COUNTERPOINT | Daniel Fontaine’s “Hunt for affordable housing”

Although the Mayor’s “affordable housing task force” is unlikely to drive real change, it could have the positive impact of triggering public debate around the mechanisms and causes of Vancouver’s permanent housing bubble. Much of the conversation, like the task force itself, includes only elites — a monologue of the 1%. The Mainlander‘s COUNTERPOINT series aims to take the conversation out of the board rooms.

The best way to end the monopoly on housing development is to end the monopoly on political debate. Last week, we debated the Globe and Mail‘s Gary Mason. This week we engage Daniel Fontaine, former chief-of-staff to mayor Sam Sullivan, unpacking his two recent housing affordability columns in 24 Hours — “The hunt for affordable housing” 7/12/2011, and “The path to affordable housing” 14/12/2011.

Fontaine begins by rightly recognizing that residents are paying too much of their income to landlords and banks: “a tear-down house on Vancouver’s west side can easily fetch $2 million, while the cost of rental accommodation continues to soar.” Residents are conscious that this situation is not sustainable: “Regardless of which survey you read, the issue of affordable housing tops the list of concerns for most Metro Vancouverites.”

But it quickly becomes apparent that Fontaine’s main objective is to preempt any policies that might reduce the cost of housing in general. His rhetorical strategy is to instill fear that any moderation of prices will precipitate a downward spiral:

One option could be to introduce policies that result in a massive drop in the value of existing single-family homes. While this might sound appealing to prospective purchasers, it simply isn’t practical. That’s because it could send our economy into a serious nosedive.

Such a “nosedive,” he suggests, will lead to an underwater mortgage crisis like that of the United States after 2009, or even to economic devastation akin to that experienced by Detroit in the aftermath of the race riots and the white-flight to the suburbs.

One can’t help but wonder: what are these mysterious “policies that result in a massive drop in the value of existing single-family homes”? Fontaine doesn’t name a single one of these presumably frightening policies. Instead, he calls on us to take an oath of ignorance surrounding them, asking that “we all agree that lowering the value of current homes is not a realistic policy option.”

Ironically, Vancouver’s housing bubble will burst only in the absence of a controlled price reduction. If we continue to allow land-value inflation to outpace increases in real income (last year housing inflation was 20%), then the market will crash. It is the stay-the-course ideology that will drive our economy off the cliff into a “nosedive” and a crash. Instead we need policies that walk us down carefully from the cliff of unaffordability — by increasing the supply of affordable and public housing and by implementing a progressive property tax regime.

In place of progressive policies, Fontaine proposes paradoxical stay-the-course policies that pretend to change things without changing them. He calls for “creative solutions” that make affordable housing without making housing more affordable. Or, as Fontaine puts it, “ways cities can introduce affordability into the market without having to necessarily depress the price of existing homes.” This is patently impossible, since the existing-home market is not hermetically sealed from the new-inventory market. No wonder the city’s elites are so pessimistic about their chances for success! That’s what Fontaine means when he says Robertson “will have a tough road ahead of him.”

In all, Fontaine offers three so-called “creative solutions”: 1) keep prices high in the City of Vancouver, but build affordable housing in neighbouring municipalities, 2) reduce property taxes and “red tape” for developers, 3) find ways to get young people to buy into the inflated property market. Let us unpack them one-by-one.

1) Keep prices high in the City of Vancouver, but build affordable housing in neighbouring municipalities

Fontaine’s first “creative solution” is to build more affordable housing in the suburbs along SkyTrain lines, while allowing prices to remain sky-high in the City of Vancouver proper. He calls this a “regional approach”:

Constructing less expensive units near rapid transit in Coquitlam and New Westminster, where land is relatively cheaper, is a realistic way of beginning to ease the pressure within Vancouver’s boundaries.

Of course it’s a cop-out for the City of Vancouver to ask surrounding municipalities to solve its own problem. A coordinated effort, though, is surely necessary, and is already underway through Metro Vancouver’s “Regional Growth Strategy,” a strategy that goes int he right direction but needs much improvement. If building affordable housing along mass transit routes is accomplished at a large enough scale, it will indeed “ease the pressure within Vancouver’s boundaries.” But this means precisely that housing prices will moderate in general — to Fontaine’s chagrin. Since housing prices are inflated throughout the region, a truly “regional approach” will moderate prices both within and without Vancouver’s boundaries. It will also take into account that the City of Vancouver has the lowest median incomes, the highest rents (aside from West Van), and by far the highest proportion of renters.

2) Reduce property taxes and “red tape” for developers

Fontaine’s second “creative solution” is to reduce taxes and “red-tape” for developers (including the strategy of “pre-zoning” lands so that developers don’t need to contribute towards public amenities). However, Vancouver’s affordability crisis is not driven by high taxes. In fact, for decades Vancouver has had low residential tax rates compared to other major Canadian cities. For example, Toronto has higher tax rates, but lower property values. Furthermore, the differential tax rates throughout the various Metro Vancouver municipalities have had little impact on the rate of housing inflation. Against Fontaine’s judgment, we need a progressive property tax, with different brackets for high-end properties. This will both incentivize and subsidize the construction of more affordable units.

It is equally absurd to pin Vancouver’s inflated market on “red tape.” Developers are almost always able to build when they want to. Over the past years, not more than a handful of development applications were significantly delayed by government, nevermind rejected. On the contrary, housing starts fell from 4,000 per year to 1,000 per year in 2009 because the real estate oligopoly — developers, marketers, banks — consciously choked supply to keep prices high through the recession.

3) Find ways to get young people to buy into the inflated property market

Fontaine’s most concrete “creative solution” is to find new ways to turn renters into homeowners without making housing prices more affordable.

Step one for Vancouver should be to introduce a number of new housing options for first time buyers that essentially don’t exist. That means thinking outside the wood frame box and following Toronto’s lead by pre-zoning parcels of land for such things as stacked townhouses and row housing. Not only is this form of housing easier to bring to market at a lower price point, it has broad appeal with young couples and families who simply can’t afford to purchase a more costly single family home.

Fontaine is here proposing the very thing which caused the US housing crash: finding ways for people with low- to moderate-income to buy into an already-inflated market, spending unsustainable fractions of their paychecks on interest payments to banks. Any future crash will be caused by such irresponsible policies. The symptoms of the housing crisis are felt most acutely by renters, who may therefore be tempted to buy into the market. But instead renters should tell the real estate oligopoly to “look down.” As Slavoj Žižek said to a crowd at Occupy Wall Street about the US financial crash:

We are not destroying anything. We are only witnessing how the system is destroying itself. We all know the classic scene from cartoons. The cat reaches a precipice but it goes on walking, ignoring the fact that there is nothing beneath this ground. Only when it looks down and notices it, it falls down. This is what we are doing here. We are telling the guys there on Wall Street, “Hey, look down!”

Those truly concerned with the prospect of a crash should begin the serious conversation of how to moderate prices while at the same time implementing policies that help-out low- and middle-income households who were pressured, against their own interest, to buy into the inflated market. These would include municipal tax exemptions as well as provincial and federal debt-forgiveness programs.

Unfortunately for Fontaine (but fortunately for everyone else), the row-housing approach will not even achieve the goal of getting people to buy into the inflated market. Fontaine suggests that row-houses or town homes are more affordable than other structures, but that is simply not true. The 2006 census showed that in the City of Vancouver, the median row-home price ($410,00) was higher than that of comparable units in low-rise ($340,000) and high-rise apartments ($400,000). Those numbers have increased significantly since 2006. Of the four thousand condo units built every year in the City of Vancouver, already a quarter are row-homes, which simply do exist. The affordability crunch is not only in the row-home sector, but across-the-board. To ensure an affordable supply of row-homes, or any other category of housing, we have to build enough affordable supply to moderate prices. Again, for Fontaine’s proposal to have any impact, it would have to be implemented at a large enough scale to reduce the prices of existing housing stock, perhaps even “massively” — again to Fontaine’s own chagrin.

This brings us to a key false assumption underlying Fontaine’s entire approach. Recall that he argued against a “massive drop in the value of existing single-family homes.” This surely doesn’t mean that he supports a drop in the price of other types of housing, just that he imagines that only the detached market is inflated. Granted, some young families desire detached homes, but cannot afford those in the City of Vancouver, and so move to the suburbs. But privileging that experience obscures the true nature of the affordability crisis: all sectors of housing are inflated equally. Since the Olympic bid, average prices throughout Metro Vancouver have more than doubled for detached homes and attached homes and apartments. The price increased by a factor of about 2.2 in each category. So it is not the case that the price of detached homes is driving the current housing bubble. [Source: Greater Vancouver Real Estate Board, Housing Price Index (HPI)].

If detached homes are not driving the bubble, it follows logically that Westside luxury homes — a mere subset of detached homes category — cannot be driving the bubble either. Likewise, it is necessary to reject the notion that “foreign investors” buying up Westside homes are solely responsible. Bob Rennie was correct to reject this notion earlier this year, but his reasoning was backwards. He argued that the high-end Westside market is a “distinct market” that does not affect the rest of the region, and that average home price statistics are skewed upward by the Westside “distinct” market. Rennie even suggested that, therefore, the reality of high housing prices throughout the city is an illusion. However, since inflation has proceeded equally within each structure of housing across the Metro region, the only “illusion” is that Westside Vancouver is the culprit. The scapegoating of “foreign investors” hinges on this illusion.

Finally, Fontaine reminds us to look to other jurisdictions for models: “we need to begin looking at best practices around the world to see what might work here locally.” Indeed we should. But because Fontaine limits himself to “solutions” that create affordable housing without making housing affordable, he unnecessarily limits the pool of models from which to draw inspiration, mentioning only one: “For example, why are we not implementing the concept of equity sharing as a possible solution?” However, this practice is already common in Vancouver, and is just another irresponsible scheme for getting people to buy into the inflated property market.

There are many other cities to learn from, which Fontaine ignores. For example, Vancouver’s mirror city Hong Kong has built-up a public housing stock of 1.2 million units. This has not caused a “massive drop” in the private housing market. On the contrary, it has created options for millions of people who would otherwise be living month-to-month, in Hong Kong’s SRO hotels, or on the streets. It has also made it so that low- and middle-income people are less frequently pressured to buy into the inflated private market, thereby reducing the risk of a “nosedive.” Another city that sets a great example is Vienna, which has 60% public “council housing.”

In the end, there may be a way to “introduce affordability into the market” without precipitating a “nosedive,” although it is the very approach Fontaine seeks to evade: build public housing, just as we used to in the olden days. It may not be a coincidence that housing prices in Vancouver inflated over the past decades just as the construction of co-op housing and public housing dried up.