COUNTERPOINT | Gary Mason’s “Living in Vancouver comes at a price”

This Tuesday, the Vision-controlled City Council struck a developer-run “affordable housing” task force. The public debate surrounding the affordability crisis has begun in earnest – and that is a great thing. Unfortunately, the discussion has been largely limited to pundits in the corporate media and rich people who work in the development industry — none of whom have direct experience dealing with the affordability crisis. The vast majority of their professional and friendship networks are totally disconnected from the front lines of eviction and tenure insecurity.

As a result, much public commentary has been out-of-touch and condescending. The quality of recommendations has been substandard, the argumentation lazy, all of which is grounded in a position of apathy. For example, Gary Mason published a piece in the Globe and Mail this morning entitled “Living in Vancouver comes at a price,” which begins by recognizing that we are in the midst of an affordability crisis:

“Most of the world’s major cities are trying to solve this problem – in the most politically palatable way possible. In Canada, the issue is particularly acute in markets such as Toronto and Vancouver, where real-estate prices long ago made home ownership a dream for everyone except the wealthy.”

First we should note that Mason’s main, though concealed, argument here is that Vancouver’s housing problem is no different from that of any other major city. This is decidedly false. The disparity between median income and median market housing price is larger in Vancouver than every other city on the planet except for Hong Kong. But then Hong Kong has 1.2 million units of public housing, which house 40% of the population. Just this week, a report came out showing that Vancouver has the highest rent in Canada. While most readers will know all this intuitively — many of us adapt to the crisis by multiple-subletting and by sleeping in attics, basements, on couches, floors – it’s necessary to cite these figures to remind out-of-touch elites that the crisis is systemic. The situation in Vancouver is not healthy and normal. It is pathological and exploitative.

Mason then addresses some policy approaches he has heard circulating in elite circles: 1) “subsidized” housing on city land, 2) rezone certain areas for more townhouses, and 3) co-op housing.

1) “Subsidized” housing on city land

Mason dismisses the idea of building “subsidized” housing on city land because “It’s an idea that leads to a particularly thorny question: Just who should be getting their housing subsidized?” Mason is misleading here. First, we know exactly who needs subsidized housing: BC Housing has an official wait-list of 7,000, although the real number is probably several times that.

More importantly, Mason is concealing the nature of our housing crisis: prices are kept artificially high, and the way to counter-act this is not through subsidization, but by removing profit from the equation and ending the private developer monopoly system.

The development industry holds a monopoly on housing production, and has all but choked-off supply of affordable housing. This has pushed the “market” price for all forms of housing (detached, attached, condos, etc) far above soft and hard construction costs. This extra monopoly cost is hidden in the inflated land-value. These artificial costs would mostly evaporate in the presence of a public option that would hold the private development industry honest. A public option, unencumbered by land-value inflation or by profit motives could deliver affordable housing at a fraction of the cost of the private sector monopoly. The development industry will fight tooth-and-nail against a public option that creates affordable housing in large enough volume to bring down prices and profits across-the-board.

In addition to this, of course, there is a dire need for fully- and partially-subsidized public housing – the evidence for which can be found throughout the pages of the Mainlander.

2) Town-homes

The second idea that Mason raises, then dismisses, is rezoning areas with single-family homes to accommodate town homes. This idea has been actively promoted by Michael Geller, a developer and past-president of the Urban Development Institute who ran for the NPA in 2008. Mason says:

“Others suggest the city rezone areas of the city to allow for stacked townhouses and row houses that would be less costly to build and would ultimately accommodate more people. But cheaper for whom? I’ve seen lots of townhouses go up in Vancouver in the past few years with units starting at more than $800,000.”

Again, for ideas like this to work, they have to be on a large enough scale to bring down prices across-the-board, a concept that Mason prefers not to contemplate.

3) Co-op housing

The third idea that Mason dismisses is co-op housing. He writes:

“There are calls for more co-op housing. It was all the rage in the 1970s and still exists in pockets of Vancouver. Co-op housing is a great deal for those lucky enough to get into it, and has included members of the professional class. (I lived in a co-op ever so briefly decades ago.) I know lawyers and academics living in co-op housing today.”

This is the same kind of right-wing spin hurled at Jack Layton in the 1990s for living in co-op housing. The vast majority of people who live in coop housing are lower-income, and the few with more disposable income often subsidize the other tenants. It’s a good thing when people of all incomes support the co-op movement. The main problem with the co-operative housing movement is that it is too small. There are only about 5,000 units of co-op housing in Vancouver, not nearly enough to counter-act the corporate developer monopoly.

Fundamentally Mason’s argument against co-op housing is the same as his argument against “subsidized” housing on city land: he can’t figure out what criteria we use to decide who gets in. Luckily, many others can figure it out. In most other cities, such as Toronto, people are selected from a well-managed waiting list, and pay based on the rent-geared-to-income (RGI) system. Everywhere, “affordable” is defined as 30% of household income. It is not nearly as complicated as Mason pretends.

Conclusion: apathy

Upon dismissing these three weak policy solutions, Mason does not present new bold ideas in their place, but rather descends into inexcusable, incoherent apathy:

“I’m just not sure that taxpayers in Vancouver (or any big city, for that matter) are ready to embrace the idea of subsidizing housing for a fortunate few, while their kids are forced out to the boonies to find places they can manage financially. There are some, in fact, who wonder whether this should be a concern at all. So what if a couple living in the suburbs wants to move into the city but can’t afford it? Should that be the mayor’s problem?”

It is hard to know where to begin. Every sentence, every clause, is wrong – factually and ethically. The crisis does not only affect the kids of rich people. On the contrary, it is these fortunate rich kids who will inherit their parents’ property, while the majority of us barely scrape by. And the crisis doesn’t only affect couples in the suburbs who want to move downtown. The crisis is acute downtown, but is also regional. As mentioned, this is not only a question of “subsidization,” but of ending price-gouging by the corporate development oligopoly. Finally, there is not a person in the world more responsible for tackling Vancouver’s housing crisis than the mayor of the city. And if the mayor can’t do it – task force or no task force — then his party will be rendered illegitimate in good time.

Photo by Jackie Wong at OpenFile

4Comments

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1

jesse on December 15, 2011 at 6:17 pm

Jikes! :) Maybe Mason can write an op-ed explaining that nobody has to buy and that it’s recent buyers, not developers, who are responsible for paying market price.

On the plus side it looks like VV is going to support cooperatives in a larger way going forward, one hopes with the realisation that it needs to incorporate a broad set of incomes, not those with low incomes. Cooperatives need good management and to be frank that means getting a tenant mix who can be expected to handle these responsibilities.
2

Mike Thicke on December 16, 2011 at 12:08 pm

Thanks Tristan, nice article. I’m really stumbling over this paragraph thought:

The development industry holds a monopoly on housing production, and has all but choked-off supply of affordable housing. This has pushed the “market” price for all forms of housing (detached, attached, condos, etc) far above soft and hard construction costs. This extra monopoly cost is hidden in the inflated land-value. These artificial costs would mostly evaporate in the presence of a public option that would hold the private development industry honest. A public option, unencumbered by land-value inflation or by profit motives could deliver affordable housing at a fraction of the cost of the private sector monopoly. The development industry will fight tooth-and-nail against a public option that creates affordable housing in large enough volume to bring down prices and profits across-the-board.

I think you’re being a little tricky here. On the surface it looks like you’re making a standard economics argument: A small group has isolated themselves from competition and as a result is able to charge prices that are far above what would be charged in a competitive market. The implied solution is to break up the monopoly and increase competition. This is the sort of argument people make about the cell phone industry in Canada: it is too protected from competition, and as a result Canadian cell phone providers can charge rates that are far higher than those in, say, the U.S. where there is more competition.

But this isn’t really your argument. You’re not arguing for more competition among developers by breaking up their “monopoly”. You would make that argument if you thought developers were conspiring to not build houses in order to sell their current houses at higher prices. But you aren’t claiming such a conspiracy, but rather claiming that there is something artificial about land prices at the root of this. Most economists would look at Vancouver’s high land prices and offer a very simple explanation: there are a lot of people who want to buy land in Vancouver, but not a lot of land available to buy. Vancouver is a desirable place to live, but its geography constrains how many people can live there. The high price of housing isn’t due to a monopoly, but due to low supply and high demand. There is no “monopoly cost”. Your argument really has nothing to do with monopolies—you’re couching an anti-market argument in pro-market language.

Finally, I disagree with your analysis of developer motives. I doubt that anyone thinks that enough public housing will be produced to lower market prices. Rather, I would expect public housing to *raise* market prices. What I suspect developers are more concerned about is opportunity cost. Each unit of affordable housing is a lost opportunity for developers to make a profit. There are only so many places you can build in Vancouver, and anyplace you build a development that is not for profit is a place you cannot build a profitable development. I expect this will raise market prices because it even further lowers the land area available to developers—it reduces supply. Public housing helps those who get it, but hurts (economically) everyone who doesn’t. If you care more about the people who can get public housing then this shouldn’t worry you too much, but I don’t think it’s correct to imply that public housing will ultimately help everyone by lowering housing prices across the board.

Your Hong Kong example is actually evidence that I’m correct—if public housing really did lower market prices, why is Hong Kong, with 40% public housing, the city with the highest disparity between median income and median housing price? Shouldn’t all that public housing lower housing prices if you’re correct?
3

Tristan Markle on December 16, 2011 at 1:19 pm

Thanks for the comments, mike!

We will have to elaborate on much of this later, because the analysis here goes against much conventional wisdom, and there are too many tangents. I’ll give some preliminary responses:

1. I am in fact suggesting that monopoly practices are dominant. There is market coordination and market domination by a few large firms (Concord alone controls about half of new supply). The coordination is regulated by relationships between these firms, city hall, and creditors.

2. You are right, I am not proposing “breaking up” the oligopoly by allowing true “free market competition” (that is a chimera). We have free-market competition right now, which expresses itself as market coordination by the for-profit system. ‘Coordination’ means: choked-supply in general, exclusively high-end supply, no public housing, fixed profit rates, and a (re)zoning system rigged for such purposes.
Monopoly theorists call this behaviour “rent-seeking”…their descriptions are useful, but they are wrong that rent-seeking can be overcome by the “free market”…on the contrary, rent-seeking is integral to the profit-system. Yes, rent-seeking and price-gouging by cell phone companies is similarly integral to the profit system in that sector.

3. Almost all new supply is high-end, “disconnected from local incomes” as Bob Rennie himself frequently admits. The policy rationale for this is Reaganite housing ideology called “filtering theory” — the idea is that all new housing should be high-end, and consumers move up the chain, leaving their previous more affordable units available. It turns out that there is no such chain. Over half condo-owners are investors, who rent to us renters. We have a bi-modal income distribution – renters, owners. Robertson’s new PR approach is to create “hope” that there will be such a chain. There will not be under the current system.

4. I stated that there is a monopoly cost hidden in the land value (including strata “land” in the sky). I stand by that firmly.

5. We should reject the notion that there is no “space” for affordable housing. There is more than enough space. There’s just not enough political will.

6. We should reject any aesthetic naturalization of price-gouging (the mountains are pretty, Vancouver’s so “nice” etc).

7. It is correct that if we build enough public housing, it will help everyone across-the-board. I stand by that, too. The public housing in Hong Kong does lower the median housing price! Public housing is excluded from the analysis in the affordability index I mentioned.

Talk soon!
4

Bob on December 18, 2011 at 7:56 am

If our market is disconnected from local incomes, we should disconnect “unlocal” incomes from our market. Problem solved.

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