to what you can get for your money here.

It will change. I have no doubt. It's just a matter of time.

Freako said...

Dodging the bigger questions for a moment, I can speak to as to why the typical worker can no longer afford metro SFH. The population growth has led to densification. With densification, the opportunity cost of SFH goes way up. Put slighlty differently, a Vancouver SFH has priced in future density potential.

Essentially, if the option becomes SFH in the outer burb or townhouse or condo in Vancouver proper.

The day will come when SFH will be a rarity in Vancouver proper. Just the way it goes. I am sure that Manhattan, Hong Kong or Tokyo have very few SFH.

patriotz said...

I get a bit burned when people make comparisons like the one just above. Better to make comparisons to Seattle or Toronto. Actually Vancouver has rather few SFH right now - many (most?) are duplexes (i.e. with suites). Which is already the norm in the former City of Toronto (core area).

The reason people could afford SFH with one income in the 1950's is - surprise - most families had only one income. Once the two-income family became the norm, the demand curve shifted such that you neeeded 2 incomes to buy a SFH.

And that leads us to the "affordability" issue. Everything is affordable for somebody. One problem in Vancouver is that it has a highly unequal income distribution that leaves shelter unaffordable for many people. That's an income problem, and has to be addressed as such.

The way to make shelter as such more affordable is to increase supply. There is a lot governments could do to achieve this - for example taxing residentially zoned RE only on land value. This would create a strong incentive for municipalities to upzone, and land owners to build up to permitted density ASAP and get that property yielding. But the problem with any policy to increase supply is that it will decrease the value of existing RE , and 70% or so of people are RE owners. So it won't happen.

A separate issue is that today the cost of buying is out of line with the cost of renting - i.e. a bubble. Like all bubbles, this one will self-destruct. Like most other bubbles, government policy could have prevented it to a large extent, but again there are too many people who don't want the party spoiled.

And in the long run shelter costs in Vancouver are just going to be determined by whether people think it's worth it. Perhaps Greater Vancouver, like LA, may be largely abandoned by non-ethnic middle class families who just don't have any compelling reason to pay high prices to live there. IMHO this is already in progress, as evidenced by the fall in net domestic migration to near zero.

Blizzard said...

Freako - you like to bring up the density argument. I think the truth is that SFH are underpriced relative to townhouses particularly. Overall, I think everything is overpriced given what most people earn, especially young people, but in this market, the density factor doesn't add up. When you look at what you have to spend per sqft for a townhouse compared to a sfh, you pay a big premium for a townhouse.
Is this a result of speculation, people's stupidity or do people value the supposed convenience of townhouse living so much that they're willing to pay a premium.
It seems that as things densify over time, the price in real terms for equivalent interior space should stay the same, but right now it is not. In the near-downtown area anyway.
Again, maybe this is a result of bubble-addled brains, but there doesn't seem to be any consistent valuation of land vs. buildings in current prices. Just an impression, data may prove me wrong on that.

mk-kids said...

I think this idea from Patriotz is very interesting: "The reason people could afford SFH with one income in the 1950's is - surprise - most families had only one income. Once the two-income family became the norm, the demand curve shifted such that you neeeded 2 incomes to buy a SFH."

I was thinking that if we wanted to get out ahead, we should start sending our children out to work - imagine the SFH we could afford on 3 or 4 incomes!

solipsist said...

Thanks for posting all.

should start sending our children out to work

mk - I've been thinking that for a while. There is a huge shortage of retail workers, and business is having trouble getting out All That Stuff. Is that the reason for the shortage of PS3's? No one to sell them.

No point in sending them to school anyway. That system is shot. I think that it's time we added a new wage teir to go with minimum wage, and training wage. It's time for kiddie wages. They are much easier to exploit, because they are not even people in law.

Blizzard said...
...the density argument. I think the truth is that SFH are underpriced relative to townhouses particularly. Overall, I think everything is overpriced given what most people earn, especially young people, but in this market, the density factor doesn't add up.

Dead on re: SFH vs. condos and twnhses. I've been wondering why people paid as much for a concrete cell with fancy countertops and shiny taps as they could have bought a liveable house on a street with a yard, a dog, and a garage, maybe a little garden.

It's about marketing. People are being sold on something every second of every day, and they cannot resist. HD tv. Plasma deathstar 400 billion pixels per square nanometre, etc.

That's just my taste though. It goes back to what freako touched on regarding critical thought. Education - from the Latin educare - to draw out (that which is within). Problem is that there is little to draw out - because there are no seeds planted, so it is filled up with pap through all media.

Interesting thoughts patriotz.

T.O. does have a lot of SFH in the core. Ontario cities all tend to. The thing is, that they are all row housing, with postage stamp yards, but they are roomy - often 3 floors plus a basement. They all have garages too. Obviously I'm not talking about downtown itself, but areas equivalent to Kits, Commercial Dr., Dunbar, etc.

The unequal income thing has always been thus, and that's why there are areas like Strathcona, Commercial Dr., Kitsilano, etc. In real terms we are poorer than our parents, so something doesn't add up. I have some nebulous ideas about what is going on, but they are strato-cirrus in nature. When they go cumulo-nimbus, I will expand on them.

freako said

The day will come when SFH will be a rarity in Vancouver proper. Just the way it goes.

I guess it depends on what Vancouver proper means. If it means from Boundary Rd. to UBC, I think that we are a couple of hundred years away from that. In the bigger picture, I believe that we will see a shrinking population (another one of those dang nebulous thoughts).

Something that surprises me is that there are three houses going up in my immediate area, and none of them even have basements, let alone basement suites. One of them even has a smaller footprint than what was there (though it will be two stories).

Gotta go, though there will be more.

patriotz said...

T.O. does have a lot of SFH in the core. Ontario cities all tend to. The thing is, that they are all row housing

??? Row housing (just an old term for townhouses) is not SFH by any definition I know. Or by SFH do you mean just one family per dwelling unit ? :-)

Freako said...

I get a bit burned when people make comparisons like the one just above.

I brought up for no other reasons than showing what happens to SFH in very high densities. I had no intention of COMPARING Vancouver to anything.

The reason people could afford SFH with one income in the 1950's is - surprise - most families had only one income. Once the two-income family became the norm, the demand curve shifted such that you neeeded 2 incomes to buy a SFH.

With all due respect, I don't follow. Why is it harder to afford an SFH with two incomes than one? Sure, prices will react to the extra buying power, but are you saying that over 100% of it get tacked onto real estate. And are you saying that density has no bearing on high prices of remaining SFH? Anyhow, I don't get what you get "burned about"

Freako - you like to bring up the density argument. I think the truth is that SFH are underpriced relative to townhouses particularly.

Yes, I do, because I think it is a very valid argument. I agree with you that SFH seem relatively underpriced - for density potential reasons.

As for density and future of Vancouver SFH: I have long been a critic of price extrapolation. But I do engage in density extrapolation.

I am have some photos, but I am having trouble linking. Hopefully this one works. I have a whole series of aerial photos from 1920's on.


1959

solipsist said...

Or by SFH do you mean just one family per dwelling unit ?

I thought that is what was meant (a stand-alone property with title to the land underlying). But even if we are talking of 33x110 lots (or so), I still can't see anything like HK or Tokyo for a very long time to come. Even Singapore has some very large lots still.

Thanks for that link to the photo freako. I saw that a time ago when you posted them elswhere (I remember some colour shots of the West Side too).

Babybull40 said...

I live in a rowhouse.. I am the first in line of five all joined at the hip...and I have a driveway no garage, small backyard and front.. but the difference between mine and one in T.O is the pricing..$68,000 for mine and T.O is about quadruple that amount.. yes that is my guesstimate.. I lived in T.O about 20 yrs ago and there was no such thing as affordable housing then and now its all immigrants and gangs unless you live in a fancy part of town,, The Beaches comes to mind.. I lived around the corner from there at one time and I paid an exorbant amount of money and I had to share bathroom and kitchen.. for 700.. smackers a month.. not my ideal place to live and I certainly don't know what I was thinking at the time, other than not wanting to sleep on the streets.But now I have a rent to own situation and I wouldn't never go back to living in an apartment..

Babybull40 said...

and I forgot we had the World Cycling Championship here a few years ago. no Olympics but better than nothing.. what has Toronto got? C.N Tower and over-priced parking, housing and the list goes on..

patriotz said...

babybull, I have no idea where you live now, but Toronto is way more affordable than Vancouver. Higher incomes and 2/3 the prices.

Why is it harder to afford an SFH with two incomes than one?

If you're comparing buying now to the fifties, it's because we are in a bubble now and we weren't then. It's probably not less affordable to rent the same house (with 2 incomes vs. 1). Maybe even more affordable.

With the proviso that as the city has grown, the location premium for any given house has increased. Richmond was cheap before the Oak Street Bridge was built, because it was hard to get to. So it's not apples to apples to compare the same house really. Rather you should look at the same % of the metro population within a given radius.

Look back to the mid-1980's. A SFH was about as affordable (buy or rent) with 2 incomes then as the same house was in the 1950's with 1. That's what I was talking about. Increase in real household income bids up the market price of shelter.

aetakeo said...

I live on Mole Hill. It's an interesting affordable housing model, and I'm actually somewhat familiar with the books; the land is owned by the City but the houses are owned by the society, and mortgages are being paid by rents etc...

In times of densification, I agree that land prices themselves go up. However, I'm not convinced that Vancouver's vastly different in terms of *income* distribution; we have 3% more people in the over 100K income per household range. Greater numbers of outliers, maybe; but the president of a big local company only owned 2 houses, in the lower mainland, not 10.

Co-ops work pretty well, although you have to assume you'll be paying the market in a NEW co-op: older co-ops that have their mortgages paid have an easier time on rent flexibility. Which is why when we went for an interview at Charleston Terrace a few years back we almost fell over to learn that the *non-subsidized* monthly rent for a three bedroom was in the $900 range. Of course, the problem with co-ops is similar to the problem with strata: all the ridiculous politics that make a house in Trail start looking appealing.

So, there are options that can be facilitated by government that don't have to be long term government projects and don't change the market generally.

solipsist said...

Thanks for that insight atakeo.

Co-ops are an interesting model that i do not know a lot about. I know people that have lived (or live) in co-ops though. The comparison to strata vis-a-vis politics is interesting. Would it be fair to say that the politics are more"socialist" than those of a strata? The idea being that strata have a more (in)vested interest than a co-op.

How did you almost fall over at the monthly rent? That it was affordable compared to "owning" a three bedroom condo? (what would that be? about $3800/month?)

Where in the city is Charleston Place?

Does anyone have an idea as to how many co-ops there are in Van.?

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