A visit to Union St.

The resumption of Spring in Vancouver found me biking down to Union St. to grab some delicious Portuguese sweet bread from Union Market (near Hawks Ave). Highly recommended! Union Market is one of these old store fronts that popped up along an otherwise residential street prior to the advent of zoning. It was grandparented into the neighbourhood’s current RT-3 zoning through allowing:

“Dwelling Units, up to a maximum of two, in conjunction with a neighbourhood grocery store existing as of July 29, 1980, subject to the provisions of section 11.16 of this By-law.”

For anyone in love with these little corner grocery stores (and there are a lot of us), it’s striking and bizarre that we don’t allow them in residential zones anymore. But Union Market isn’t actually a corner store. Why? Because this beautiful old townhouse complex right next to Union Market occupies the corner.

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To those of us who love townhouses, it’s striking that this form of housing is also forbidden from the majority of residential zones in Vancouver. Here it’s grandparented in with RT-3 zoning to preserve the pre-1920s cityscape of Strathcona. It’s even got heritage designation. It’s clearly a valued streetscape. So why isn’t this form of housing allowed on other residential streets?

Just down the street I passed another old store front. This one is also heritage (if you squint, you can see the marker near the door). But it’s no longer being used as a store. It’s been turned over to residential use. The whole lot was redesigned to support three different residential units about twenty years ago (1999). One in the back (along the laneway), and two up front. (UPDATE: as noted by an observant twitter user, the storefront portion seems to be AirBnB‘d, so it retains an ironic (?) commercial use…)

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The history of this lot is fascinating, as revealed in a staff recommendation to City Council from 1999 supporting variance from existing RT-3 zoning to enable its renovation:

Heritage Value: The site at 658 Union Street is listed in the “B” category on the Vancouver Heritage Register and is noted as being an “unique example of [an] early multiple structure”. Three distinct structures were built on the site between 1893 and 1913:

· middle dwelling: the earliest structure was a one-and-a-half storey dwelling built in 1893 and situated in the middle of the lot; only the foundations and wall fragments remain;
· rear dwelling: the next was a one-and-a-half storey end-gable frontier-style structure erected sometime between 1901 – 1912, along the rear property line; and
· grocery store: the final addition was made in 1913, after street levelling activities in Strathcona were complete; it is a two-storey clapboard-sided grocery store with tin cornice, which abuts the Union Street edge of the property.

The latter two extant buildings are representative of architectural and historical themes unique to Strathcona including: Strathcona’s working class heritage; urban change/street levelling activities and community response; and vitality of neighbourhood through grocers and other home-based business.

Of note: the valuable “working class heritage” of Strathcona is precisely what was zoned out of single-use residential neighbourhoods of all sorts (RS, RT, and RM) in subsequent years. And supporting the renovation of the old store front required all sorts of variances from the RT-3 zoning currently in place. The administrative staff helpfully catalogued all the variations proposed:

Screenshot_2019-03-18 656-660 Union St - Designation Heritage Revitalization Agreement

That’s a lot of variance! It also demonstrates nicely just how many restrictions around development are currently in place in zoning by-laws. And this, of course, is simply to restore the “working class heritage” of the lot. Were there objections?

Oh yes:

As part of the Development Application review process, a sign was placed on the site and 47 surrounding neighbouring property owners were notified. Eight neighbours responded. Four support the project in its entirely, including the immediate neighbours to the west. The four others support the conservation component of the proposal, but have the following principal concerns:

· the proposed site coverage leaves little useable outdoor space at grade;
· the building length next to the east property line is excessive;
· entries, decks and coach house configuration would significantly detract from the privacy of the property to the east;
· the extent of proposed changes to the existing rear structure is excessive;
· the configuration of the front unit lends itself to conversion to an illegal secondary suite;
· the current difficulty of finding parking on the street will be exacerbated; and

· the proposed development is too dense relative to the single family dwellings typical of this block.

Strikingly, the neighbourhood association supported the retention (with some caveats) and the half of respondents supported the project in its entirety, with the remainder supporting parts. The most pertinent objections came from the property to the East of the lot. A variety of alterations were made accordingly. But the basics of the renovation remained, and ultimately the lot provided room for three units, subsequently stratified, and now assessed as worth $832k, $868k, and $1,100k.

That’s a lot for twenty year old dwellings, and probably well beyond “working class” territory. But most of the value, as always in Vancouver, is in the land. What do we get in allowing three households to split the cost of the land rather than one? Well, the single structure beat-up house next door (to the West, partially obscured by the tree above)  is assessed at $1,568k. Even taking into account a bit of land lift, each of the three twenty year old units created remains far cheaper than the nearly hundred-and-twenty year old unit (likely in need of some repairs?) next door.

What about that persnickety neighbour to the East? Well… about that… some dozen years after the old store front building was re-done, the lot to the East was entirely re-developed through a lot assembly with the adjoining house. Now the redevelopment of the two lots support and serve as their own heritage infill case study.

Screenshot_2019-03-18 11 03 2010-Union-st -pdf pdf

It’s pretty fancy! What’s striking is that the two lots together now support SEVEN different dwelling units, centred around an interior courtyard.

Screenshot_2019-03-18 11 03 2010-Union-st -pdf pdf(1)

And how much are these new (2013) units? They’re assessed from $523k all the way up to $1,259k (I’m assuming for the big laneway house at the back). In other words, none of these practically brand new units reach the price of the run-down old house on the lot two down. Why? Because they’re sharing land costs. Here’s what the four lots in question look like from the back, via Google Maps satellite view:

Screenshot_2019-03-18 Google Maps

Even though there’s been uplift in the land value with the permission of extra density on the two redeveloped lots, the uplift still doesn’t come anywhere near cancelling out the benefits of sharing. From left to right for the lots centred above, beginning with the partially shaded lot containing the old car covered in vegetation, here are the assessed land values for the lots:

  • one lot with one dwelling*: $1.523 million = $1,523k/unit
  • one lot with three dwellings: $2.291 million = $764k/unit
  • two lots with seven dwellings: $3.878 million = $554k/unit

Despite the benefits of sharing land, none of the ultimate unit prices (ranging from $523k to $1,259k) seem likely to provide stable and affordable housing for the working class households of today. For that, we’ll need more purpose-built rental and social housing. But both of these things become more viable when land costs can be shared across units. Maybe the best way to insure that the working class heritage of Vancouver continues on into the future is to enable and support purpose-built rental and social housing everywhere – especially in the places this kind of housing has historically been excluded. Vancouver’s re-legalization of duplexes on RS zones and moves forward on Making Room are probably good steps along the way.

 

*- It’s actually unclear how many dwellings are contained in the dwelling with the car in the backyard because we don’t know whether it’s been subdivided to contain one (or more) suites. Legally there is only one dwelling available to be owned.

 

 

 

 

 

Tax Speculations

co-authored by Jens von Bergmann & cross-posted at MountainMath

 

BC has introduced the Speculation and Vacancy Tax and instructions for filling out the declarations are in the mail. The tax targets homes in major urban centres that are left empty, or that are owned by “foreign and domestic speculators” that “don’t pay [income] taxes” in BC. The tax rate is 0.5% of the assessed value in 2018. From 2019 onward rates increase to 2% for foreigners (not permanent residents nor Canadian citizens) as well as citizens or permanent residents that are deemed members of “satellite families.” A “satellite family” is defined as a family – combining spousal incomes – where less than 50% of total worldwide income is declared (and taxed) in Canada.The portion targeting empty homes follows along similar lines as the City of Vancouver Empty Homes tax, with similar exemptions. Homes are generally exempt from the tax when owner-occupied or rented out for at least half of the year. Importantly, foreign and satellite family owners face additional burdens in renting out homes. Tenants must either be arm’s length, meaning they have no special relationship with the landlord, or, if non-arm’s length, they must be permanent residents or Canadian citizens with Canadian income at last three times the annual fair market value of the rent for the entire residential property.

The tax has been reported to affect about 32,000 homes, about 20,000 of which will be British Columbians with the remaining 12,000 foreigners or residents of other provinces, and generate around $200M in revenue. Unfortunately the province has not shared a more detailed breakdown of how many homes are in each of the category the tax targets, the empty homes, the foreign owners, or the satellite families.

Like everyone, we’re curious how it’s all going to work! Here we want to try and put out some preliminary guesses as to how many a) empty homes and b) foreign owners might get taxed. We also want to think a bit more about satellite families and imagine how possible consumption audits might work. This enables us to make some educated guesses about c) the population at risk of being audited. Surely some of those audited will either have to pay the speculation tax or end up referred for income tax avoidance. Others will have ready explanations for why their property holdings fail to match their reported incomes, likely explaining their lifestyles as products of income volatility or legal gifts (falling beyond combined spousal income). Finally, we want to address the possibility of better rental income reporting as a result of the Speculation and Vacancy Tax. Might there be even more d) revenue gained from better reporting rental income relative to direct Speculation and Vacancy tax revenue? Let’s find out!

TLDR:

We’re guessing from various sources detailed below that the BC Speculation and Vacancy Tax will identify about 8,800 properties as vacant and subject to the tax (i.e. not exempt). An overlapping 46,000 properties owned by “foreign” owners may be subject to the tax if they don’t secure qualifying tenants for their properties. Another overlapping 45,000 households may be at risk of being identified (or audited) as satellite families, mostly living in pricey single-family detached (or suited) dwellings. Around a third of these households will be headed by Canadian-born residents, and investor class immigrants will likely end up overrepresented within immigrant households at risk of being ID’d as satellite families. Metro Vancouver will be most affected by the tax. The collection of income and property value data together with the registration of tenants in rented properties will potentially bring in more revenue indirectly, by increasing compliance with reporting of rental income and reducing tax avoidance/evasion more broadly, than by direct payment of the Speculation and Vacancy Tax.

Empty homes

How many empty homes will the tax effect? Empty homes are hard to estimate. The City of Vancouver commissioned a study based on BC Hydro data to estimate the number of empty homes in the city in a similar manner to how the tax applies, coming up with 10,800 to 13,500 empty homes in the city. In the first year, 2,538 properties were subject to the tax (roughly half declared themselves so with the rest failing an audit or failing to file or appeal). Another 5,385 were declared exempt (some of the exempt properties were not in the universe of the Ecotagious study). It is unclear how much of the difference is due to previously empty homes getting occupied or evasion. It is difficult to use this to estimate the total number of empty homes affected by the speculation tax, but one very rough estimate would be to take the number homes unoccupied on census day and scale the numbers down by a factor 8.6, roughly the ratio of the 21,820 homes unoccupied on census day in the City of Vancouver to 2,538 empty homes paying the empty homes tax.

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Overall there were 75,870 dwelling units that were unoccupied on census day in the regions where the Speculation and Vacancy Tax applies. If we use the Ecotageous study for the City of Vancouver as a guide, we would expect 41,725 empty properties using the definitions from the Speculation Tax, and 8,825 properties that will pay the tax. This might be a low-ball, given that the province has more effective means in checking for evaders entering into “fake rental” agreements and that the tax rate is lower (for the first year, and for permanent residents and Canadian citizens that make up the bulk of the affected owners in the years after) than in the City of Vancouver, and that the tax can be offset against BC income taxes, potentially inducing fewer people to sell or rent out their property in response to the tax.

Foreign owners

How many foreign owners will the tax affect? Foreign owners are defined as those owning property without being a citizen or permanent resident in Canada. Keep in mind that foreign owners won’t face any speculation tax so long as they rent out their properties to an arm’s length tenant or so long as the deal seems plausible for a non-arm’s length tenant (right now 37.7% of all secondary market renters in the regions affected wouldn’t meet the specified plausibility requirements, but that’s mostly due to their income being too low and that doesn’t matter for arm’s length tenants). Only if the foreign owner themselves occupies the property, leaves it empty, or keeps family members (like children) housed upon the property will they face the tax.

Ever since instituting the Foreign Buyer Tax in 2016, BC has been tracking data on how many purchases are made by foreign buyers. But for a variety of reasons, this kind of transaction data is a poor reflection of the number of foreign owners at any given point in time. Statistics Canada has sought to better collect data on foreign property ownership through its CHSP program, but the definitions differ from tax policy definitions. For CHSP purposes, it’s the primary residence of owners that matters rather than citizenship or permanent residence status – in other words, do owners live at foreign addresses or Canadian addresses? Some people with overseas primary residences will have Canadian permanent residence or citizenship. Some people with primary residence in Canada will not have Canadian permanent residence or citizenship (this status, for example, covered both authors of this blog post when they first moved to Canada). While imperfect, the measure of primary residence probably isn’t a terrible proxy for who will face taxation.

Extrapolating from the CHSP data for the region covered by the Speculation and Vacancy Tax suggests that 46,110 “foreign” owned properties might face the tax, in addition to the relatively small number of foreign individuals likely registering their properties through corporate ownership. It’s important to remember that there may be a significant overlap between the empty properties we looked at above and the properties of non-resident owners likely to face the tax, so these are non-exclusive categories. But we don’t yet have any good data on the degree of overlap.

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Of note, so far we can report that the impact from the Speculation and Vacancy Tax will vary widely by geography. Many municipalities have very few empty properties or foreign owners. Others, as near UBC (Metro Vancouver A) have a lot. Of course it’s worth noting that the housing around UBC is unusual for many reasons, including its student population (often boosting census unoccupied counts and highly transnational). Moreover, Electoral Area A weirdly extends into the mountains of the North Shore, where a small number of empty cabins complicate the picture, but there aren’t too many, so we don’t show that part on the map.

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Satellite families

What about satellite families? Brace yourself for a much longer discussion, necessarily delving into the definition of satellite families, the methods BC may attempt to use to audit those they suspect of being satellite families, and the limits of the information we can gather about satellite families.

In common parlance, satellite families refer to families where income earners live and work in one place while children and spouses live in another. Within the family sociology literature, this includes a variety of spousal and spouse-like relationships grouped as Living-Apart-Together (LAT). It also includes adult children being supported by parents who live elsewhere, and minor children who might be living with other caregivers (like grandparents) while receiving parental support. Within the immigration literature, satellite families might also be understood to include a wide variety of ways families work around and across borders, often sending different family members to places where they’re likely to see the most economic opportunities, but involving remittances sent back across borders for the good of the family as a whole. The Philippines and Mexico are perhaps the places most studied where families send workers abroad who return remittances back home, usually with a long term goal of reuniting the family. But other countries, including China and even Canada, have similar traditions. Satellite families create transnational ties, constituted in part through the flow of resources across borders but between family members. Vancouver likely has a lot of satellite family members engaged on both sides of transnational income sharing, both as wage earners supporting those abroad, and family members supported by those abroad.

Vancouver also has a lot of wealthy residents, including both immigrants and non-immigrants. And if there’s one thing we know about wealthy residents, it’s that they often don’t pay their fair share of taxes. In the specific context of BC’s Speculation and Vacancy Tax, the debate over satellite families has often emphasized tax avoidance. Satellite families are frequently suspected of gaming tax systems for their own advantage by deriving their income from another country, leaving it untaxed by Canadian income tax. Income tax, of course, helps to fund many services (e.g. education, healthcare) enjoyed by Canadian permanent residents and citizens. Property tax also funds many services, though as many observers have noted, BC has very low property tax rates. So it’s possible to game tax systems – entirely legally – by one family member working in a location (outside of Canada) where income tax rates are lower than BC’s and paying income taxes there, while other family members buy property and enjoy many of the services of BC, where property taxes are often lower than elsewhere. This is the situation the Speculation and Vacancy Tax is meant to correct, though of course it also potentially creates problems for transnational families who aren’t attempting to game tax systems. It also has no impact on satellite families who rent rather than own. Aside from identifying satellite families, the joining of property data with income data also has the potential to identify tax evasion. As revealed by recent CRA audits, tax evasion among wealthy Vancouverites is probably pretty common.

How many satellite families are there? We really don’t know yet. There’s no good data on the issue, especially since families filling out census forms may, or may not, choose to list members regularly working overseas as resident in BC (and census residence is different from tax residence). That said, we have a better sense of who might be at risk for either listing themselves as satellite families or being audited under suspicion of tax avoidance or evasion. But we have to make some guesses about what might trigger audits.

First, let’s remind ourselves of what data is being collected. The declaration form for the Speculation and Vacancy Tax asks about worldwide income for property owners, including the combined worldwide incomes of spouses. This is attached to property tax data from the assessment rolls. So the tax authorities should have declared data on worldwide income, income taxed in Canada, and property values. Recall that owners with less than half of their worldwide income declared in Canada are considered satellite families. Some people will identify themselves as satellite families. But in other cases, they may provide false declarations regarding their worldwide income. This opens up a variety of auditing opportunities for BC and the CRA. How will they decide who to audit for compliance?

We already know the CRA has identified lifestyle audits as a lucrative means of tracking tax evasion. We also know they’ve got a rule in place regarding rents deemed legitimate for non-arm’s length tenants. We can build on this to explore cases likely to trigger audits if undeclared as satellite families. Keep in mind there may be many explanations for discrepancies between property value and income, including family income volatility; dramatic appreciation of housing purchased long ago; or living off savings, inheritance, or gifts. But other explanations will identify home owners as “satellite families.” Of note, still other explanations may be referred to the CRA or police authorities when they suggest tax avoidance, tax evasion and/or work in illegal economies. So how many people are at risk of being audited as satellite families?

Wait, just a few more methodological caveats! We will try to estimate the number of households at risk of being audited or labeled as satellite families using the recently released 2016 PUMF data. 2016 data is, of course, now somewhat dated, being collected prior to a number of policy changes of interest to what we’re exploring, including (but not limited to) the imposition of the Foreign Buyer’s Tax in 2016, the imposition of the Empty Homes Tax in the City of Vancouver, and the slow roll-out of the Speculation and Vacancy Tax itself. We also won’t be able to achieve a perfect match with the regions the speculation tax applies in, having to make due with using Census Metropolitan Areas. The largest discrepancy is that this drops the Nanaimo area region. PUMF data is based on a weighted subsample, so estimates based on PUMF data are never counts as when using the census, but ranges based on different weightings. In most cases, actual census counts will be contained in these ranges, so PUMF data adds a conceptual nuance we usually don’t see when using census data. At this point it is good to remind ourselves that what we are really interested in is not the census counts but the actual numbers on the ground that the census is trying to estimate, but as usual we will gloss over this last step and be satisfied with estimating census counts. Here we will use the primary household maintainer as a proxy for the owner, and we will ignore dual or multiple ownership scenarios where owners fall into different categories. The speculation tax puts heavy emphasis on spousal income, which is different from family income or household income. That makes it a bit difficult to use census data to compare, we would need another custom tabulation to extract the income of spouses only. For this post we will gloss over this issue and just use household income instead. While family income may be closer to spousal income, we simply felt that household income is a more appropriate measure in the context of the Speculation Tax. People that favour different preferences are welcome to grab the code and make the appropriate adjustments. A related issue is what counts as a “satellite family”, in particular it is not clear if it applies to individuals who are not married or living common law. While only married (including common-law) tax residents in BC would appear to be at risk of declaring themselves part of satellite families, single individuals could also be flagged for lifestyle audits to determine tax compliance, so we include both, but we separate them. Throughout we will exclude immigrants that came in 2015 or 2016, as their 2015 Canadian income may not correctly reflect their subsequent Canadian income. Moreover, we exclude households that have moved within the preceding year, as well as properties worth less than $150,000, as these are exempt from the tax. Generally we don’t report if a category contained fewer than 30 (unweighted) cases.

Home-value-to-income based triggers

Assessed home value to income ratios could serve as a trigger for consumption based audits. But what’s a good ratio to use? For a foreigner renting out their property to a non-arm’s length tenant, the tax requires the income of a tenant to be at least three times the (fair market value of the) rent in order for a foreign owner to be exempt from the tax. We take this as a hint we can use this as an implicit definition of a satellite family. A satellite family may be identified as a household with declared income taxed in Canada that is less than 50% of three times the imputed rent. Why? There’s the expectation encoded in the non-arm’s length definition that housing costs will take up no more than one third of income. And if more than 50% of the household’s combined spousal worldwide income is declared outside of Canada, one is considered a satellite family. To estimate imputed rent we use a gross cap rate of 3%. This test is effectively asking that owner households spend at most two-thirds of their total Canadian income on shelter cost based on imputed rent.

However, this will catch quite a few “house-rich but income-poor” people. Take for example a senior that bought their house a long time ago for a lot less money than it would take today. If their house is now worth, say, $2M, then the imputed rent comes out to be $5k a month, or $60k a year, requiring an total annual income of at least $90k to pass our test. Given the fairly large appreciation of property, especially in the years before the census, it seems reasonable to adjust the trigger by how long the property has been held. The province will have the exact time the property was purchased to fine-tune this, but using census data we can only check if the person lived in the same residence one and five years prior. As we are exempting people that moved within the year before the census (analogous to the Speculation Tax exempting properties in the year they transacted), this leaves us with the five year timeframe.

Given the explosive rise in property values in the year before the census, we discount the imputed rent by a factor of 0.8 if the household maintainer moved into the property between one and five years before the census, and by a factor of 0.5 if the maintainer moved in more than 5 years before – reflecting the roughly doubling of property values within the five years before the census. We call this the adjusted imputed rent test.

Of note: our data is top-coded for dwelling-values above $2M, which can lead to some mis-classification for some properties with very high dwelling values, but ultimately different ways of adjusting for this have little big impact on the high-level numbers. We added an additional filter excluding households with household income above $90k, which softens potential issues around top-coded dwelling values.

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Combined spousal income determines satellite family status under the Speculation and Vacancy Tax, so we separate out our estimate of those failing our adjusted imputed rent test (and hence at risk of being audited) by marital status. This yields an almost identical number of single vs married or common law households failing the test, combining for around 45,000 in total. While only married (or common-law) people would seem to be at risk of being labeled satellite families given the focus on combined spousal incomes (“gifts” to children and other family members don’t count the same), it’s possible that auditors will still include single people in the pool of those at risk of being audited for tax evasion and failing to accurately report worldwide income. So we’ll keep both singles and marrieds in the analysis, but treat them separately.

Household Status

We also want to look at other statuses that might matter. Students and seniors come to mind as being particularly vulnerable to audit because of their lower incomes. In addition, seniors may be especially likely to have purchased their homes long in the past, meaning their homes may have done much more than double in value since they’ve lived in them. So let’s see what happens when we separate out these groups.

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We see that in particular single seniors make up a good portion of households at risk of being audited, but the bulk is taken up by working age population that is not attending school. Household type gives a different way to understand the makeup. If satellite families mostly involve an overseas wage earner supporting a spouse and children, do we see a lot of these types of households?

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As it turns out, there are relatively few people who report being married but living as a lone parent who fail our adjusted imputed rent to income test. There are only around 2,400 married or common law household maintainers that show up in lone parent households, making up a small proportion of those failing our test overall. But it’s possible that many respondents filling out census forms still report their spouses as belonging to the household, even if they spend a significant amount of time working overseas, so we shouldn’t count out other married and common-law categories, split between those with and without children, from being considered satellite families.

Dwellings

What kinds of dwellings are people who fail our test living in? First let’s talk about dwelling values. By our metric, the disjuncture between dwelling value and reported income triggers possible audits. Higher dwelling values have a mechanical effect on increasing the income needed to avoid an audit, so we’d expect households with higher dwelling values to be more likely to fail our test. Is this what we actually see?

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As one would expect, relatively few lower dwelling value homes are impacted. But each half a million dollar value bracket between $500k and $2M seems fairly evenly filled by about 4,000 households, jumping to higher number for homes above $2M, especially those occupied by married or common law household maintainers. Those most at risk of being audited would appear to be those living in the most expensive homes.

What structural sorts of dwellings are the people who fail our adjusted imputed rent to income test living in? Condo apartmentsSingle detached homes? Both dwelling type and condominium status will be available to government auditors. Our data only has three dwelling types: single detached, apartment and other. In our focus on owner-occupied dwellings and taken together with the condominium variable, we’re mostly separating condominium apartments from single-detached houses, with the latter showing up either as a single-detached house or a non-condominium apartment (i.e., house with a secondary suite or “duplex”). But there will be some other types of non-condo apartments and other types of structure (e.g. rowhouses) showing up as both condos and non-condos.

spec-map8

Most of those at risk of being audited would appear to live in single-detached houses, with or without suites, with condominium apartments taking a distant second. It would appear that not too many other kinds of housing will be targeted, or at least we don’t see enough of them to provide reliable estimates of their frequency. But this analysis by itself is interesting in policy terms. As a reminder, some condominium apartments will be temporarily exempted from the tax if they have restrictions on rentals – an out not available to other dwelling types (and also not available for long!) Detached houses with secondary suites have another potential loophole. Regardless of their status, property owners might be able to avoid paying the Speculation and Vacancy Tax on their house as a whole so long as they rent out one of the suites on the property to an arm’s length tenant, pointing toward the categorical flexibility houses with suites repeatedly demonstrate in policy terms.

Immigration

In the context of satellite families we often think of immigrant households. These are the households expected to maintain transnational connections, though overseas income earning may diminish with time (and generation). Of course, non-immigrants can also find themselves earning incomes (or partnered to those earning incomes) outside of Canada. Moreover, we know Canadians of many stripes and backgrounds attempt to evade taxes, just as they also have “bad years” where their incomes may drop out of the normal. So let’s look into immigration by period, including non-immigrants in the mix. How does immigration relate to risk of being audited as a satellite family using our adjusted imputed rent test?

 

landyr-1

Higher numbers of non-immigrants (i.e. Canadian born) fail our test than any ten-year immigration arrival bracket. Non-immigrants especially dominate the set of single people with lower incomes than expected by housing values, but they also appear in great numbers for married people. This is a striking finding, but also reflects the greater overall size of the non-immigrant population. Looking at immigrants by period, we tend to see what we expect: recent immigrants fail the test more often than more established immigrants. Recent immigrants failing our test also tend to be dominated by married couples, unlike what we see for non-immigrants, but this gap diminishes over time as immigrant patterns come to look increasingly like Canadian born patterns.

Looking at the share of owners failing our test in each immigrant category, as opposed to their total numbers, helps clarify these patterns further.

 

landyr-2

Here we see that higher proportions of recent immigrant owners fail the adjusted imputed rent test than for non-immigrant owners or more established immigrant owners. Reading shares by period of arrival sideways, the evidence would suggest that more recent arrivals owning homes will likely move toward non-immigrant patterns for home owners the longer they remain in Canada. But culture and wealth of immigrants may vary with period, so there may be other explanations at play as well.

Where are those who fail our test coming from? Let’s take a look, using place of birth! Of note, sending countries vary from period to period, meaning the period analysis (above) influences the place of birth analysis (below) and vice-versa. Arrivals from China, in particular, tend to be more recent. We should remind ourselves that place of birth is not necessarily the same as the place people immigrated from. In particular in the case of China, sizable portions of immigrants arriving from Taiwan and Hong Kong were actually born in China.

 

landyr-3

Here Chinese born and Canadian born household maintainers contribute the most to owners failing our adjusted imputed rent test. But other sizable contributors to possible audits include those from Hong Kong, other East Asian countries, and the United Kingdom. The United Kingdom may seem unexpected as a group likely to face audits, but we have already seen some of the relevant cases documented in the news. Let’s look at share of owners failing our adjusted imputed rent test by place of birth.

 

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Diving into the share of owners likely to trigger audits, we see in all cases that it’s a minority of owners at risk from each country. The uncertainty ranges are too large to sensibly rank the data by place of birth. We grouped immigrants from birth places with fewer than 30 (unweighted) combined cases into larger groups. Nevertheless there are sizable proportions of owners arriving from China, Hong Kong, and Other Eastern Asian countries at risk of being audited. This likely reflects Canadian immigration programs selecting for wealth, like investor class programs, popular in these countries. Comparing investor immigrants living in the speculation tax regions to all immigrants by place of birth, we notice how the investor program leans heavily toward Pacific Rim countries.

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We know just over 22,000 property owners in Metro Vancouver were identified as investor class immigrants in 2018 CHSP data. We also know that the incomes of the investor class immigrants reported in Canada have tended to be lower than for other streams, as confirmed in the 2016 census data below.

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Looking at the adjusted family income deciles, the bottom decile is very strongly represented, with incomes slowly rising the longer the immigrants have been here. While we don’t know how these roughly 62,000 investor immigrants group into households and household types and break up into renter and the 22k owner households, this does provide more circumstantial evidence that a fair number of investor class immigrants will get caught by the adjusted imputed rent audit trigger.

East Asian ownership patterns may also reflect price discrepancies that make Vancouver real estate seem especially cheap to immigrants arriving from across the Pacific Rim. Arrival with wealth, whether from the sale of a pricey residence overseas or other sources, enables movers to quickly purchase housing in Vancouver. Once arrived, they could become satellite families by returning income earners to countries of origin where they see stronger job prospects (and less discrimination), or they could simply be living off of their savings as they adjust to life in Canada as homemaking migrants (ungated version). In this, immigrants may constitute a special case of income volatility in the years after their arrival. And of course let’s not forget that where there is wealth, no matter the source, there are likely to be attempts at tax avoidance and evasion!

Regional Variation

Lastly we quickly check on how properties likely to be declared as satellite families or audited for lifestyle discrepancies are distributed over the CMAs that we consider. Not surprisingly, in terms of sheer numbers, the Speculation and Vacancy Tax is overwhelmingly going to target Metro Vancouver. Almost all of the properties failing our test are in Metro Vancouver. Which isn’t too surprising since it’s where all the people live.

spec-map15

But what about in terms of share? Metro Vancouver is also where the highest value homes are located and the area with the most transnational ties. So perhaps it’s not surprising that the share of households likely to declare as satellite families or be audited as such looks highest in Metro Vancouver. But by share it’s more clear that Victoria, Kelowna, and Abbotsford pull at least some weight.

spec-map16

Comparing to Shelter-cost-to-income triggers

Another measure that has been in the public discussion regarding satellite families is the shelter-cost-to-income ratio. Instead of (adjusted) imputed rent, we can take the actual shelter cost from census data. This won’t be directly available to the government for audit purposes, but the government could try to approximate this using the mortgage registered against the property from their land title database.

Replacing our adjusted imputed rent with shelter cost we now can ask that owners have enough income to cover three times their shelter cost. Folding in the Speculation Tax definition of spouses having to declare at least half their joint spousal income in Canada we arrive at a shelter-cost-to-income cutoff of 66.7%. That’s something that’s reasonably easy to check in Census data, just like we did for renters near the top.

The total numbers of owner households failing the shelter-cost-to-income test is very similar to those failing our adjusted imputed rent test, but the populations don’t fully overlap as the following graph demonstrates.

spec-map17

This shows that the tests are quite sensitive to the definitions, and using these kind of tests for audits will not be entirely straight-forward. Provincial auditors will likely be busy, and will require a robust data-driven audit system in order to be effective.

Rental Income Tax Reporting Compliance

Reading through the requirements one can’t help but think that the BC government will make use of detailed individual tax return data to enforce the regulation. They may be able to use rental income on tax returns to verify the that arm’s length tenancies were correctly declared. At the same time, this should prove a very effective measure to ensure rental income is properly declared by landlords, which in turn forces proper declaration of capital gains taxes in case of a sale of a secondary residence, both of which are suspected to have low compliance. To get a rough idea of the impact, we use census data to estimate the total rent being paid by tenants. The aggregate shelter cost of tenants not in purpose-built, social housing or basement suites in our regions is $3.09B. Here we exclude basement suites because they are affected differently by the speculation tax. Rent is generally a bit lower than shelter costs, because rent may not include utilities. Combined with this, as well as tax write-offs, we assume an effectively 15% of this total is due as tax on rental income. If we take the current compliance rate to be 50%, the compliance rate that was recently estimated for artisanal landlords in London, and assume that the speculation tax increases compliance to 100%, this would generate an additional $232M of tax revenue at the federal and provincial level, which is the same order of magnitude as the projected direct tax revenue from the Speculation Tax. On top of this, declaring rental income makes it harder to evade capital gains tax at the time of sale of as secondary property.

Conclusion

The BC Speculation and Vacancy Tax has been reported to affect about 32,000 homes, about 20,000 of which will be British Columbians with the remaining 12,000 foreigners or residents of other provinces, and generate around $200M in revenue. While we’re not certain where these figures come from, given our estimates above they actually seem pretty reasonable. We’re guessing about 8,800 properties will be considered vacant and non-exempt from the tax, overlapping with 46,000 properties owned by “foreign” owners and subject to the tax if left unattached to a decent rental contract. A sizable 45,000 households may be at risk of being identified (or audited) as satellite families, mostly living in pricey single-family detached (or suited) dwellings. As we note, around a third of these households will be headed by Canadian-born residents, but it’s likely many investor class immigrants will also be hit, and the vast majority affected will be in Metro Vancouver. Finally, the tax will probably generate a lot of revenue indirectly by increasing income tax compliance, quite possibly topping its direct revenue. We’ll be watching to see how it unfolds!

For those interested in more details on our methods, or people that would like to make different assumptions and continue to investigate along these lines, the code for the analysis is available on GitHub.

Ottawa Talks Housing

Back in November of 2018, I visited Ottawa for the CMHC’s National Housing Conference and presented preliminary results from my working paper (co-authored with Jens von Bergmann and Douglas Harris) on Who lives in Condos? In my last blog post (also up at MountainMath), we detailed how condos were used for metro areas across Canada, as well as how we arrived at our estimates. Here I’m following up with video of our full panel at the conference, “Building an Affordable Future for Rental Housing,” as well as our full powerpoint, both made available via CMHC.

My talk runs from the 10.00 minute mark till about 19.15. Other panelists include Marika Albert, new policy director for the BC Non-Profit Housing Association; Catherine Leviten-Reid from Cape Breton University; and Jacob Cosman from Johns Hopkins. The panel was moderated by Zahra Ibrahim. It was a great panel, even though I had a nasty cold and I wish we’d had representation all across Canada.

In case my talking head doesn’t do it for you (with a wicked cold, no less), here are the slides I refer to during my talk (or tap image below).

condos-cmhc-lauster-et-al

Here’s the full program with links to all of the other great panels.

And for good measure, here’s a picture I took in Ottawa outside of the Arts Centre hosting the conference. Ottawa, you’re beautiful! Though you are also very, very cold in November.

ottawa

How are condos used?

Comparing How Condos are Used Across Canada

Co-authored by Jens von Bergmann; Nathanael Lauster; Douglas Harris (Cross-posted at mountainmath.ca)

Condominium apartments are fascinating! At their heart lies a relatively recent legal innovation enabling individual ownership of units in multi-unit developments. Since their arrival, condominium apartments have become places to build homes, sources of rental income, sites of speculative real estate investment, and experiments in private democratic government. They’re also in the middle of many on-going debates about housing and the future of cities in Canada and around the world. In 2018, we formed a team to study condominium apartments and how they were being used in order to better inform public and academic debates. Team members include data analyst and mathematician Jens von Bergmann, sociologist Nathanael Lauster, and law professor Douglas Harris. We recently presented some preliminary findings at the National Housing Conference in Ottawa and we’re looking forward to continued research collaboration.

Here we make public some basic information about the development and use of condominium apartments across different metropolitan areas in Canada.

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The first thing to note is that the legal architecture of condominium is deployed across a broad range of structure types. In addition to apartments, developers commonly use the condominium form to subdivide row houses, and occasionally single-detached houses (as in some gated communities). Nevertheless, condominium is used most commonly to subdivide ownership in low-rise and high-rise apartment buildings, and that’s what we focus on here.

The next thing worth noticing is that condominium is much more common in some metro areas than others. Vancouver jumps out for the proportion of its apartments – and housing stock overall – owned within condominium. Calgary and Edmonton also rely heavily on condominium to subdivide apartment buildings, although these sprawling metro areas are dominated by single-detached houses, much more so than Vancouver, reducing the overall prevalence of condominium.

We know that condominium apartments are exceptionally flexible forms of housing, but how are they being used across different metro areas? What proportions are owner-occupied? Rented? Occupied temporarily? Unoccupied?

We couldn’t extract data to answer the last two questions from the census because condominium status is recorded by respondents. However, using a variety of datasets, we figured out a transparent and replicable (if somewhat complicated) method for estimating temporarily occupied and unoccupied condominium units.

The answers to these questions about how condominium apartments are used speak to important elements in popular discourse and public debate. Since provincial governments introduced a statutory form of condominium in the late 1960s, developers have built condominium buildings rather than purpose-built rental apartments across much of Canada. Does this also mean that the proportion of owner-occupiers increases while that of renters decreases in cities where condominium developments proliferate? Or do owner-investors rent out their condominium units, augmenting the existing rental stock?

condo_usage-1.png

Our findings on how condominium apartments are used are really interesting! In all the metro areas we analyzed, the modal use of condominium apartments is owner-occupation. As a result, it appears that condominium apartments are enabling more homeowners to live in increasingly dense cities.

However, condominium apartments also make up a substantial proportion of the rental stock in many metro areas. While many condominium apartments are rented, relatively few show up as vacant (i.e. empty but listed as “for rent”) at any given point in time. Here we distinguish these rare vacancies, which are good for renters, from unoccupied condominiums. In tight markets such as Vancouver and Toronto we see effectively non-existent condominium apartment vacancy rates, comparable to purpose-built rental vacancy rates.

The least common use of condominium apartments is as a temporary residence (where owners declare their principal residence as somewhere else in the census, but occupy the unit occasionally).

Finally we get to the “empty condos,” or those that show up as unoccupied in the census. Overall, we estimate that between 10% to 23% of condominium apartments were unoccupied in 2016, depending upon the metropolitan area. We don’t know why so many condominium apartments appear to be unoccupied, but it likely relates to their newness and to their inherent flexibility as property. Flexibility can show up in the census as “unoccupied” directly, as when owners use condominiums as second homes, and indirectly, as when condominium apartments are left empty in order to facilitate transactions between uses. We suspect that condominium apartments may cycle more frequently than other forms of property between different uses and occupants, thus creating transition periods without occupants and inflating the proportion of unoccupied units. For instance, condominium apartments can more plausibly be re-claimed for owner’s use than purpose-built rental apartments, cycling in an out of rental supply and potentially creating less stable rental housing.

Strikingly, Vancouver and Toronto stand out as having the lowest proportion of unoccupied condominium apartments, a finding that may be somewhat counter-intuitive given the public attention that vacant units have received, rightly or wrongly, in both cities. When metropolitan areas rely upon condominium apartments as a key form of new housing supply, they should take the flexibility of the form into account. However, it appears that the proportion of unoccupied units in the housing stock will rise as the proportion of condominium apartments in the housing stock increases because condominium apartments are more likely to be unoccupied than purpose-built rentals, a pattern also noted with respect to other flexible housing forms, such as secondary suites (especially basement suites, which show up as units in a “duplex” in the census). This means that even though a smaller proportion of condominium apartments are unoccupied in Vancouver than elsewhere in Canada, a larger proportion of Vancouver’s housing stock shows up in the census as unoccupied.

In Canada’s three largest metropolitan areas, a pretty simple rubric applies: for every ten condominium apartments built, six are owner-occupied, three are occupied by renters, and one is unoccupied. In Calgary and Edmonton, add a renter and take away an owner-occupier. The data for the other cities we surveyed is available in the graphic above. As a bonus, we also provide a comparison with estimations from 2011 data to show changes over time in the graphic below.

2-1

In Vancouver, where condominium apartments have been an established part of the housing market for longer than in the rest of the country, there is very little change in the occupancy pattern between 2011 and 2016. In other big metropolitan areas, it appears that condominium apartments are increasingly used as rental stock. In most cases, the proportion of empty condominium apartments appears to be decreasing, something that may reflect the lingering effects of the 2008-09 property market crash. However, this is all very preliminary. But we’ll keep looking at the details as we proceed!

Methods

We mixed two data sources to arrive at these estimates–the Census and the CMHC Rental Market Survey–and that made coming up with the estimates a little more complicated. There are several assumptions that go into the estimates, and there are several issues with mixing the data that we set out below.

Overview

We cut the condominium stock into five different categories. The numbers of units occupied by owners and renters are straight-up census estimates from 98-400-X2016219 and 99-014-X2011026. To estimate the unoccupied units and the units occupied by temporary residents we used a custom tabulation of Structural type by Document type. We received this cross tabulation from Urban Futures, which one of use has worked with before on secondary suites. Both of those variables–the categorization of the dwelling type as well as the decision to label a unit without a census response as empty or occupied by someone who did not respond–is made by the enumerator. This allows us to ascertain the structural type of unoccupied units, and we can also get that information for units that are temporarily occupied.

So, we know how many apartment units were classified as unoccupied or temporarily occupied. To estimate how many condominium units fall into that category we need to make some assumptions. First, we assume that the apartment stock consists of three distinct type of units: condominium units, purpose-built rental units and non-market housing units. That’s not quite accurate. For example a single-family home with two secondary suites will be classified as an Apartment, fewer than five storeys if the census found the suites. These do exist in Vancouver, and elsewhere, but their numbers are small.

Given those three types of apartment units, we need to understand how many of the unoccupied and temporarily occupied units fall into each category. The CMCH Rental Market Survey has annual estimates of vacancy rates and universe size for the purpose-built rental stock. We take those estimates, only counting apartment units, to attribute unoccupied units to the purpose-built rental stock. In Vancouver, with its extremely low vacancy rates, this is a fairly small number. In Halifax, that number is comparatively larger. Further, we assume that the non-market units have a vacancy rate of zero, so that there are no empty non-market units. What’s left over we assign as empty condominium apartments.

Finally, we use the estimate of vacant condominium apartments and those on the rental market from the CMHC Secondary Market Rental Survey, using their estimates of the condominium vacancy rate and the condominium rental universe. The vacancy rate is not available for all years and all CMAs. We have marked the CMAs with an asterisk in case the data was not available and back-filled it with our estimate of the condo rental universe and the Rms vacancy rate. We have seen previously that the Rms vacancy rate tracks the secondary market vacancy rate reasonably well.

Attributing the temporarily occupied units gets even harder, but the numbers are smaller so getting things a little wrong has less impact. Here we again assume that no temporary residents live in non-market housing, and we assume they are equally likely to live in a condominium apartment (as owner or renter) or rent in purpose-built. That is a bit of a judgement call, but the details of these assumptions don’t make much of a difference to the numbers, and we invite people to grab the code if they would like to adjust the assumptions.

There are several issues when mixing CMHC Rms data with census data. For one, both are point-in-time estimates for slightly different times. The census is pegged in early May, the Rms for October. There may be fluctuations in temporary and unoccupied units, in particular in areas dominated by universities such as Waterloo, with the census being outside of the regular semester and the CMHC survey within.

Next comes the geographic problem, with CMHC switching to new census geographies at the end of the year, so the rental universe still reflects the previous census geography. Montreal is one such example where the CMA changed 2011 to 2016 as we have explained before. That leads to problems when estimating the rental universe, but the effect is moderated when focusing on the empty units.

Another issue is that the definition of apartment that CMHC uses differs slightly from the census.

Finally, for estimating the vacant condominium apartments that were on the rental market we used the CMHC rental condo universe estimate and not the one we derived from the census. There appear to be some differences in how CMHC and the census estimate rented condo units, with CMHC relying on surveys of property managers. In BC that likely involves tallying up units for which Form K was filed, likely leading to CMHC under-estimating strata rentals.

It is instructional to compare the two different estimates.

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With the exception of Hamilton, the census condominium rental estimates are higher, in some cases substantially so. To shed more light on this we also compared the estimates of overall condominium apartments.

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We looked at two separate census estimates: the occupied (by permanent residents) units that come straight from the census by filtering occupied units for apartments that are stratified, and the overall condo estimate that we derived by adding in vacant and temporary units. With the exception of Montréal the census estimate of occupied units only comes quite close to the CMHC condominium universe estimate. The differences are worth looking into in more detail at some point.

Waffle graphs

To communicate the makeup of condominium apartments we settled on a custom version of a waffle graph. Displaying proportions on a square grid makes it easier to read them compared to pie charts or tree graphs. The 10×10 layout rounds numbers to percentage points, which is the appropriate level of accuracy given the uncertainty in the data and is intuitive to understand. When rounding to the nearest percentage, the numbers don’t always add up to 100. So we don’t do traditional rounding but round with the constraint that the total adds up to 100 while minimizing the \(l_\infty\) error.

This does introduce potential problems when comparing across time or across geographies, where theoretically we could see an increase in the number of squares in one category although the actual estimated share dropped. This will only happen under very specific circumstances, and we checked that this did not occur in our graphs.

Reproducibility

The code underlying this post is available on GitHub, as are the parts of the custom tabulation for 2016 and 2011 used in this post. Part of the Statistics Canada data we used requires conversion from XML into more manageable data format which, for performance reasons, requires python to be installed next to R that runs the rest of the code.

Urbanism Axis & IMBY Allies

Last post I talked about how Vancouver’s election provided possible insights into the relationship between Urbanism (or IMBY-ism) as a political axis running perpendicular to more traditional Left-Right axes. Now we have results!

But first: a clarification. Initially I drew from the Cambie Report‘s clever crowd-sourcing of placements for political parties and prominent independents in Vancouver along both a municipal urbanism axis and social and economic left-right axes (ultimately combined), as follows.

Election-2018-positions1

Positions were allocated (and defined) by the wisdom of crowds. Not surprisingly, I received some pushback for accepting this wisdom – not everyone agrees with crowds! And that’s fair. Many policy positions and histories, especially within my area of housing, were actually more nuanced. Here I’ll provide a – still very rough – breakdown of how I see the axes providing important information about different positions and histories, which may be of use both for interpreting Vancouver and thinking through IMBY coalitions more broadly.

Election-2018-positions5

Starting with the Urbanist Right in the upper-right quadrant, we have a relatively familiar market urbanism: anti-zoning and libertarian inspired. Pro-housing everywhere “the market” wants it. Market urbanists tend to extol the virtues of density and disruption. YIMBY everywhere.

Moving clockwise, below we have the Preservationist Right. To add a bit of nuance, this is a position that I’ve argued actually much better characterizes the North American tradition: Rigid zoning for exclusive single-family neighbourhoods and more flexible market allocation of housing within a constrained urban core. Right leaning municipal coalitions offer a grand bargain between middle-class detached homeowners’ relatively conservative desires to be left alone and developers’ interests in making money downtown. The mantra goes something like: “Strong protections for me and the market for thee.” Or NIMBY in the Great House Reserve, YIMBY in the Urban Core.

Continuing around the clock to the Preservationist Left, we move toward the left-leaning reaction against the North American tradition. Anti-poverty alliances frequently identify developers as villains. This makes sense insofar as many alliances have borne repeated witness to the displacement that can result from unleashing market development upon the marginalized neighbourhoods of the urban core. Anti-developer politics can seem like a progressive end in their own right and can sometimes also win over middle-class voters (think “All neighbourhoods matter”). For a farther left subset, the socialization of housing seems the best bet for protecting those marginalized by the market. Lots more social housing is in order – but often concentrated in and meant to preserve neighbourhoods viewed as under development pressure. The orientation runs from NIMBY everywhere to PHIMBY (Public Housing in My Back Yard).

Moving up to the Urbanist Left, we find alliances that often view urban growth as good, both in terms of promoting diversity and in terms of reducing environmental impacts. Many accept that disruption is part of living in a city. But it shouldn’t be imposed unequally and policies should work to avoid displacement. Those I’ve also termed Inclusive Urbanists set their sights on returning exclusionary neighbourhoods to the urban fabric by reforming single-family zoning. They look to introduce social housing and diverse rental options to every neighbourhood. The tendency is YIMBY, but reform-oriented, with an egalitarian emphasis directed at diversifying single-family exclusionary hoods and large helpings of PHIMBY.

Ok, now let’s get back to what happened in Vancouver, where we had parties occupying each of these quadrants. Who won? And what does it tell us about IMBY-coalitions?

Let’s start with mayor.

Election-2018-positions6

The mayoral race ended up a showdown between two strong Urbanist Left candidates (Kennedy Stewart and Shauna Sylvester) and the strongest of the Preservationist Right (Ken Sim from the NPA – historically the epitome of the grand bargain party: NIMBY for detached home-owners, YIMBY in the urban core). Stewart beat Sim by less than a thousand votes (half a percentage point) in a real squeaker of a race.

Broadly speaking, both the Urbanist Left and the Preservationist Right fielded strong candidates. But what happened to the Urbanist Right and the Preservationist Left? The Urbanist Right candidate was clearly Hector Bremner, and at 5.7% of the vote, his Yes Vancouver party failed to attract much support beyond its passionate young base of market YIMBYs. The Preservationist Left initially had a party-supported candidate in COPE’s Patrick Condon (who early on made clear he wouldn’t run if the Green Party’s Adriane Carr had decided to try for the mayorship). But Condon dropped out after experiencing a stroke. Late in the race he endorsed independent candidate Sean Cassidy, who failed to attract much other support. Even adding in support for the fringe candidacy of IDEA Vancouver’s Connie Fogal (widow of progressive hero Harry Rankin), the Preservationist Left failed to crack 2% in the mayoral race.

So can we collapse the field, calling YIMBYism a left-wing phenomenon and NIMBYism mostly driven by more conservative impulses? Not quite so fast… let’s turn to Council! Here I note the average % of total council votes accorded to candidates in each party, highlighting the parties that actually won council seats (no independents won seats, despite overall respectable showings). I also provide the range of averages for major parties in each quadrant.

Election-2018-positions7

While the mayor’s race seemed to reduce relatively neatly to a singularly important Urbanist Left – Preservationist Right axis, the council race sees a real and strong split between the Preservationist Left (COPE and the Greens) and the Urbanist Left (OneCity and Vision), with the Preservationist Centre-Left ultimately receiving the most support. Indeed, the new council will be made up of five members from the Preservationist Right (NPA), four members from the Preservationist Centre-Left (three Greens and one COPE), and one member from the Urbanist Left (OneCity).

So what does this all this tell us about IMBY coalitions?

First: it’s important to distinguish those BYs: the backyards of Single-Family House neighbourhoods are treated differently from the backyards of the Urban Core.

Second: Right-leaning coalitions tend to do well in cities only when they leave the back yards of Single-Family House neighbourhoods alone. So far there’s little evidence that a right-leaning YIMBY coalition can win, though this could change in the future, as single-family neighbourhoods continue to lose population.

Third: Most YIMBYs lean left by quite a large margin, and left-leaning YIMBY coalitions can win. A Lefty Urbanist won the mayoral race in 2018, despite the competition from an exceptionally strong contender in the same quadrant. Moreover, Vision Vancouver’s coalition held power for the last ten years until their organizational implosion in 2018, and still placed well ahead of most other parties even if they won no seats.

Fourth: There’s a real and consequential split between Lefty Urbanists and Lefty Preservationists. I think this is often about perspective. From the point of view of anti-poverty activists working in the urban core, developers almost always look like villains (non-profit developers MAY be exceptions). From the point of view of people feeling excluded from cities’ vast tracts of single-family neighbourhoods, developers look like potential allies. On the flip side, the path to political success often runs through middle-class homeowners, and it’s easier to get them on your side by promising it won’t inconvenience them much than by suggesting they might need to sacrifice some parking or sunlight on their gardens. Vancouver’s Green Party, in particular, has walked this line to great success.

Theoretically, this election should put to rest the notion that all or even most YIMBYs are mostly market-oriented. After all, if they were they would’ve come out in mass for Yes Vancouver. Instead YIMBYs seemed to support Urbanist Left candidates in numbers easily surpassing support for the Urbanist Right. But to be fair, this was also a really messy election, witnessing the organizational implosion of the reigning party (Vision) and a confusing profusion of new parties. This likely benefitted those older organizations that managed to avoid imploding (Greens, COPE, and above all the NPA, who recovered strong from a shaky start), above and beyond informed platform comparisons.

Final Question: Can those Urbanist Leftys who made it into office this year work with their Preservationist Left or Preservationist Right colleagues? I’m guessing efforts to Make Room in single-family neighbourhoods are going to slow down again after Vision’s successful last-minute drive to introduce duplexes (with suites!), opening up all nearly all lots to four potential dwelling units (2x owned, 2x rented) across the City. Given housing plans put forward by the NPA and Greens, maybe we’ll eventually get matching legalization of an additional main unit rental suite (1x owned, 2x rented, 1x laneway rented), legalizing what’s already happening on the ground in many places. It’s less clear what will happen in the urban core, where alliances may shift project by project (remember, NPA councillors look pretty market YIMBY outside of single-family zones).

Let’s animate that GIF:

Election-2018-outcome-anim

 

Addendum: (preliminary) vote tallies from the City of Vancouver obtained here! Looking forward to the voting location breakdown we got from the 2014 election.

 

 

How to Become a Resort City

I think many people are concerned that Vancouver is turning into a “resort city” – a playground for the rich – rather than a diverse and thriving city for all. But is this really happening? Yes. And I’m concerned too!

Certainly we see a lot of luxury cars and retail outlets, but we don’t really track wealth very well in Canada. Nevertheless owner-occupiers report their home values in the census and that’s where most wealth ultimately lies for Canadians. We can ask a simple question: where do the millionaires live? By millionaires I’m referring to anyone who reports owning and occupying a home worth a million dollars or more – not a perfect proxy, but not bad. The census uses self-reporting to get at this, and Statcan Table 98-400-X2016232 – in conjunction with total household numbers from Census metro area profiles – enables me to generate the following figure.

MillionaireHHs

Vancouver contains almost as many millionaires as Toronto, despite being less than half the size. Together the two metropolitan areas account for less than a fifth of Canada’s total number of households but over three-quarters of all owned dwellings worth on million dollars or more. To put matters differently, nearly 25% of Metro Vancouver’s households own a dwelling worth a million dollars or more, compared to just over 1% of the Rest of Canada (outside Toronto). We are literally concentrating the One Percent in terms of Canada’s wealthiest households.

Maybe Vancouver’s not quite a resort city yet, but it’s definitely in the neighbourhood!

So how did we get to this point?

In some ways Vancouver was predisposed to growth because it’s got lots of things people want: ocean, mountains, one of the mildest climates in Canada, a thriving port, a railroad line, lots of jobs, diverse ex-patriot communities, parks, strawberry-picking in the Agricultural Land Reserve, etc. This could explain growth overall. But everybody wants these things, not just rich people.

If it’s not just amenities that attract specifically rich people to Vancouver, then how are we becoming a resort city? Some people blame the fact that Vancouver’s amenities have been heavily marketed to rich people around the world in recent years. They have a point: this has certainly happened. But lots of other places try to market themselves to the rich as well. What makes Vancouver special?

We might not be attracting the wealthy so much as we’re systematically excluding everyone else who wants to live here. It’s about changing the composition of in-movers, so that wealthier and wealthier people tend to come (incidentally, this fits with research on neighbourhood change suggesting this is mostly how gentrification occurs).

How are we systematically excluding everyone who’s not rich? Easy! Under conditions of growth, all we have to do is preserve lots of urban land for millionaires and largely prevent anyone else from competing with them. Effectively this is what residential single-family (RS) zoning accomplishes in places like Vancouver, which we can see by comparing what proportion of detached and duplex housing is evaluated at over a million dollars.

ResortCityZoning

Across Metro Vancouver, nearly 60% of detached or duplex housing is evaluated at over one million dollars, yet the vast majority of urban residential land is zoned to support only these forms of housing. This is how you get a resort city, fit only for millionaires (with a little bit of room for their servant-tenants living in basement suites below – which is what duplexes mostly consist of in Canada). This compares to around of quarter of detached houses worth over a million in Toronto, and just over 2% in the Rest of Canada.

We can flip the question around to ask what percent of million-dollar dwellings are single-family detached or duplex dwellings. Strikingly, the answer in Metro Vancouver, Metro Toronto, and the Rest of Canada is pretty much the same: almost 90%.

Luxury zoning is almost entirely detached zoning. Across Metro Vancouver, the converse is also increasingly the case: detached zoning is becoming luxury zoning, affordable only to millionaires.

In places with lots of amenities – including jobs! – where people really want to move, growth is mostly limited by housing. If we only make housing for millionaires, we’ll increasingly have a city of millionaires. If we want to keep Metro Vancouver from becoming a Resort City, we’re going to have to tackle the zoning issue.

For this and more: yadda yadda yadda… book.

Thanks to Frances Bula, Jens von Bergmann, and Chad Skelton for inspiring today’s post and/or snatching away my afternoon! And if you’re interested in what you can do about reforming zoning, look into the platforms of municipal parties, like OneCity, that advocate for inclusivity across our urban landscapes.

A Rough Working Guide to Housing Crises and Policy Levers

The housing market: it’s all about supply and demand, right?

Not quite. States and markets – especially markets for housing – grew up together. Housing is heavily regulated in ways that generate, constrain, and ultimately channel supply and demand, creating not one, but many sub-markets and also non-markets. The policies governing housing have been layered one atop the other through history.

Where do these policies come from? They often respond to perceived crises. For instance, Vancouver enacted its first Fire By-law on July 19, 1886, just five weeks after the newly incorporated city burned to the ground. As a result, the policies set in place to deal with various crises are frequently reactive in nature. They also tend to be crafted in the image and interests of those most powerfully situated to govern.

Since the late 19th Century, policies across North America (and elsewhere) also tend to respond to an ideological background of “market fundamentalism,” or the idea that the market governs best (sometimes referred to as “neoliberalism”). As Karl Polanyi diagnosed early in the 20th Century, markets are terrible at governing some things (people, nature, productive capacity). As I argue in my book, urban land and the housing built atop it is one of these things. This sets up an interesting dynamic whereby ideological attempts to govern by a singular market create all manner of housing problems, which in turn generate reactive policy responses and explain why housing is so heavily regulated. The most frequent policy response, I think, has been to set up protective partitions within markets. This produces sub-markets and non-markets and helps explain the distinct nature of our various housing crises.

In what follows, I’m going to attempt to provide some insights into Vancouver’s current housing crises in a way that gets at the history of this partitioning of markets. The past barriers we’ve created to generate, constrain, and channel the market forces of supply and demand continue to shape policy levers available to us today.

Here’s a working visual guide (link to larger version). Sorry: it’s still pretty rough and necessarily messy, so it might not “work” for everyone!

RoughModelCrisis4

Ok, so what’s going on here? Just to get it out of the way: “SFD” = Single Family Dwelling and “PBR” = Purpose-Built Rental. Combined together with “Condo” and “Non-market” housing, we’ve got our (heavily simplified) major basic forms in which housing is provided.

We can link these basic housing forms into how they relate to our perceptions of four distinct housing crises. I’ve distinguished these housing crises in terms of need, primary group of interest, and how Vancouver is doing addressing these crises in comparative perspective (more here).

Crisis #1: Homelessness involves the greatest need for housing, mostly affects the poor, and in comparative perspective, Vancouver actually has a not-terrible track record addressing this crisis. Though it’s gone up in recent years, the prevalence of homelessness remains relatively low. But the homeless are those most likely to be at risk of dying due to their housing situation. Everyone else’s crises pale by comparison.

Crisis #2: Rent Access involves high and immediate need for housing, mostly affects the working class and/or young, and Vancouver has a mediocre track record addressing this crisis. Rents remain relatively middle-of-the-pack for North American cities, but this is largely due to rent control and vacancy rates are very low, making it difficult for new entrants into the rental market. Failure to provide rentals can lead to real hardship and (ultimately) homelessness.

Crisis #3: Housing Price to Income reflects relatively low need, mostly affects the aspirational middle class, and Vancouver looks awful in comparative perspective (at least within North America). Since it affects the middle class & Vancouver does pretty terrible compared to elsewhere, this crisis sucks up most of the attention in Vancouver’s debates, despite reflecting relatively low need compared to the rental and homelessness crises.

Crisis #4: Return to Investment is unlike the other housing crises insofar as it reflects a more general crisis involving finance. Correspondingly, I place it as the lowest of needs, and it tends to affect an investor class already most protected by their assets. Recently, at least, Vancouver’s housing market has provided a very good return on investment. No real crisis here (despite recent attempts to set in motion a property tax revolt).

I’ve tried to cram as much of the history of reactive housing policy as I could into describing the barriers channeling supply and demand, with particular reference to Vancouver. Each letter describes a partition in markets and also acts as a policy lever. The letters identifying each lever / barrier are ordered in rough historical fashion. When was each barrier or lever put in place? Meanwhile, the arrows follow the production of housing from its monetary backing (capital – in green) through its development (in blue) to one of the four major forms of housing described above, and finally to its end use (consumption) as non-market, primary rental, secondary rental, resident owner-occupation, and empty or other.

It’s complicated! And I’m still leaving a lot out (e.g. non-profit organizations) and simplifying in places (e.g. treating resident-owners as strongly distinct from investors).

Nevertheless, a few points are worth making:

1) there is no such thing as a singular “housing market.” Instead there are many little sub-markets and non-markets produced by the layering of policies.

2) sub-markets are still connected to one another, but the connections are shaped by policies and determine how processes like “filtering” are variously enabled to work.

3) this reflects real concerns that there can be a “right” and “wrong” kind of supply. The overall history of housing policy insures that there really are different kinds of supplies that end up addressing different kinds of crisis. At the same time, supplies and crises do relate to one another. The trick is that the relationships aren’t at all straightforward, and some kinds of supply (e.g. condos) have been made more flexible than others.

4) earlier and wider ranging policies (e.g. A & B, covering tax, finance and land use) can have really wide-ranging effects on how housing works. For instance, shifting from extensive to intensive land use policies potentially unlocks a wide range of new housing stock that could help address all kinds of housing crises. Later policies tend to have more limited effects, carving off new little sub-markets (e.g. Accessory Dwelling Units) and specifying their links to other little sub-markets. But these links can be important!

5) sometimes the effects of policies can be complementary or conflict, depending upon the crisis at hand. For instance, Empty Home Taxes (policy lever F) diminish the range & value of benefits for investment (crisis #4, lowest need), but encourage the channeling of existing supply toward resident-owners (crisis #3, low need) and rentals (crisis #2, high need), ideally benefiting both the middle and working class. By contrast, a broader tax on use of housing for investment (policy lever A) without any exemption for rental tenancies would channel even more existing supply toward resident-owners (crisis #3, low need), but possibly exacerbate the options available for renters (crisis #2, high need). Rental restrictions within strata associations do the same thing. One concern with enabling the stratification of ADUs (policy levers D & G) – currently limited to rentals – is that it may have a similar effect, pitting the working class and middle class against one another.

6) am I already at six?!? I have lots more to say about this working model, which I began sketching months ago just to begin thinking through some of housing policy change we’ve seen and continue to see in Vancouver. With luck, I’ll work toward turning it into a paper! But as it is, this blog post is already too long. What’s your working model look like?