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episode # 308

Did this Housing Policy Just DOUBLE Vancouver Land Values? With Tom Davidoff

Six homes on a standard lot in Vancouver! The City of Vancouver’s ‘Making HOME’ initiative, brought forth by Mayor Kennedy Stewart and just passed by city council, promises density that has the potential to re-shape every neighbourhood in Vancouver. But will this transform real estate values in the city &, if so, exactly how? Professor Tom Davidoff sits down once again with Adam & Matt to discuss “Making HOME” (and who better – Tom presented his thoughts to city council right before the vote). Do current single family homeowners in Vancouver win as big as you expect? How quickly will the impact of “Making HOME” be felt and primarily in which areas of the city? And should first-time homebuyers hit the sidelines to wait for the impact of this “generational” policy shift? Tom, as always, also sticks around to talk the hot real estate topics of the day – interest rates, unrelentingly low inventory, where the market ends up at the end of 2022 & more. The future is now!

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Episode Summary


How has the Vancouer real estate market changed since 2009?

I was always a believer in Vancouver. I’ve always thought Vanoucver was becoming a playground for the rich since we’re a land-constrained, beautiful city and I don’t think that has changed. But prices have gone up more and more every year. Low interest rates means houses are going up in value, but the market is slow to adapt to that. 

Where will interest rates be by the end of 2022?

When it comes to predicting interest rates, I like to look at the long term bond yields, which are still quite low. They’re still below two. So I think we will see some short term rate hikes in the next year but I don’t think we’re going much north of 2%. It could happen, and it has happened in the past, but I don’t see it.

What is Making HOME?

The Making HOME proposal is the idea of putting six units on a single family lot to increase density. Instead of just adding a basement suite or a laneway suite, you could build a bit more to get to six units. How this is pulled off is determined by city planning. 

My hope is that lots will be pre-zoned and you just have to pay to build. Or another track would be having units that are deed-owned and set at affordable rates, but I think the cash track will be more successful. 

Who came up with Making HOME? Where did Making HOME come from?

I discussed Making HOME with Mayor Stewart and other councillors who had similar ideas. The ask was specified by Stewart and my argument was that there should be a cash track. The city gets more value if people buy into the program. If the city asks for affordability, there’s a tricky balance of asking for too little, and the land owner and developer getting all the benefit, or asking for too much, and no one takes the program up. 

With cash, it’s easy to adjust based on how popular the program is. You can set the price at something aspirational like $1 million. If no one does it, you can cut the price. Cash is easy to read while affordability requirements are more opaque. 

That’s the issue with affordability requirements; it’s too complicated. But with cash, you can manage the line with pricing. It’s the same if you have a pizzeria: If you have a line out the door, you need to raise the price. If no one is buying, you have to lower the price.

The city should get the benefit in cash so that the money can go to whatever programs the city wants, while owners can play to the market.

How will Making HOME work? 

The people who take up the Making HOME program will primarily be builders who buy land from homeowners who were going to have their homes torn down and turned into duplexes anyway, but now they can build a bit more. The city is basically telling the builders, “Hey, you can build more, but you have to pay us money.” And the builders will be willing to do that if it’s a decent amount of density they can add. 

Is Making HOME basically buying upzoning? 

Precisely. But we need to be smart about it. If the city has a goal of 2000 units, they need to charge a high enough price that they just hit their goal. But yes, the idea is that you can pay a premium to increase density. Developers will appreciate the transparency. 

What are the short term impacts of Making HOME? 

Probably pretty low. There may be some conjecture among homeowners about future value. But the city has to figure out infrastructure. They need to figure out how to expand sewer, electricity and the like to more units on the same lot. At the beginning, people may have to do less density to fit with the existing infrastructure unless the city coughs up the money for the upgrades. 

The Making HOME program is a long term project. It may be decades until we see a really serious impact. 

Is there a minimum lot size for Making HOME? Will Making HOME be available across Vancouver?

Plans have been drawn up using the standard lot size in Vancouver, 33ft x 122ft; surely you could do it on a larger lot size too. But it will be up to the planning committee to determine the exact lot size. In terms of availability, I hope Making HOME is available across the city and the market can figure out the best place for it. 

How will Making HOME transform single family lots in Vancouver?

I just got a call from a friend who told me he didn’t want this in his backyard. He said laneway homes were bad enough. And sure, I’d rather see trees in my neighbour’s yard than six units. But we all have to pay the price for affordability. 

We can’t make single family lots affordable without increasing density. I think it will compromise how pleasant the neighbourhood is but others disagree. Some people say that having more people in a community, especially younger families, will increase the vibrancy and amenities. But I’m old enough that I prefer the trees and the quiet. But we can’t have affordability at the existing density, so I think a compromise is important. 

Does Making HOME create a more affordable Vancouver?

Will it take us all the way to affordability? I don’t think so. But Making HOME helps with affordability. Without this, we have less housing options and the city has less money to spend on homeless support, affordable housing, etc. But it doesn’t make Vancouver an affordable city. 

How will the fee builders have to pay to the city to increase density affect pricing?

Prices are based on how many people want homes and how many homes are available. Builders will always try to get as much money as possible when selling homes. Whether the city asks builders for a big fee or a small fee, they will still try to sell their homes for as much as they can. The only way city fees can affect prices is if the fees are so high nobody builds. 

So even if the city fee is $0, builders are not going to lower prices for buyers out of the goodness of their hearts. I don’t think the fee from the city will have any effect on pricing.  

Is everyone in favour of the Making HOME program?

There was a hearing but I don’t know how well-advertised it was. I think there were only 12 speakers and most were in favour of Making HOME. This program is pretty popular… until the building starts next door to your house. I think there will be some uproar if people are really going to start building six units on a single lot. No way you don’t get some upset neighbours. 

How do laneway homes in Vancouver affect property values? 

We did a study that looked at laneway homes and compared two neighbours, one who is next to a laneway home and one who is not. We found on the east side of the city, where many laneways were getting built at the beginning of the program, there were no adverse effects on property values. But on the west side, where laneway homes aren’t as frequent, there was an adverse effect. 

I don’t think it’s a case where people will move out of their neighbourhoods or stop buying in a neighbourhood because someone is adding a few more units. This is also going to be a gradual process. We’re not going to see six units on every lot tomorrow. 

This plan was proposed last year but didn’t pass. What changed with Making HOME in 2022 and how was Tom Davidoff involved?

I wasn’t involved in the previous year’s proposal. My involvement this year has mainly been around offering the alternative of a cash track which I think will be better for the city and for taxpayers. It’s half a billion dollars a year that you could make easily from this program. I do think this cash plan was confusing to council. The councillors did seem like they were struggling to digest it. 

Are more people seeing that Vancouver’s housing problem is a supply issue?

Absolutely. Prices in Vancouver first exploded when foreign interest in our real estate market was growing. So it’s not crazy for people to think the problem could be solved with the foreign buyer and speculation taxes. But the problem isn’t just in Vancouver, it’s across North America. A combination of low interest rates, household combination and immigration has meant a greater local demand for housing. 

How do land values change when you increase the number of units on a lot?

I think the city has been underpricing consistently for land. I hope planning gets the message that we need to charge more money for this program. The way to do this is to set a goal of how many conversions you want per year and set the price accordingly. If they do that effectively, I don’t think land prices will rise. But if they don’t do it effectively, land prices will increase. 

How’s the Vancouver real estate market looking for 2022?

Everything is selling and things are flying off the shelves. I’ve been saying interest rates are a risk factor since the beginning of the pandemic and they continue to be. You’d think if a rate rose from 1.5% to 3%, that would have a big effect on behaviour. But with people having to qualify at a higher rate with the stress test, maybe it’s not.

Coming out of Omicron, the economy should be stronger. Barring any big changes, I think we’re up again 5-10% this year. 

Interest rates are the number one factor but global recessions and pandemic freakouts might be numbers two and three. On the policy side, I don’t think there will be more demand squishing by the government. There doesn’t seem to be an appetite for demand-side policy changes. On the supply side, those policies can take a long time to come through the system.  

What’s driving low housing inventory in Vancouver?

One factor is life events. Deaths are not slowing down and household formation may be accelerating. The other possibility is people are downsizing and moving elsewhere, but holding onto their homes for the appreciation. In a tight market that is hard to buy or sell in, you also have people who are holding out on selling because they know there’s nothing to buy. “I can’t sell because I can’t buy” is a real phenomenon. 

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