Archive for September 19, 2010

Solving the rental housing shortage and price challenge

Many dynamic cities throughout North America have a housing challenge.  Prices are high, whether people wish to rent or own.  In some neighbourhoods escalating prices may be pushing out people who have lived in the community for years, even helped to build it into a great place that is now desirable. Many communities may also be becoming less economically diverse as the minimum income needed to move in may be well above the regional average.

While some suggest trying to forbid any redevelopment or even substantial renovations to homes and buildings (that is, stopping gentrification), I don’t think this is a solution.  Communities are like organic entities. They grow, evolve and change constantly.  Trying to hold them back would be like magically making your cute 3 year old stay in her cute state forever–very quickly she would stop growing and developing, which is actually the very thing that makes her interesting and cute at any one stage.

What can help keep neighbourhoods more economically diverse, with housing for everyone, is greater density and greater flexibility of housing types in those communities where prices are escalating fast (that is, where demand to live there exceeds supply).

In the Vancouver metro area, and in many cities across Canada (and the world) people are starting to increase the value they place on: short commutes, walkable communities, transit-oriented communities, and living a more sustainable lifestyle (less auto use, for example).  If you want a healthier planet and environment, this is a good thing.  But it has the consequence of higher housing prices.

 In my view, the challenge in all of these cities is and will be two fold:

First, get people in existing walkable,’hoods with great transit to accept greater density: more neighbours. This can be what I’ve called “stealth” density (homes you don’t really see from the street) like laneway houses, basement suites, front-back duplexes, etc. It can, of course, also be apartment towers which are appropriate in certain places, or condos/apts over storefronts on busy streets.  If the supply of housing can increase, it will help prevent prices from rising further and maybe help them come down in a few places. And the city will also have to welcome proposals to provide more housing through a variety of creative approaches including reducing parking requirements for new homes in walkable, transit-oriented places.

 Second, steps need to happen to convert suburban areas that are currently more auto-centered into more walkable areas with amenities nearby.  This will also mean existing residents in these places accepting more density and even some new commercial uses in their areas.  You don’t get the customers for successful organic grocers, coffee bars, clothing stores, etc. without a lot of people living nearby, but increasingly you don’t get people wanting to live nearby without the grocers and cafes.  

 And housing of any type is helpful in making rental accommodations more affordable to those of modest means.  We need more purpose-built rental, more owner-occupied homes, more co-ops, more co-housing projects, more subsidized housing plans, and anything creative in between.  This will help push down prices, or at least stop their escalation in places with growing populations or growing demands.

Sometimes I hear renters’ rights groups protesting a city planning department giving a concession to a luxury rental project, claiming it doesn’t help the poor and middle income.  It does.  Any new housing that can pull people with high incomes out of existing lower-cost rental will help make room in a lower priced building for someone else who can’t afford the luxury options.

If we want lower cost housing, or at least housing prices to stop escalating, we need more of it–where people want to live.

Tax incentives vs fixing urban spaces first

What would be more effective in attracting a new cluster? Tax incentives? or improved urban infrastructure to attract and retain more people?  Or both?  What’s working (or not) in your city?

The province of Ontario (Canada) has announced tax incentives in order to build a digital animation cluster to rival those in Vancouver and Montreal.  This sector includes video game programming as well as movie special effects / post production work.

Presumably, they expect the focal point of this cluster will be in Toronto.  As nice as St. Catherines and London ON are (where a couple bigger animation firms are currently located), young computer graphics whiz kids will probably prefer to live in more urban, higher density and amenity-rich Toronto.

In fact, according to my friends at the Martin Prosperity Institute, people with creative occupations in SW Ontario disproportionately live in Toronto along the metro line corridors–yet I’ve heard most of them don’t take transit.  MPI’s map:

And I wouldn’t blame them for not taking the metro. To me it feels “scary old.”  It’s dark, dirty and rickety and I wouldn’t want to take it every day (and I’m a metro lover: I’d happily take Vancouver’s 25 year old sky train every day; I’ve lived in Mexico City and done that Metro every day too).  As a result of under investment in this system, I suspect many more people in Toronto drive than would do so if a clean, modern metro existed.

This further contributes to the crippling congestion in the Toronto area. The drain on the economy and quality of life must be enormous.  If I were a company considering taking the government up on their tax incentive offer, I would worry about retaining workers.  Toronto is a cool place, attracting talent to give it a try shouldn’t be a problem (plus a company can recruit from students at the local universities and technical colleges).  But will these people stay if their commute option is gridlock, old ricky metro, or a long go-train commute from a suburb (or a combination of drive in gridlock and go-train).

If the Ontario government has money to spare, and can subsidize industries, perhaps they can kick in a little more to partner with the city of Toronto and fix the transportation infrastructure.   This would also benefit their goal of being a more prominent global financial centre.

Housing still a good investment in some US cities

It seems like everyday there is a headline about the Death of the American dream, or how home ownership is not worth it anymore.  I disagree.   Moreover, I predict that owning a home in many US cities over the next 20 years will be a worthwhile investment, if done right.

Here’s why:

1. Population growth.  The US population continues to grow via births as well as immigration.   More people = more demand for housing–but not just anything, anywhere.

2. Certain metros will have flourishing economies, attracting a disproportionate share of the growing population.  Cities on both coasts, plus certain interior cities like Chicago I expect to be particularly prominent.  Owning a home in many areas of these metros will be a solid if not excellent investment over a 10-20 year horizon.

3. Location will matter within these more dynamic metros.  Moving around a metro by private automobile will get more expensive as oil prices rise and congestion results in more toll roads and parking costs downtown increase.  Moreover, people are increasingly placing a value on their time and don’t wish to commute 2 hours per day.  Therefore, homes close to–or in–major employment, entertainment and shopping nodes will rise in value as will those attached to clean, efficient rapid transit lines.  These homes are worth owning, or developing.  Many come with geographic constraints (limited supply, growing demand which means higher prices).

4. Over time, city, country and metro governments will recognize the need to offer more housing in close proximity to employment and shopping/entertainment nodes.  That is, they’ll look to undo the 1950s suburban model of separating everything.  They’ll change zoning to allow for new urban nodes that include office buildings, entertainment space, restaurants and retail to spring up closer to homes (or even integrated with residential buildings).  Zoning will also allow for multifamily homes (whether row houses, condo towers or apartments) to be built near existing urban nodes.

Property values will go up as a result either because your home is now closer to jobs or transit, or because the land is now more valuable as one could build townhouses or apartments/condominiums on it (housing more people).

The key to a good investment is to buy for the right reason.  For example, buying a house today near transit or near an employment node, raising your family in it, making all your mortgage payments (and not borrowing the equity back), and looking to sell in 15-20 years will result in a great retirement bonus–if you picked the right city and right location.

And, when you think about it, wasn’t this the essence of the American Dream way back: work hard, buy a house, pay it down, then sell at the end to retire or help your kids.  This is true home ownership.  What was going on over the past decade was about speculation and gambling more than home ownership.