Bob Ransford has recently published yet another article in the Vancouver Sun repeating his mantra that the affordability crisis in Vancouver is caused by a lack of private development. The logic goes as follows: Demand for new housing is exceeding supply, yet the people of Vancouver are preventing affordability by fighting against the development industry’s bid to add more supply. “The solution is simple,” writes Ransford, “more supply equals more affordable housing.”
In the midst of an affordable housing shortage, including a virtual freeze on the construction of non-market housing, it goes without saying that Vancouver needs more housing. The question to ask, however, is do we need more private housing development? After decades of increased housing prices, growing household debt, and growing urban inequalities, now is a good time to re-evaluate the role of the private sector in providing one of the basic necessities of life: housing.
The myth of the competitive market
Ransford, like every other real estate developer, reiterates that the housing market in Vancouver is a perfectly competitive market in which more supply naturally equals “more affordable housing.” However, if we take a glance back at the last decade of condominium production in Vancouver, a very different market emerges to the one envisioned by Ransford.
The century started with a telling year of production when, in 2000, only four corporations — Concord Pacific, Wall Corporation, Bosa and Amacon — built 71% (1781 of the 2499) of all new condo units in Vancouver. In 2001, Bosa and Amacon built 51% (395 of the 775) of all the new condos, and in 2003, Concord Pacific and Bosa alone stood for 37% (716 of 1916) of the new stock. This pattern continued in 2005, when Concord Pacific alone developed approximately 52% (1500 of the 2888) of all new units. In 2007, Concord Pacific, Wall Corporation and Westbank built 62% (2272 of the 3637) of all the condominium units brought to the market in that year. And finally in 2009, Concord Pacific and Westbank built 58% (1685 of the 2885) of all the new condo units.[1]
The consistent pattern is that in any given year it is only one, two or three developers who produce over half of the new condominium supply. By any measure of market concentration, Vancouver’s condominium development market qualifies as a highly concentrated market. In the language of economists, Vancouver’s market has an oligopolistic structure, making it prone to the same dynamics of a monopoly market.
Playing Monopoly with housing
The key characteristic of a monopoly is that the supply and price are geared towards the extraction of “super-profits.” The board-game Monopoly has popularized this general understanding that real-estate development can tend toward concentration of power into the hands of a few firms. In practice this means that as the number of firms on a market diminishes, each firm gains increased “monopoly power” to set prices and control new supply.
Economists use the language of “price takers” and “price makers” to describe the difference between the competitive firm and the firm with monopoly power. Price makers tend to push the price levels ever-upwards, regardless of demand, in a perpetual drive for higher profits. As with the board game, the race comes to an end when only one or a few players can afford to play. The winners always take home super profits while the losers — in this case the renters and indebted homeowners — are left moneyless and financially strangled.
Unlike the board game Monopoly, however, the few small developers in Vancouver’s market do not necessarily lose out — just like homeowners. In a monopoly housing market system, even the small developers can charge the inflated monopoly prices. This means that all developers with political connections and the legal right to build can benefit from the constantly increasing prices — unless of course they actually start producing to meet the actual demand.
Condo developers are seasoned in the art of controlling supply whether it is by holding on to their empty land banks or deferring the sale of their latest units. This logic of oligopolistic production was recently made evident with the business decisions of London Drugs Ltd with regard to their Alba condos on East Hastings. In an interview with the Georgia Straight, the president and CEO of London Drugs, Wynne Powell, explained that his development was temporarily halted by the company due to “too many condos on the market today.” Powell continues: “There’s no financial trouble with us, this is not a question of we don’t have the dollars to do it — we could easily develop it. It’s just a prudent decision of when you want to bring something to market.”
Reframing the debate
The developer regularly portrays itself as the party of Yes on the side of development, progress, and growth, while painting their neighbourhood opponents as the party of No that is “afraid of change.” On the other side, neighbourhood activists often see the development industry as out-of-control and in its search for “unlimited” development. Both views are misleading. The industry as a whole is fundamentally opposed to dramatically increasing overall supply above current levels and forcing down the prices — the inflated housing bubble would crash and the super profits would disappear.
Ransford, of all people, knows this. He has stakes in the development industry as the former Vice President and current spokesman for Century Group, the same developer that was planning to destroy and build on the Marpole Midden.That is why, along with other real estate boosters, Ransford has been pushing to re-frame the housing crisis in a way that blames the very tenants and residents who suffer most from it. Ransford’s strategy is to single out Vancouverites for “opposing change” while deflecting all criticism and responsibility from the real estate monopoly.
Today we have to ask the question: is the lack of supply of affordable housing the fault of the people of vancouver, or is it the fault of the developers? It’s time to look at real alternatives around world, like Vienna, where 60% of the city’s population lives in municipally built, owned, or managed housing. The rents are low and the quality of the housing is much higher than in Vancouver. Vienna is consistently voted “the world’s most livable city.” That alone should inspire us to take super-profits, rent-gouging and landlordism out of the housing market.
It is creative solutions like Vienna that make us realize that we don’t need to rely on the condo monopoly to solve the housing crisis.
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[1] The numbers are approximations. The statistics are based on CMHC statistics, MLS data from Vancouver and independent research Photo Credit: Maysa Phares
Chris Shelton
August 16, 2013 at 11:02 am
you have missed the critical issue of the housing bubble that exist in Metro Vancouver which can be defined as the relative higher cost of housing to any other commodity on the market. This is what happened in the USA, Spain, Ireland and other countries. Which is what brought on the world wide market crash of 2008. Pockets of the Canadian market are doing as well as Toronto and Vancouver which, combined, is holding up the Canadian housing market.
Mike Andruff
August 16, 2013 at 9:16 pm
This is a very good article and it opens the debate on whether or not the City of Vancouver is playing its part, like Vienna, in providing housing solutions like cooperative housing on City owned land. It would be nice to see our Vision council provide leadership in this endeavour. This is what affordable housing should look like. Sadly, the development community misses out its monopolistic profits (which often translate into nice campaign contributions) in this scenario, however the result is more viable for some households who are prepared to forgo ownership, for an affordable roof over their family’s heads within the City. Nice work Maria.
mikethicke
August 17, 2013 at 12:10 am
Exellent research and analysis, thank you.
chickeee
August 18, 2013 at 11:53 am
Olympic village would be used by the Ransfords as a failed government owned housing project but a proper example would be the CMHC owned False Creek housing
Dan Sullivan
August 18, 2013 at 2:52 pm
The cities that have gotten the lowest share of their revenue from taxes on the value of land have had the worst bubbles, and the cities with the highest share of revenue coming from land have had the mildest bubbles. Pittsburgh used to have terrible housing bubbles in the 1800s, but passed a land value tax in 1913 and never had another serious bubble again. Even during the Great Depression, Pittsburgh land prices fell only 11%.
When we were considering land value tax back in 1913, we sought the advice of leaders in the one city that had more of it than any other: Vancouver, British Columbia.
What happened to you guys? You had the answer, and you threw it away!
Nelson100
August 20, 2013 at 4:25 pm
If the developer spin was true, then the Coal Harbour development would have lowered rents in the West End due to supply and demand. The reality is that West End rents skyrocketed, the area started getting gentrified and Coal Harbour became a weird high priced ghost town. Not exactly a success story, but developers made a lot of money. They will keep replicating this over and over Vancouver until the citizens of this city make them stop, which to me means removing Vision Vancouver from office.
Dan Sullivan
August 21, 2013 at 6:30 am
All the more reason to put a land value tax on the holdouts. These guys crying victim is like children asking for mercy because they are orphans after they murdered their parents.
Frank Ducote
August 27, 2013 at 9:54 pm
That’s actually a pretty scary model of Northeast False Creek in the lead photo. It looks to my eyes that removing the viaducts will only provide an opportunity for another kind of barrier between Chinatown and the Creek, this time with condo towers stretching almost all the way east to Maine Street.
Please say it ain’t so!
james spader
September 9, 2013 at 10:45 am
Hi friends,
you’ve neglected something in your argument. The condo’s are empty, that much is certain. Studies have shown that some people are willing to admit that 20% of the condo’s in vancouver are vacant. That’s scary enough. Please factor in that if somebody is willing to admit 20%, the reality is more likely 30% or even 40%. Because we have a monopoly in the city, they can hold their stakes and fix the rental market so as to increase the value of their shitty condos. If you are not willing to accept that the city is being held hostage by the developers than my argument is not going to make any sense. The reality is, though, that Vancouver has been taken hostage by developers who are tied to organized crime…. legal organized crime, but organized crime nonetheless. Again, you don’t have to believe it.
Here is the other problem: if the development stops in this city the economy is fucked. Right now the city is kept afloat by the trades. If the building stops the trades stop and a surplus in labor will create a market that is a race to the bottom.
If you take the building out of Vancouver the city dies a quick death. Fuck it, the lower mainland in general. Factor in the great grey tsunami and the collapsing birth rate of the post-1985 generation… we’re going to have to bring in a lot of people.
I wish us luck.
Dan Sullivan
September 9, 2013 at 11:14 am
Cut taxes on personal incomes and more people will want to occupy those condos. Cut taxes on buildings and more people will want to build buildings. Make up the revenue with a land value tax, and absentee landlords sitting on vacant and blighted properties will get out of the way.
Vancouver had been a pioneer in land value taxation, with very good results. What happened to you guys?
eddy izzard
September 11, 2013 at 11:38 am
the juice king happened. he’s masticating the city. but he rides a bike! but honestly, if you think property tax and and personal tax is going to make up for the fact the average vancouver household is pulling in less than 70,000 a year…
Maria
September 16, 2013 at 2:42 pm
+20% of condos are not empty in Vancouver
Read here for more information:
http://www.btaworks.com/2009/05/25/downtown-‘empty-condo’-phenomenon-largely-a-myth-study-finds/
slantendicular
September 17, 2013 at 12:50 pm
The article argues that the market isn’t competitive. We can respond to that either by replacing the market with central planning or by trying to create a more competitive market. The article seems to presume that government is the right response. It would be nice to see the logic for that spelled out.
Dan Sullivan
September 17, 2013 at 1:08 pm
Replacing productivity taxes with land value tax would make it more competitive (and dynamic) without central planning.
james spader
October 17, 2013 at 10:02 am
You are absolutely right. The condos are owned. This does not mean that people are living in the condos. Read the study: “The majority of condos are not occupied by the property owner.” Nobody says the condos are not “owned.”
If you are honestly stupid enough to believe that the condos are being lived in it’s obvious you don’t live in the areas where these condos are located. It’s like a fucking ghost town.
Like I said before…. you don’t have to believe it.
And that study you cite is an impact study completed by the same people who are designing the condos.
Dan Sullivan
October 17, 2013 at 12:18 pm
I don’t think you help that case with the ad hominem petulance and the foul language.
The study Maria pointed to did not refer to how many condos are unowned (Obviously, none of them are unowned.), but to how many are actually vacant. It noted that a very large percentage are rented out.
Still, if to many condos remain vacant, the rent being asked is too high. Maybe people don’t want to get rents that are below their mortgage payments, but that is better than getting no rents at all. Maria’s article indicates that many are indeed rented out.
Shifting from building taxes to land value taxes would encourage more building, which is not necessarily what is needed here. However, if there are local taxes that are based on residency, replacing those taxes with a land value tax, or even a property tax would help. It would not only make Vancouver a more attractive place in which to live, it would increase the cost of holding the condos vacant.