New Geography

Tag: Vancouver

  • Compactness and Canadians

    The May, 2016 New Geography feature, Are Compact Cities More Affordable? questioned whether the Vancouver region supplies evidence that Housing-Plus-Transportation (H+T) creates affordable living climates. Todd Litman responded with a critique; here’s a partial response to Todd Litman’s comments, which are rich in assertions and advice but poor on science. Our full response can be viewed in the attached pdf. The central issue of whether there is evidence that the Vancouver Region as a whole offers the advantage of H+T affordability to its residents is bypassed. Hence, there is no research news.

    Litman’s criticism centers on issues that undermine his thesis or on speculative data that would prove a point, if available, for example, bias in our data. Almost certainly, the data is “managed,” incomplete, erroneous and biased — but at the source: the Metro Vancouver report that advocates H+T affordability. A missed observation? The absence of figures on compactness makes it impossible to draw the sought-after correlation between affordability and density, the indispensable evidence for H+T. Yet the critique ventures to do exactly that.

    Attempts to “prove” an association rest entirely on incidental observations of certain sub-regional districts based on personal “knowledge” of them without including density numbers, and by dismissing some as outliers or “special cases,” an unproductive attempt at science.

    A track to demonstrate how alternative data could show that homeowners are not as well off as they seem leads to the unusual idea of limiting the sample to an improbable and undefinable set. Curiously, the source data is arbitrarily curtailed in a similar manner. Another missed observation?

    Litman has previously cited as evidence the subject correlation for US metro-regions produced by scholars, a clear, scientific result. The sub-regional level correlation remains an open research task; incidental observations cannot fill that gap. New research windows open in our full response, which can be viewed in the attached pdf. 

  • Seeking Community in Vancouver’s High Rise Ghost Towns

    The Province in Vancouver reports (in "15% of downtown Vancouver condos sit empty, turning areas into ghost towns: Study") that "much of the downtown core is starting to look like B.C.’s ghost towns — with apartments languishing empty, businesses closing down and residents not feeling the sense of community they bought into." The study, by University of British Columbia (UBC) planning professor Andy Yan, indicates that the problem is most pronounced outside the long-established high-rise district of the West End. He notes that in Coal Harbour, well located adjacent to the downtown area along Burrard Inlet, approximately 25% of the condominium units are unoccupied.

    UBC economics professor Tour Somerville suggests that the number may even be higher, at 65% vacant, including both unsold units and units that have been purchased but not occupied by their owners. Vancouver has had an unusual amount of investment from mainland China, especially as that nation has substantially limited the purchase of condominium units for investment purposes.

    Reporter Mike Reptis of The Province notes the difficulties for businesses in the area, indicating that "it’s a problem to local small business owners and residents — especially in Coal Harbour — who have bought into the neighbourhood expecting more of a community, and more business."

    A long time convenience store manager complained that “foot traffic has slowed" and "local people can’t afford (to live here)," concluding that "small grocery stores are closing up" and "A lot of small companies are closing up.”

  • Vancouver Olympic Villiage Scandal Gets Worse

    The Vancouver Olympic Village scandal continues to worsen.  During construction, the City of Vancouver was forced to take over financing of the project, as the developer’s initial lender backed out due to cost overruns.  At the end of last August, the developer fell behind its payment schedule, and the City placed the property into receivership in November.  The development has been a spectacular failure, with fewer than half of the 737 units being sold.  The outstanding debt to the city is $743 million.  To make things worse, a quarter of the tenants are now suing the City. 

    One might expect that a billion dollar development for Olympic athletes would be pretty posh.  Prices ranged from $530,900 for a 566 square foot studio, to $4.8 million for three bedroom units.  Even in unaffordable Vancouver, you’d expect that to come with a bedroom big enough to fit a bed.   According to tenants, they didn’t even get that.  What they did get was bizarre leaks, cracking ceilings, and inadequate heating.  The project sounds like something out of Arrested Development, or as the tenants’ legal counsel put it, “It’s like they were sold a BMW and they got a broken Toyota. And even if they manage to fix everything, it’s still a Toyota.”  The units are far from the luxury accommodations buyers were lead to believe they were getting.

    In short, the lawsuits seem perfectly legitimate, and are likely to cost the City another $50 million dollars.  It’s also hard to imagine this quagmire will help the value of the units on the market.  Even before the horrendous conditions of the condo units were made public, reports claimed that the development was worth $150-200 million less than what was owed to the city.  It is hard to imagine a scenario where the city isn’t stuck with hundreds of millions of dollars of losses. 

    Of course, none of this should come as a surprise.  Government housing projects generally fail.  And if governments can’t build adequate housing for the poor, it’s hard to imagine them building upscale housing at a price that the market will bear.  Hence the shoddy work.  The lesson here is a simple one, that history proves again and again: governments make bad landlords.

  • Vancouver Olympic Villiage Development Becoming a Burden to Taxpayers

    The former Olympic athlete’s village in Vancouver is in the news again, but this time no one is celebrating. The billion dollar plus development, originally built to house athletes then converted to a residential housing development, was primarily financed by a loan from the city of Vancouver. Millennium Development Corp., developer of the project, currently owes the city $731 million. Millennium was scheduled to pay back the first $200 million by August 31st, but came up $8 million short. They managed to find another $5 million by September 20th, but they are still $3 million short. On top of this, they have another $75 million due in January. The city is considering legal action against the developer.

    This isn’t the first we’ve heard about financial troubles with the project. The city actually took over the loan from Millennium’s initial lender due to cost overruns. The repayment schedule was considered feasible, given the strength of the Vancouver real estate market. Unfortunately for them, sales have been slow. While 223 units sold during the presale, only 36 units have moved since. This leaves more than half of the units. 454, lingering on the market. The city has actually been forced to take over the 252 units of social housing that were required to be built due to the city’s inclusionary zoning laws.

    Amidst this turmoil, the city is doing everything it can to ensure that the remaining units are neither sold off cheaply nor rented out, since this would reduce the long run selling price. Their solution is to wait for the market to rebound. Councilor Raymond Louie stated that “the benefit of being the city is that we are lasting and we can stay forever…it’s a paper loss for now, but we can wait for the market to recover.” Of course, if this were a wise decision, why are private brokers and developers not doing the same? The answer is simple: the assets are depreciating anyways, so they may as well cut their losses. The problem here seems to be that the sitting government is afraid that it will look bad for them if the sale of the units doesn’t cover the full loan amount. By telling the developer to sit on the assets, they can claim that the debt will be repaid when the market recovers (and they are happily retired from council).

    The British Columbia government reported that the cost of the Olympics to BC taxpayers was $925 million. The original estimate was $600 million. On top of this, the federal government kicked in $1 billion for security costs. That also doesn’t count the $700 million they spent on highway upgrades, $2 billion for a light rail extension, or $885 million for a convention center. Millennium’s financial troubles threaten to add to the losses incurred by taxpayers. Reports claim that the development is worth between $150-200 million less than what they owe the city. On top of that, at least 15 of the pre-sale buyers are trying to back out of their purchases. The bad news for taxpayers just keeps coming.

    While the city was forced to back the loan in order to live up to its Olympic commitments, there is a clear lesson here: cities should not be in the housing business. Even though they’ve managed to keep housing prices artificially high, they can’t break even on a housing development that was advertised to the whole world. Either the housing market will overheat again, and the project will become solvent, or the taxpayers will lose a couple hundred million dollars. Potential home owners in Vancouver can’t seem to win. The best thing the city can do at this point is admit failure, and allow Millennium to have a fire sale. It won’t do much about the cost of living in the city, but at least a few people will pick up bargains. Of course, politicians aren’t likely to cut their losses. Better to pass the buck to the next council.

  • Vancouver: Moving to the Suburbs

    A few weeks ago, The New York Times touted purported savings that a household would save by living in the core city of New York (in Brooklyn) instead of the suburbs (South Orange, New Jersey). The article downplayed the 1,000 fewer square feet the money bought in Brooklyn and did not consider the 40% higher cost of living.

    The Province in Vancouver has now followed with a near identical story, except that the urban household in will make do with even less space. The city of Vancouver household will live in 800 square feet, or 1,200 fewer square feet in the high rise condominium than in a suburban Coquitlam detached house used in the comparison. Like The Times, The Province is little concerned with the smaller size of the house and misses the fact that the cost of living is from 10% to 20% less in the suburbs and exurbs than it is in the city of Vancouver.

    Nonetheless, according to Tsur Somerville, director of the University of British Columbia UBC Centre for Urban Economics and Real Estate, who assisted in developing the figures for The Province, “If all they cared about were the dollars, they wanted to have $600,000 worth of real estate and then minimize their out-of-pocket costs, all else being considered, then being in the city is better,” A commenter appropriately notes the volatility of strata (condominium association) fees, which suggests that out-of-pocket costs could rise significantly.

    Canadians are not listening to “their betters” any more than Americans. US Census data indicates a continuing strong migration of people from the central cities and strong migration to the suburbs, despite heroic efforts on the part of the media and others to mask the reality.

    “Being in the city” may be preferable to some in the Vancouver area, however not to the majority of the age group (25 to 44 years) most likely to move is voting for the suburbs, according to a recent Statistics Canada report. According to the report:

    “… there continues to be a migration of many young adults and families from central municipalities to surrounding municipalities, while few move in the opposite direction.”

    For every one person who moved from the suburbs to the city of Vancouver between 2001 and 2006 (in the age group):

    • Among all in the age group, 1.8 people moved to the suburbs from the city for every person moving to city from the suburbs.
    • Among those in the age group with advanced degrees, 1.7 people moved to the suburbs for every person moving to the city.
    • Among those earning $100,000 to $150,000, 3.4 people moved to the suburbs for every person moving to the city. The ratio fell to 2.0 times for those making over $150,000.
    • More than 25% of the age group population who had their first children between 2001 and 2006 moved to the suburbs from the city, more than five times as many as moved to the city from the suburbs.

    A table in the Statistics Canada report shows people in “creative class” occupations moving in greater numbers to the suburbs than to the city.

    However, not everyone is moving in larger numbers to the suburbs.

    • More of the lowest income people are moving to the city than to the suburbs.
    • Artists have moved in greater numbers to the city than to the suburbs.
    • University professors and other university personnel have moved in greater numbers to the city than to the suburbs, perhaps explaining why so many in these groups misunderstand the direction of the migration.

    The Statistics Canada report provided a similar analysis for Canada’s two larger metropolitan areas, Toronto and Montreal. In Toronto, moves to the suburbs were 3.5 times moves to the city, while in Montreal 2.7 central city dwellers moved to the suburbs for every suburbanite moving to the city. This does not, however, necessarily indicate that the exodus to the suburbs is stronger in Toronto and Montreal. It is rather an indication of the fact that these two central cities represent a larger share of their metropolitan population than Vancouver. This means that more of the core out-migration is captured in Toronto and Montreal.

    So, the media continues the “drumbeat” and the people keep marching — in the opposite direction.

  • Rating the Unaffordable: The Economist and Mercer

    An article by Carl Bialik in The Wall Street Journal questions the value of city livability ratings, such as lists produced by The Economist and Mercer. This issue has been raised on this site by Owen McShane.

    (1) The Wall Street Journal notes a lack of transparency in ratings. In the case of The Economist and Mercer, this starts with the very definition of “city.” They don’t say. In the case of New York, for example, is the city Manhattan?, the city of New York or the New York metropolitan area. The difference? Manhattan has fewer than 2,000,000 residents, the city about 8,000,000 and the metropolitan area about 20,000,000. That makes a difference. The same problem exists, to differing degrees in the other “cities,” whatever they are.

    (2) The first principle of livability is affordability. If you cannot afford to live in a city it cannot, by definition, be affordable.

    The Economist ranks Vancouver, Melbourne, Sydney, Perth, Adelaide and Auckland among its top 10 livable cities. In fact, in our 6th Annual International Housing Affordability Survey, these metropolitan areas rank among the 25 least affordable out of 272 metropolitan areas in six nations (the United States, the United Kingdom, Canada, Australia, Ireland and New Zealand). The Economist’s champion, Vancouver, is most unaffordable, with Sydney second most unaffordable. Mercer’s top 10 list also includes Vancouver, Auckland and Sydney.

    By contrast, the three fastest growing metropolitan areas with more than 5,000,000 population in the developed world, (Atlanta, Dallas-Fort Worth and Houston) have housing that is one-half to one-third as expensive relative to incomes (using the Median Multiple: the median house price divided by the median household income) as all of the “cities” noted above in the two lists.

    Purpose of the Lists: The purpose of these lists, for all their difficulties, is often missed. The Economist and Mercer do not rate livability for average people, but rather for international executives. Thus, the lists are best understood as rating cities for people with a lot of money and a big expense account. The lists may be useful if one is contemplating a move from Manhattan’s Upper East Side to London’s Mayfair.

    Unfortunately, The Economist and Mercer lists are often treated by the press as if they rate the quality of life for average citizens, which they most surely do not.

    The average Vancouverite does not live on English Bay, nor does the average Sydneysider have a view of the Harbour Bridge. Because of escalating house prices, they are far more likely to live in rental units, with the hope of home ownership having made impossibly expensive by rationing, through restrictive land use policies, of an intensity that not even OPEC would dare adopt.

  • Unlivable Vancouver

    Just in time for the winter Olympics, The Economist has rated Vancouver as the world’s most livable city. The Economist rates cities (presumably metropolitan areas or urban areas) “over 30 qualitative and quantitative factors across five broad categories: stability, healthcare, culture and environment, education and infrastructure.” There is no doubt that Vancouver is in a setting that is among the most attractive in the world. It is also clear that the quality of life is good in Vancouver.

    Vancouver won another honor in the last month, that of most unaffordable housing market in the six nations surveyed by the Demographia International Housing Affordability Survey (United States, United Kingdom, Canada, Australia, Ireland and New Zealand). In Vancouver, housing costs 9.3 times annual gross household incomes and is rated severely unaffordable. This measure, the Median Multiple, would be 3.0 or less in a properly functioning urban market. The second most expensive major “city” in Canada was Toronto, far behind Vancouver, but still severely unaffordable at a Median Multiple of 5.2.

    Meanwhile, Pittsburgh, the ranked highest city in the United States (yes, higher than Portland, Seattle or San Diego) shows that affordability and livability are not incompatible. Pittsburgh has a Median Multiple of 2.6.

    Vancouver’s high ranking, however, makes it clear that the cost of housing (and by extension, the cost of living), has little to do with The Economist ratings. As Owen McShane wrote here to commemorate the last release of The Economist ratings, the cities are ranked based upon their attractiveness to expatriate executives. These are not ordinary Canadians. At historic credit underwriting standards, 85% of Canadians households could not qualify for a mortgage on the median priced house in Vancouver.

    Vancouver is doubtless among the most livable cities in the world for those for whom money is no object. But for ordinary Canadians, affordability is a prerequisite to livability. This makes Vancouver Canada’s least livable city.