Category: Policy

Inclusionary housing policies require that a certain portion (typically 5-15%) of units in new developments be affordably priced. This is a common tool for increasing affordable housing supply.

However, there are limits to the portion of affordable units that can be required without reducing the number of new units that can be built, and therefore future housing affordability. Don’t kill the golden goose!

The new Inclusionary Housing Calculator can help evaluate development costs and the impacts of various factors, including parking regulations and inclusionary housing policies would have on development profitability in a particular situation. This free tool incorporates various factors including land and construction costs, parking requirements and costs, and market conditions (e.g. strong or soft). The Calculator includes typical default values and can be adjusted by users to reflect a community’s specific circumstances.

This analysis can help policy makers and planners determine how cost burdens, such as inclusionary policies and parking requirements, affect project feasibility. In one example, the Calculator indicated that a large housing project in Chicago could be profitable if regulations required 16% of units to be affordable, but not if this was increased to 21% of units.

Requiring more affordable units than the market can bear tends to reduce the total number of new units built, particularly moderate-priced units. For example, if the cheapest housing units cost $200,000 to build, and regulations require that 10% be priced at $100,000, each of the nine non-qualifying units bears an additional $11,111 ($100,000/9) cost, or about $20,000 including overhead and financing expenses. This is a small increase for high-priced housing (2% for a million dollar unit) but a large increase for lower-priced housing (10% for a $200,000 unit). Since lower-priced tend to be least profitable, they are most likely to be eliminated. In this way, inclusionary zoning tends to reduce production of moderately-priced housing which would become affordable housing in the future.

There is no single best way to create an inclusionary housing policy; such policies should reflect specific local needs and conditions.

Inclusionary requirements are no substitute for development policy reforms that support affordable infill housing development, such as increased allowable densities and reduced parking requirements.

A July 9 Times Colonist article, “Victoria Seeks to Nurture its Aging Rental Housing Buildings” indicates that the city is commissioning a study concerning how best to address aging rental housing, in order to maintain affordability and protect renters’ interests. Council wants to increase energy efficiency, and therefore reduce climate change emissions, without replacing existing buildings. This overlooks other important factors to consider when deciding whether to retrofit or replace outdated building.

The study scope should include the following factors:

1. Building longevity (replacing aging and outdated materials and equipment).
2. Building energy efficiency.
3. Seismic security (reducing earthquake risks).
4. Hazardous material risks (reducing exposure to lead, asbestos, and mould, and improving indoor air quality).
5. Universal design (accommodating people with disabilities with wider doorways and lower knobs, ramps, elevators, lower countertops, new toilets, grab-bars, etc.).
6. More diverse and flexible units, including larger family-size units, and adjacent units that can be connected or separated depending on needs.
7. Improved design, including more shared space for socializing such as courtyards and common rooms, more daylighting, and better window orientation.
8. More efficient parking and transport management, including reduced parking supply, unbundling, bicycle parking, and carsharing, which reduces costs, reduces traffic impacts, and frees up land for greenspace or more units.
9. Rooftop gardens and solar panels.
10. More total units.

Considering just one or two of these objectives, retrofits may be cost effective, but considering them together, rebuilding is often more cost effective and beneficial overall. For example, by itself, replacing aging materials and equipment to increase longevity may cost less than constructing a new building; by itself, basic weatherization may cost less than constructing a new building; and by itself improving wheelchair access may cost less than constructing a new building, but such projects would only address a limited set of objectives. When all objectives are considered, replacement is often more cost effective and beneficial overall.

An important factor for long-term affordability is the opportunity that building replacement offers to increase density and total housing supply. The Beacon Arms Apartment is a good example: a current proposal would replace 34 existing units with 87 new units, a 2.5 increase. Of course, not every project can provide that much gain, but if the city allows building owners to increase densities and reduced parking requirements, large housing supply gains are possible. Even if they not initially affordable to low-income households the additional units will help drive down rents and contribute to future affordable housing stock.

We certainly understand why many people prefer incremental revitalization over replacement – it seems cheaper and less disruptive – but that is false economy. If building owners only address one or two objectives by replacing aging materials and basic weatherization, but ignore others, the resulting building will continue to be unsafe (earthquake risk), unhealthy (hazardous materials and poor air quality), inaccessible (lack of ramps), and poorly suited for many households. If the building owners address multiple objectives, there will generally be no savings, so rents will need to increase the same as with replacement, and we lose the opportunity to add more units and more efficiently manage parking and traffic. Major retrofits are nearly as disruptive as new building construction, and require similar tenant displacement. There is little reason for public policies to favor retrofits over replacement, particularly if new construction can increase total housing units.

For that reason, it is important that the city apply comprehensive analysis when evaluating policies that affect retrofit versus replacement of aging rental stock.

Like most products, buildings wear out over time, and at some point it is cheaper to replace than repair. This is often good news overall because it offers an opportunity to increase total housing supply, and therefore long-term housing affordability.

“We have seen the enemy, and he is us.” -Pogo

It is tempting to blame somebody else for the problems we cause, but that prevents us from making changes needed for real solutions. Such is the case with housing inaffordability.

Chris Douglas’ July 8 Times Colonist Comment, “Victoria City Council Lacks Urgency on Housing” argued that foreign investors are the primary cause of Victoria’s high housing prices, stating that “The Globe and Mail recently reported that foreign nationals are purchasing 23.8 per cent of Victoria’s housing.” This claim is based on an error that the newspaper subsequently corrected. The revised article includes this Editor’s Note: “An earlier version of this story incorrectly said that in Victoria, the number of purchases by foreign nationals increased from 16.5 per cent to 23.8 per cent after the imposition of a foreign buyers’ tax. In fact, the number of purchases by foreign nationals has remained fairly static, increasing slightly from 3.9 per cent before the tax to 4.7 per cent since.”

These numbers are small and include foreign workers and immigrants in the process of obtaining citizenship, indicating that speculative foreign investments are a very small portion of total housing purchases. For more detailed analysis see the recent Sightline Institute technical study, “Stop Blaming Foreign Home Buyers” which found that foreign buyers, empty units and short-term rentals only explain a small portion of housing price appreciation: the primary cause is the inability of markets in attractive cities to respond to growing demand.

Rather than point fingers at others it is time to ask, “Why is it so difficult to add housing in our region?” The main answer is vocal opposition to the infill development local markets demand.

Fortunately, a few thousand new units are under construction around Victoria’s city center, which should start to drive down prices in that market, but not all households want to live in downtown highrises; we are not building enough townhouses and mid-rise apartments in walkable neighborhoods. The project proposed at 1201 Fort Street, which Douglas opposes, is the type of development we need. It will provide 91 new housing units in a walkable area on major bus routes. Opponents complain that the new buildings will be taller than what currently exists, as if that’s a bad thing. It’s called “change,” and is exactly what our community needs to meet future housing demands.

Our current development policies are unsuited to serving new housing needs. They reflect the outdated assumption that middle-class households require single-family homes and apartments are undesirable, so neighborhoods should strive to banish multifamily housing. But housing preferences are changing: many middle-class households now want townhouses, condominiums and apartments located in walkable urban neighborhoods. Regulations must change if we are to meet these needs.

Infill opponents often assume that new housing is for somebody else, but many of them may eventually want to live in those buildings in order to remain in their neighborhoods when it is time to downsize from their single-family homes. Let’s build enough housing for our own future selves.