It’s hard to solve a problem without first identifying what it is. Solving the “housing affordability crisis” is no exception.
What is meant when someone says there is an affordability problem? Affordability of what? for whom?
Here are four common things that I think people mean when they talk about housing affordability (feel free to add more in the comments):
1. A lack of rental at prices that workers who earn $10 to $15/hr might be able to pay with 1/3 of their income.
2. A lack of housing options for people without jobs who survive on social assistance.
3. Challenging ownership options for middle income households (for argument’s sake lets define this as those earning $50K-$120K)
4. The inability of middle income earners to afford detached single family homes in their preferred location. (Personally, I want a 4 bedroom detached house across from the beach for less than $400K)
After defining the problem, we can then look at the causes and possible solutions. Once solutions are tried, we’ll also be in a better position to know if they work.
Take definition number 1 above, the rental affordability issue for the $10-$15/hr worker. First, what can someone afford? Let’s say they make $24,000 before taxes, and $21,000 after taxes; using the 1/3-income-on-housing rule, such a person can afford $7000 per year on rent or just under $600 a month. Doesn’t sound like much in the city–but lots of people seem to get by.
According to CMHC, the average rental rate for a 1 bedroom apartment in Vancouver Metro Area is $964. However, we should also note that the average rental rate for a 2 bedroom place in the CMA is $1237 –two friends each making $12/hr could rent it.
But maybe people don’t want a room-mate, or the person has a dependent such as a child. Or maybe they want to live in Vancouver itself (not a suburb) where the average 2 bedroom unit goes for $1493 and 1 Bedroom for $1045?
What causes average 1 bedroom rents to exceed $1000/month and 2 bedrooms to reach nearly $1500/month ?
Answer: Demand for rental housing exceeds supply. This is especially true in locations where you truly don’t need a car; these locales work great for lower income people who can’t afford one anyway. But these places are now also in demand from middle and higher income renters who enjoy the amenities at their doorsteps and would rather walk, bike or take transit than drive. Whenever a rental unit becomes available, a landlord can push the rents knowing lots of middle and upper income people desperately want to live in the area.
Solution: More supply. And not just more supply anywhere in the city or metro area (although this will help a bit). More supply is needed where people want to live–walkable, urban areas. Note: this could mean adding density in existing neighbourhoods; but it could also mean building new urban spaces at new transit stops in traditionally non-residential or lower density areas.
New supply could also mean smaller units, which then rent for less per month than larger ones.
Also note that new apartments (whether in Condo buildings or purpose-built) also tend to draw the middle and higher income renters out of the older stock–they often want the latest in modern appliances, nicer views, etc. and can afford to pay more if this is available.
How will we know that more supply is helping affordability: rental vacancy rates will stabilize or go up slightly; rental rates in older product will stabilize or go down (give some of the demand a nicer alternative and they’ll remove themselves from the demand pool for lower-priced, older suites). Note that in a city with strong in-migration, it could take a lot of supply to notice a difference.
This was one example of what happens when we define Housing Affordability. We can then pick apart the causes and start to see a path toward improving the situation. These same steps work for the other definitions (other than maybe #4).
The question of housing affordability is multifaceted. The term means different things to different people and groups. Any group claiming to be trying to solve affordability needs to define what they mean by it. This way successes can better be measured, and proposed solutions be better explained to the general public and other interested stakeholders.
What does the term “housing affordability” mean to you?