These are notes I prepared around March 21, 2007 for a talk to the Urban Development Institute.  Since this was written, some new purpose-built rental housing has been appearing in Victoria.  The City has continued to assist development of rental housing, not only with per-unit subsidies to non-profit agencies, but also in many cases with zoning concessions, usually in the form of increased density or reduced parking requirements.

Bonus Density and Public Housing

First, there’s one factual issue to deal with – when a new fee or tax or levy is imposed on new housing, who is actually paying? The blurb for this meeting suggested that when a developer is forced to pay a fee it is the buyers of units in that building who are really paying, through higher prices. Not everyone agrees. The City’s Coriolis report suggests that owners of vacant property and “developers” are paying in the form of lower raw land prices and lower profits.

Fortunately, I am an economist and can tell you the correct answer, which is “it depends”. It depends on competition in the land and housing markets, how long fees have been in effect and whether they are expected to last forever, competing land uses that don’t pay fees, whether all municipalities have them, how close substitutes land in the different municipalities is.

The one thing I can say is that anyone who says unequivocally that it is all passed on in higher housing costs, or none of it is, is wrong. Neighborhood groups perceive higher densities given in return for funds for public housing as “selling zoning” – trading off the neighborhood’s interests for cash to be used on a city program. They say we should not downzone large areas and then sell increases in density for cash if an area is suitable for higher density it should be zoned that way. If it is not, the fact that the developer is giving the city money to put in the low cost housing fund, or even that part of the extra density is low cost housing, does not change things for them. And quite often they ask why Victoria seems to be carrying such a high proportion of the burden of supplying affordable housing in the region.

Which is not to say that developers may face higher costs for providing amenities on some sites. Some sites have heritage buildings that have to be preserved, some need mid-block walkways, some are suitable for public plazas or perhaps a public facility such as a library, or even more important, a public toilet.

Who should pay for public housing, then? The problem with local governments providing assisted housing is that the revenue source is local taxpayers, which largely means local property tax payers. In short, in the hopes of providing housing to a few, we collect taxes and make housing more expensive for everybody. But how many people will just be pushed over the line into non-affordability by those taxes? Will it be almost as many as benefit from the new housing?

It’s not such a silly question – there are 160,000 dwellings in the CRD, and CRD housing, for example, provides under 1500 units. If taxes pushed only 1 percent of people out of their own housing we would have offset the CRD’s entire public housing program.

And its even less silly when you look at the cost of administering and negotiating a bonus density scheme – we are supposed to hire experts in real estate and construction to tell us the dollar value of density on each proposed site, before we even start listening to the public and our planners about what is acceptable density. In some cases we would even get into discussions about which non-profit is to benefit. Everything takes longer, and uncertainty adds to cost.

Of course, it is not novel to pick out property owners to help pay for affordable housing – that’s what rent control is. In some places most of the value of property has been confiscated by the state and given to tenants, who may be far wealthier than the property owner.

Another question we should ask seriously is whether public ownership – that is, we find a bunch of money, build a building, hire people to select tenants and mow the grass – is the best way to provide housing to those who cannot afford market rents. After all, we have publicly-paid health care but allow it to be provided by a combination of private sector doctors and clinics and public sector nurses and hospitals. For many years in Victoria it has not been possible to build rental housing for profit – the returns are too low to cover costs. Essentially the only building for rent is by public bodies. Yet there is a stock of rental housing, from rental buildings built under former programs, from suites in houses, and from condos held speculatively or for future use by individuals.

When we provide assisted housing to a family in a government-owned building, we are paying not only the difference between what the family can afford and the market rent, but also the difference between the market rent and the true cost of the unit. If we went into the market, rented units, and re-rented them to those needing assistance we could help perhaps twice as many people.

Or we could just pay a monthly subsidy and allow people to find their own units.

That is how a Province-wide program would be administered. When local governments provide housing by building it, we discourage people from moving around to seek economic opportunity – who wants to wait years to get a spot in public housing and then leave to take a better job in Prince George?

Finally, I would like to address the idea that affordable housing is a complete solution to downtown street and social issues. Much of our public housing is traditional in form, not designed to handle the issues faced by the people who are driving businesses from some areas of the downtown and forcing property owners to erect gates and hire security guards. Housing may be a part of the solution for them, but they also need a far greater input of resources to address their issues. And again, we need to ask seriously whether the downtown is the best place for such housing.