Trickle-down Affordability and the City’s ‘Rental 100’ Program

This week the city approved a subsidy exceeding 1 million dollars to a real estate corporation for a market housing development. The project, located in Vancouver’s Kitsilano neighborhood, will not be affordable but has been put forward by city council under the false guise that an unregulated rental market is inherently affordable.

The new housing development was approved under the city’s Rental 100 program, formerly called the STIR program. The five story mixed-use building in Kitsilano will offer 83 units of market rental housing, located at 3002-3036 West Broadway. Following the STIR model, the Rental 100 program offers the developer subsidies in return for the construction of rental housing, with no upper limit on rents.

The city expects that rents will be above the city average. The estimated rents at the 3002-3036 West Broadway project are: Studio $1100, 1brm $1325, 2brd $1900, 3brd $2000. These rents are only estimates, and there is no guarantee they will not be even higher. In the city of Vancouver the average rent for a 1-bedroom and 2-bedroom respectively is $1067 and $1522, which is $200-$400 less than the rental units at 3002-3036 West Broadway.

In return for building above-market rental units, the developer receives several benefits, ranging from regulatory relaxations to tax-breaks. In this case, the tax-break (called a Development Cost Levy Waiver) granted to the developer amounts to an approximately $680,000 subsidy.

The real estate developer also requested an incentive package consisting of increased density. New density increases the property’s value, and the city’s standard policy is to recoup 70% of this increased value through a kind of tax, called Community Amenity Contributions (CAC) charges. New value created by rezonings frequently amounts to millions of dollars in excess profits.

Exemptions from the CAC tax are normally not part of the Rental 100 program, but in this case city council granted the real estate corporation a CAC exemption on the peculiar basis that, “after factoring in the costs associated with the provision of market rental housing units, there was no increase in the land value generated by the rezoning.” However, the details of these calculations were not made public.

Despite admitting to the failure of STIR to produce affordability, city council continues to insist on STIR’s model of subsidizing developers without any regulations on the affordability of their projects.

Affordable compared to what?

On the city website, the link between Rental 100 and affordability is hypothesized as follows: “How Rental 100 leads to affordable rentals: Affordability will be achieved primarily through the tenure as renting is inherently less expensive than owning.” The city figures that the rental units in the Rental 100 project on West Broadway are affordable, because the units will rent for less than the average rent in a newly constructed building (mostly rented-out condos) in the city and less than the average cost of a homeownership of a comparable condo in the West Side of Vancouver.

The same rationale was used to justify the development of the Beach Towers project, one of the last developments to be approved in under the city’s STIR program. The estimated rents at the 133-unit development are estimated to be between $1,125 to $1,310 for a studio and $1,390 to $2,600 for a 1-bedroom. A two-bedroom at the Beach Towers is estimated to rent anything between $1,900 and an astronomical $2,720 a month, according to the Georgia Straight.

In an interview with the Georgia Straight, Christine Ackermann, president of the West End Residents Association, states with regard to the city staff’s affordability measure: “We should be talking about affordability in terms of the percentage of your income, and not a renter’s income compared to an owner’s income.”

A neighbor to the proposed development on Broadway echoes similar sentiments in a letter of opposition to Council: “The description of the above project…as “affordable” is laughable. It may actually be cheaper to buy a studio apartment in the current market than to rent one at this place! I would like to remind council that the CMHC definition of affordable housing is 30% of gross household income… Council has hijacked the term affordable to describe a reality that is anything but.”

The logic of Rental 100 is that purpose-built rental units are more affordable than the average rented-out condo, and therefore the Rental 100 units are “affordable.” No other standard for affordability is used. Rental 100 uses city money to facilitate free-market rental projects dramatically more expensive than the average rental unit in the city. To understand why the city adopts this counter-intuitive logic, we have to understand that the current city government believes in a right-wing ideology called “Filtering Theory.”

Filtering Theory and Neoliberalism

The Rental 100 program is justified by the City on the ideological basis of the filtering theory. Filtering theory, developed by right-wing think tanks in the United States in the 60s and 70s, refers to the assumption that when new high-end units are added to the market, housing consumers move up the housing commodity chain, leaving their previous affordable units available for others. For example, when a condo is added to the market, it may be purchased as a ‘starter home’ by a tenant whose previous high-end rental apartment (like that at 3002-3036 West Broadway) becomes available. This unit may become occupied by a renter who vacates their low-end rental apartment, which in turn may become available to someone in social housing, and so on down the ladder.

Many real estate corporations in Vancouver take filtering theory to its logical conclusion, arguing that the more high-end units we add to the market, the more people we help by pulling tenants up the housing ladder, improving the average level of housing quality and affordability for everyone.

The Rental 100 program is a variant of filtering theory. Here the objective is to add high-end rental apartments to the rental housing stock, thereby “pulling” tenants from the low-end rental stock, indirectly making more affordable units available. Ironically, of course, it is frequently the unprotected low-income units that are demolished in order to make way for the high end of the chain.

Studies of the Canadian housing market indicate that the effects of filtering theory are not only exaggerated, but nonexistent with regard to the housing conditions of low-income renters. Andrejs Skaburskis’ 2006 essay, “Filtering, City Change and the Supply of Low-priced Housing in Canada,” concludes that, “[T]he filtering process is both too slow and, at best, can have too small an effect to be part of government strategy for reducing the housing burdens of low-income people. Filtering is not helping lower-income households.”

In Vancouver, the gap between the income of homeowners and renters is statistically significant, with homeowners making a full double that of renters. Compared to other cities, Vancouver’s rental market and owner-occupied markets are relatively distinct and hermetically sealed, with little upward mobility, or filtering, from the former to the latter. Most renters do not have the option of moving into the owner-occupied market, and filtering theory policies do not “pull” renters up the chain. It could be in recognition of this break in the filtering chain, despairing of filtering theory’s ability to bridge the growing chasm and class divide, that the city has attempted this micro-intervention of filtering theory at the level of the upper-end rental market.

Despite evidence that proves the contrary, filtering theory remains popular for trickle-down apologists of gentrification and deregulation. Today “filtering” is a rising theory among Vision Vancouver councillors and among neoliberal policy makers across the globe. Filtering theory provides a theoretical framework that makes divergent forces (the withdrawal of public funding for housing, the city-state’s participation in gentrification, and the goal of improving the general housing stock) appear as seemingly compatible processes. It also provides a justification for subsidizing the private development industry, of which Rental 100 is an apt example. Rather than producing affordability or social justice, filtering theory restructures cities on the basis of profit and social exclusion.