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Urban planning not to blame for high house prices

Blog by Ian Watt | June 7th, 2007

Urban planning not to blame for high house prices

Vancouver continues to creep up the list of the world's most unaffordable housing market. Despite the results of a recent international study that now ranks Vancouver 13th on the list of the world's least affordable cities -- up from 15th last year -- this region's brand of growth management can't be blamed as the culprit for high homes prices.

The third annual International Housing Affordability Survey is the work of Demographia, a U.S.-based market research company that regularly reviews housing markets in six major industrialized countries. There is probably some validity to the study that compares median house prices to median incomes, highlighting the fact that a median average home in Greater Vancouver priced at $448,800 requires an income 7.7 times greater than the median Vancouver income.

But there is little validity to Demographia's explanation why housing affordability is a crisis in some markets while others markets are still relatively affordable. Demographia points to smart growth policies and land use zoning as the "satisfactory explanation" that accounts for the differences in affordability between markets. This argument simply does not hold water because it ignores two realities.

It's not surprising that the study took aim at these policies. Demographia bills itself as "pro-choice with respect to urban development." Demographia's founder, American public policy professor Wendell Cox from St. Louis , declares that "people should have the freedom to live and work where and how they like" and he is well known for attacking smart growth initiatives, especially efforts to contain growth with urban growth boundaries.

The first problem with Demographia's conclusion that there is a strong link between more restrictive land use regulations and inflated housing markets is that their analysis of housing prices fails to account for the true costs associated with housing.

There is more to assessing the true cost of housing than simply looking at the selling prices of a home and the mortgage costs.

Research has shown that people who live in compact neighbourhoods where they can walk from their homes to stores, schools, recreation and public transportation have a much lower cost of living -- or more accurately cost of housing -- thanks to their lower transportation costs. In fact, some lenders in the U.S. are now recognizing housing that is "location efficient" and they are offering a type of mortgage that recognizes the savings available to people who live in location efficient communities.

They count these available savings as additional income for people buying homes in location efficient communities, approving a loan for those who might not otherwise qualify for a mortgage or allowing a borrower to secure a larger mortgage than would otherwise be available.

If there are discernable savings in the cost of shelter due to lower transportation costs associated with living in compact neighbourhoods the reverse is also true.

In many places where single-family homes are more affordable, in part because land costs in sprawling suburbs are cheaper than in first-ring compact suburban communities, the transportation costs are much higher.

Transportation costs rank second behind the direct costs of housing as the top household expenditures, topping 20 per cent in most homes today.

These costs must be added to the calculation when assessing housing costs to compare housing affordability. Demographia's study ignores these costs. Therefore, their conclusions attacking the smart growth principle that advocates compact communities within contained urban growth areas is simply faulty.

Restrictive land use policies do place artificial limits on land that can be developed. But in many jurisdictions, like Vancouver , these growth containment policies are accompanied by land use plans that concentrate and encourage growth, especially higher density growth, in strategic areas.

So the supply of developable land in the form "greenfields" might be limited, but zoning regulations that permit compact, dense in-fill growth relieves the impact of regulating the overall land supply in the region. Demographia's analysis ignores this relief valve when they talk about land rationing.

Despite the complaints of long-time residents used to living in large single-family homes on sprawling lots, the City of Vancouver and most of its suburban neighbours have begun to embrace density.

Most decision-makers understand that you can't reject sprawl and constrain density within existing urban centres without severely impacting housing affordability. There's still lots of room to grow in Vancouver's existing urban and suburban centres without sprawling up the Fraser Valley .

This kind of sensible approach to urban planning is preserving our quality of life in Greater Vancouver. It can't be pointed to as the culprit for high home prices.

Bob Ransford is a public affairs consultant with Counterpoint Communications Inc. He is a former real estate developer who specializes in urban land use issues

(prepared by Bob Ransford/ Vancouver Sun)