50 Years After. Musings on what has changed since 1974
| When younger people see an old, bald, overweight man, it's often difficult for them to appreciate that he didn't always look that way. Yes, this is me when I arrived in 1974. I was 27. |
When the Vancouver Sun invited me to comment on what might happen to Vancouver’s housing markets in 2025, I could not help but think back fifty years to 1974 when I arrived in Vancouver to become Canada Mortgage and Housing Corporation’s assistant architect/planner for British Columbia.
My responsibilities included overseeing the initial planning for Granville Island and the city’s proposed redevelopment of the South Shore False Creek. I also participated in the design and loan approvals for thousands of non-profit rental and cooperative housing units funded by CMHC throughout British Columbia. These included developments by various community, faith-based, and ethnic groups.
| As Program Manager Social Housing, at the beginning of December, I phoned up non-profit sponsors to see if they had a project needing funding, since I still had funds to allocate! |
Inclusionary Zoning vs Non-Profit Housing
Today, non-profit housing continues. But municipalities increasingly look to the private sector to fund affordable housing through Inclusionary Zoning (IZ).
“If you include 20% affordable homes, we will let you build a much larger building.”
Unfortunately, while many projects have been approved or are going through the approval process, often with fervent neighbourhood opposition, many of these projects will not likely get built. Notwithstanding the higher densities which were intended to bring down land costs, provincial and municipal policies are not having the desired effect of bringing down land prices on a per sq.ft of buildable area. Furthermore, as a result of the combination of higher land costs, higher construction costs (in part due to higher energy requirements), higher lending interest rates, and excessive municipal fees and project approval delays are making many projects no longer financially feasible.
Rather than rely on the private sector to build highrise buildings at excessive densities which do not fit with their neighbourhood context, municipalities should promote smaller multi-family buildings and seek a return to the 1974 level of federal and provincial funding. We should also bring back programs like MURBs and AHOP.
When I arrived, CMHC was administering this affordable ownership program. I remember accompanying my boss to a meeting in Surrey since some homebuyers were upset their single-family home didn't have doors on the closets. I told them they shouldn't be complaining when they could buy a 1200 sq.ft. detached house for $47,000. Hopefully they remember this, since today those homes are worth 30 times what they paid!
How many homes can we build each year?
In 2023, the Trudeau government announced its new affordable housing plan which included the promise of 3,870,000 new homes by 2031. This equated to an average of 483,750 homes every year.
To put this in context 257,243 homes were built in 1974 across Canada. This is more than have been built in any year since.
According to CMHC, approximately 240,000 homes were started across Canada over the past 12 months. However, Vancouver starts were down 18% from 2023 due to increased construction costs, higher municipal fees, and higher interest rates.
Higher Interest rates?
In 1974, the prime rate reached 11% and a 5-year fixed mortgage was 12%. Seven years later, in August 1981, a 5-year fixed mortgage peaked at 21.75%.
1974 was also the year the NDP government introduced Rent Controls in BC. That year the annual rent increase was capped at 12%. Yes, 12%. The legislation linked rent to the unit.
In 2024, annual rent increases were limited to 3.5%. The 2025 limit is just 3%. Rents are no longer linked to the unit. Instead, they are linked to the tenant, and consequently, when a tenant moves out, rents usually increase to make up for inflation.
The Green Party and others are now proposing that rents be again linked to the unit, not the tenant. While this seems like a good idea for renters, it may not be since it would most certainly result in a significant decline in rental housing starts.
Unless two things happen.
The first is if allowable rent increases reflected increases in taxes, energy costs, and other maintenance and operating costs.
The second is if British Columbia follows Ontario and allows new construction to be exempt from rent controls all together. This has been its policy since 2018.
While the first idea will not happen in 2025, I would urge the provincial government to consider implementing the second idea.
In my 2023-year end article I wrote that as we approached 2024, many British Columbians, especially those facing mortgage renewals, would be worried about future interest rates, house prices and rental costs.
I reported that although most economists agreed interest rates were not likely to increase, there appeared to be little consensus on what else might happen. I expected new housing costs to increase, with a corresponding increase in existing housing prices, since a rising tide lifts all boats.
In fact, interest rates did come down. Home prices were little changed, although rents declined. This has been attributed to a combination of increased supply and decreased demand since many renters left the province or moved in with parents.
In 2025, three factors could impact home prices and rents.
These are whether the federal government achieves its reduced immigration targets; what happens to municipal fees; and whether Canada experiences a recession, or remains in a recession which former Bank of Canada governor Stephen Poloz believes we are already in.
Prices could also be impacted by Bills 44 and 47. Bill 44 allows multiplex homes on every single-family lot throughout the province in communities with a population greater than 5,000.
Bill 47, also known as the Transit-Oriented-Area Act allows much greater building heights and densities within 200 m, 400m, or 800 m of a transit station or bus loop.
Last year I wrote there was considerable uncertainty about the potential impacts of this legislation since if municipal engineers determined sewer and water infrastructure was inadequate without upgrades, projects would not proceed.
As we look to 2025, we need to consider two related questions. How should municipalities fund the cost of these services, and how might Bills 44 and 47 and other zoning changes impact property taxes?
Publicly funded infrastructure
Without new infrastructure being funded by government through taxes and local improvement charges, rather than by private developers and new homeowners and renters, I predict that we will not see the tens of thousands of new rental and condominium homes that so many are hoping will be built.