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By Robin Currie
In this third conversation in a series on cities (the first is here [ [link removed] ], the second here [ [link removed] ]), Mercatus distinguished visiting scholar Alain Bertaud [ [link removed] ] discusses housing issues in one of the world’s most expensive cities, Vancouver. He discusses how the city can increase affordability and what will happen if it doesn’t. He also considers how older homeowners often think about property values and why these residents—and the city generally—need to think differently about its young people. You can find more of Bertaud’s ideas about the intersection of economics and urban planning in his book, “Order Without Design: How Markets Shape Cities [ [link removed] ].”
ROBIN CURRIE: What is the major housing challenge facing Vancouver?
ALAIN BERTAUD: The city has a land constraint. In part that’s because of the topography of the Vancouver metropolitan area. Proximity to the ocean and the mountains make it a very attractive location, but it also constrains the amount of land that can be developed.
In that regard Vancouver might seem a bit like the island of Manhattan. But it’s much worse. Think of what New York City would look like if there were steep mountains on the far side of the Hudson and East rivers, in New Jersey and Long Island.
When land is scarce, it has to be used efficiently. That is not what has been happening in Vancouver. Despite the lack of land, the city’s zoning rules oblige land users to consume more land than they would otherwise choose to. Regulations establish minimum lot sizes and not maximum ones, and they enforce minimum setbacks, maximum building heights and other restrictions—all of which prevent lots from being converted from their current single-family use.
And what is the result? Some 80% of the area’s developable land is occupied by less than 40% of its households. Drastically limiting the amount of land available for development makes for very high housing prices.
Housing is affordable when the house price divided by household annual income is below four. Vancouver’s price-to-income ratio was 5.3 in 2005 and 9.5 in 2012. Today the ratio has risen all the way to 12. Only Sydney, Australia, and Hong Kong are less affordable places to live.
CURRIE: What do Vancouver’s high housing prices mean for young people? How are they responding?
BERTAUD: They’re leaving Vancouver.
Young people may graduate with good degrees and qualifications—and still can’t afford to live and work in the city. They find that they have to move to smaller cities where land is more affordable, like Calgary or Saskatoon. These places may be less exciting for them than Vancouver, but young people can find a house and raise a family there. So they have to make tradeoffs.
In Wyoming, the cities of Laramie, Casper and Cheyenne face these same challenges because of their land use regulations. About 65% to 70% of young people born in the state and who graduate from a university in the state end up leaving Wyoming. That’s a great loss, especially when all that is needed to make them stay is the opportunity to have an affordable house.
CURRIE: What then are the prospects for land use reform in Vancouver?
BERTAUD: There is a real conservatism at play. If you are an older resident and have owned your home for decades, you may like the city just as it is. And older people vote more than the young, so they tend to be listened to more. For them, the job of zoning is to preserve things the way they are.
In Paris this approach has ensured the city remains much like it looked at the time of the Impressionists. In Vancouver it’s designed to preserve the residents’ view of the mountains! For Vancouver, that’s a high price to pay. Besides, as one of the city’s urban planners joked with me: “Views don’t disappear—they just transfer to someone else.”
Things are different if a city faces big, obvious problems, such as bad sanitation or pollution or infrastructure that is falling apart. In these circumstances people are more ready for change. For instance, the Indian city of Surat was so poorly managed that it suffered an outbreak of plague in the 1990s. Everybody agreed that the city needed far-reaching reform. And within 10 years Surat had become a model city.
Cities that are well managed are more difficult to change. When you have a very attractive, well-managed city like Vancouver, many residents love their single-family home neighborhoods and just want things to stay the same. So they push back against anything that might “spoil it” for them.
CURRIE: So are you trying to “spoil things” for current residents?
BERTAUD: I am not advocating “urban renewal” and the bulldozing of people’s homes. We should keep property rights the way they are. But I don’t see why regulations should prevent Vancouver’s landowners from developing their land in a more efficient way if that’s what they want.
For that to happen, legislators would have to reform the city’s rigid zoning regulations. Doing so is a real political and economic challenge. But the impact on affordability and the housing stock could be relatively rapid. The high proportion of land cost per house in Vancouver suggests that single-family homes that are close to the city center would soon become a duplex or even a quadraplex if left to household demand.
CURRIE: Does the city need a visionary mayor who can champion reform?
BERTAUD: No, there is no room for a visionary in the mayor’s chair. The mayor and the mayor’s staff should focus on delivering outcomes on key performance indicators. They need to function as managers of bottom-up civic initiatives. In a city like Vancouver, it’s critical that land use is efficient and public transit is proficient.
Cities need the constant adaptation that comes from millions of initiatives taken by households and businesses according to their own priorities. The city should be a product of spontaneous order, which allows it to constantly evolve, rather than arbitrary planning, which does not.
That’s why urban planners should either be very familiar with urban economics or work closely with economists. They need to rein in their top-down inclinations and pay more attention to maximizing the efficiencies of the market. Failure to do so can be disastrous, especially for lower-income residents.
Ultimately, zoning and master plans have become obsolete tools for managing a city in the 21st century. They are grounded in the notion that the city is a complex structure that must be designed by competent professionals. But they are often developed with no appreciation of their economic consequences for a community.
Of course, we could freeze the city the way it is. But then it would be nothing more than a decaying museum that has lost its economic base.
CURRIE: What will happen if Vancouver does not embrace reform?
BERTAUD: The demographic trend that is now underway will have profound consequences.
A city’s labor market is vital to its productivity. One reason why Vancouver thrived was its ability to welcome large numbers of Asian immigrants, thanks to Canada’s well-managed immigration policy.
Traditionally, the country has selected immigrants based on their skills, at both ends of the skills spectrum. By contrast, the attitudes among Europeans and Americans to would-be immigrants often take two forms. One is, “We have to be kind to those poor people, and it’s humane to let them in.” And the other is, “They’re going to take our jobs, and we need to keep them out.” As Canada has shown, no successful immigration can occur without a minimum of generosity and benevolence, but the economic benefits of immigration should be the prime motivation of immigration policy.
To continue to thrive, Vancouver needs a workforce that has a large proportion of young people—whether native-born or immigrant—who are more technology-minded, innovative and so on. But the departure of young people from the city is leaving behind an aging population. That population has to realize that in the long run, somebody will have to pay for their pensions or their health insurance. And young people are the ones who can do it.
The negative results of the current regulatory approach will appear very slowly, over a period of 20 years or so. But by the time they do, the decline of the city will likely be irreversible. In effect, Vancouver will have regulated the life out of itself.
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