{"id":2846,"date":"2013-05-21T21:35:15","date_gmt":"2013-05-22T01:35:15","guid":{"rendered":"http:\/\/www.alexblock.net\/?p=2846"},"modified":"2013-05-21T21:35:15","modified_gmt":"2013-05-22T01:35:15","slug":"development-costs-and-housing-affordability","status":"publish","type":"post","link":"https:\/\/www.alexblock.net\/blog\/2013\/05\/21\/development-costs-and-housing-affordability\/","title":{"rendered":"Development costs and housing affordability"},"content":{"rendered":"
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Vancouver towers along False Creek. Photo by author.<\/p><\/div>\n

Two competing narratives often emerge when talking about policy responses to housing costs. One asserts that lowering the costs of construction and development will allow those savings to be passed on to eventual users of the real estate; the other asserts that markets set prices, and lowering the cost of development would yield pure profit to developers who will charge what the market will bear. So, which is it? The Vancouver Sun<\/em> has a series of articles on housing affordability<\/a> in Vancouver, BC. One of these articles focuses on development impact fees<\/a>(among other causes) and their role in affordability. The two basic narratives are on display:<\/p>\n

\u201cThe significant cost premiums of building new homes in Vancouver, compared to Surrey, leads to two observable results,\u201d said Anne McMullin, president and CEO of the Urban Development Institute. \u201cEither the increased costs will inevitably be passed on to homebuyers or the viability of building new market housing will be suppressed. Regardless, the end game is a more unaffordable and less socially sustainable city.\u201d<\/p>\n

She says the most obvious way to address affordability is to look at the costs and supply of housing.<\/p>\n

\u201cCosts affect supply \u2014 if it\u2019s too expensive to build, you\u2019re going to limit the supply. But we still have the demand. There\u2019s always going to be a demand \u2014 there are buyers who can afford it.\u201d<\/p>\n

But Brian Jackson, the City of Vancouver\u2019s general manager of planning, says market demand drives the price of housing much more than the costs of development.<\/p>\n

\u201cIf we took $1,000 off the cost of the CACs or we took $1,000 off the cost of the DCLs,\u201d Jackson said, referring to two types of city development fees, \u201cis the developer going to take $1,000 off the cost of selling the house? I don\u2019t think they would \u2013 they\u2019re going to get the highest price that they could.\u201d<\/p><\/blockquote>\n

These two narratives aren’t necessarily at odds with one another. In the short run, a small decrease in development fees (thereby lowering the cost of development) wouldn’t likely lower costs. However, the total fee amounts per unit in Vancouver are substantial – on the order of $76,000 per unit, according to the Sun’s figures. That’s roughly equivalent to the cost of an underground parking space<\/a>. If you were to remove the fees, would developers merely pocket the difference as extra profit? Recall research on the liberalization of parking space requirements<\/a> in Los Angeles: removal of these requirements lowered the cost of development in Downtown LA, but the results were not merely additional profit for developers. Instead, the lower development costs allowed developers the flexibility to build for a wider variety of sub-markets and price points.<\/p>\n

Instead of the high-cost regulations forcing them to build Cadillacs, lower costs allow them to build a wider variety of products to meet a wider range of price points. If the costs are too high, developers have little choice but to aim for the luxury submarkets.<\/p>\n

Markets do indeed set prices; and in the short term, developers won’t necessarily lower their prices. However, the markets are deeper and more complex in the longer run and allowing flexibility to build to those submarkets will produce a wider range of products, not just catering to the luxury set. As that housing ages, it can filter<\/a> to lower-priced submarkets. Filtering isn’t a set policy<\/a> so much as it is a description of \u00a0how housing markets work.<\/p>\n

Note that some of these Vancouver fees might only apply<\/a> to units in re-zoned developments. However, that raises the question of if there is enough by-right development capacity not just within a city or political jurisdiction, but in areas with demand for market-rate development. Also note that in many places, by-right development is increasingly rare, subject to negotiation and incentives as a part of the approvals process. A profile of New York’s Amanda Burden in last year’s New York Times<\/em><\/a>\u00a0noted that “there really doesn\u2019t seem to be any true as-of-right development anymore.”<\/p>\n

Those development fees aren’t just collected for fun, however. They’re paying for something. However, as is the case with parking, is collecting these fees the best way to accomplish the goals? Over at Human Transit, Jarrett Walker notes some of the perverse incentives baked into<\/a> development fees, and the unintended consequences therein. Jarrett cites this post<\/a> from the Pembina Institute<\/a>, looking at the often-perverse incentives packaged into these fees:<\/p>\n

Developers continue to build in sprawling greenfields because it is often cheaper and easier than building developments in walkable, transit-oriented neighbourhoods. Lack of supply means homebuyers are priced out of these locations and are literally \u201cdriven\u201d to the urban and suburban fringes, where long and stressful auto commutes are required \u2014 and this only leads to more congestion.<\/p>\n

Building transit is only one half of the solution. Toronto also needs to make sure we get the right mix of development in the right places to support and use transit infrastructure. Perhaps this current process of examining revenue tools will create an opportunity to do so.<\/p><\/blockquote>\n

As noted<\/a> previously<\/a>, a great deal of development will follow the path of least resistance. These kinds of fees might provide an easy way to fund new infrastructure, but they also add to the overall cost of development. Other tools for capturing that value and channeling it to the needed projects might offer fewer unintended consequences. One such unintended consequence is to push development into outlying areas, or force development to only serve the luxury submarket.<\/p>\n","protected":false},"excerpt":{"rendered":"

Two competing narratives often emerge when talking about policy responses to housing costs. One asserts that lowering the costs of construction and development will allow those savings to be passed on to eventual users of the real estate; the other asserts that markets set prices, and lowering the cost of development would yield pure profit […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[1],"tags":[319,111,86,465,477,169],"class_list":["post-2846","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-affordability","tag-economics","tag-finance","tag-parking","tag-unintended-consequences","tag-zoning"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/pHcGQ-JU","jetpack_sharing_enabled":true,"jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/posts\/2846","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/comments?post=2846"}],"version-history":[{"count":8,"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/posts\/2846\/revisions"}],"predecessor-version":[{"id":2865,"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/posts\/2846\/revisions\/2865"}],"wp:attachment":[{"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/media?parent=2846"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/categories?post=2846"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.alexblock.net\/blog\/wp-json\/wp\/v2\/tags?post=2846"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}