Time to scale up: next steps for non-market housing in BC

BC has come to a strange moment in the housing crisis. After enacting a huge flurry of policy measures, the provincial government is head-and-shoulders above any other province in its action on housing policy. But the action still doesn’t match the scale of the crisis, which remains severe.   

In the last year alone, BC has taken new measures including launching the BC Builds program, creating the Rental Protection Fund, regulating short-term rentals like Airbnb, instituting a flipping tax, commissioning standardized designs for multiplexes, reforming development charges and pushing municipalities to ease restrictive zoning policies and move towards more proactive planning policies.

Despite all this, we’re still not meeting the demands of the crisis.

The Canada Mortgage and Housing Corporation estimates that BC needs to build 610,000 new homes (above current trends) by 2030 to alleviate the housing shortage and meet demand. On the non-market side, our assessment is that BC needs to be building at least 25,000 new non-market homes each year. 

As part of its ongoing efforts to tackle the crisis, BC needs to ramp up public and non-profit housing creation at a much larger scale. The provincial government can take three key steps to do this:

1. Remove the bottleneck of restrictive zoning.
2. Increase capital grants and loans. 
3. Take the initiative to develop more public sector-driven housing projects in addition to non-profit-led projects.

As my colleague Marc Lee has shown, while public investment in housing has expanded considerably in BC, the province has moved too slowly towards a housing creation target of 114,000 homes over ten years (which was too low to begin with). The recent announcement of funds for nearly 2000 more social housing units through the Community Housing Fund is positive but not enough. One hope had been that the long-awaited BC Builds program—a welcome effort to get non-market rental housing built for the broad middle class—might bridge the gap. But with a plan to build 8,000-10,000 homes over five years, it too falls short on meeting the huge backlog of need for non-market housing.

Remove the bottleneck of restrictive zoning 

To create far more non-market housing, we need to recognize the challenges these projects face in lengthy, costly and uncertain rezoning processes. The BC government should legislate zoning changes to allow non-market housing to be built by right—without discretionary site-by-site rezonings—at higher densities across the province. This could immediately help alleviate a real barrier and risk to non-market housing proposals.

The zoning status quo in our cities effectively blocks new apartment buildings on most of the residential land, which is reserved exclusively for low-density housing. In limited areas where multi-family housing is allowed (through a discretionary rezoning process), developers of new housing—non-market and market alike—have to compete for these scarce parcels, driving up land purchase prices. As a result, even well before a rezoning process, exclusionary zoning artificially increases land prices for the sites where multi-family housing is allowed (or expected to be allowed) by keeping them scarce. 

In a housing crisis and shortage, public policy should ensure that land where apartments are permitted is plentiful, not scarce and expensive. Yet typical zoning and land use policies are geared to do exactly the opposite, suppressing multi-family housing creation in the places that need it most.

For non-profits trying to build affordable housing, going through the rezoning process itself can be very costly. Higher costs for non-market housing translate into higher rents, hurting housing affordability. In a city like Vancouver, non-profit housing developers estimate that a rezoning process can easily cost them $500,000 to $1 million, including required pre-development expenditures on architects, engineers, geotechnical experts, arborists, transportation consultants and project management, as well as insurance, property taxes, various application fees to the city and land carrying costs. Each month or year of delay increases expenses as the various carrying costs continue to accrue.

These various pre-development costs also have to be financed—often through loans—long before there is any guarantee that a project will be built and generate income. This uncertainty and risk in the rezoning process means lenders are likely to charge higher interest rates, once again adding to costs.¹

If the rezoning process results in changes to the initial project proposal (e.g., to appease opponents), costs are driven up further as pre-development work needs to be re-done. A rezoning might also be conditioned on scaling down the project to appease neighbour concerns about building height and shadows, meaning fewer non-market homes are built and rental revenue for the project is reduced. 

In cases where a project is rendered economically unviable or the rezoning is rejected, the pre-development expenditures are simply lost, which is devastating for a non-profit to absorb. Of course, this is a situation that non-market developers try hard to avoid, meaning that projects may not be brought forward at all if proponents anticipate significant risk of opposition. Projects that could have included more homes may be downsized before they are even proposed in order to avoid opposition. 

This is a hidden social cost of exclusionary zoning: fewer non-market homes are built or even proposed, needlessly exacerbating the housing crisis and effectively blocking homes where they’re most needed.

Upzone for non-market housing province-wide: double the density (or more)

With a stroke of a pen, policymakers could dramatically reduce these costs, delays and uncertainty related to rezoning for non-market housing projects. The province could change municipal zoning to allow development of public or non-profit apartments by right everywhere in BC that an expensive single-family home can be built. The allowable density could be set at six stories or double the densities already permitted in a given area (whichever is higher). Allowing sufficient density is critical for ensuring that projects are economically viable and for expanding the stock of this housing at scale. By allowing non-market housing with at least double the prevailing densities in a given area, public and non-profit providers will be in a stronger position to acquire land when competing with private developers.

The BC Builds program tries to ease municipal roadblocks to non-market housing, but it does so on an ad-hoc basis and only for projects that fall under this program. BC Builds aims to “move projects from concept to construction within 12 to 18 months,” fast-tracking them by “streamlining municipal development processes and by working… to remove barriers.” This is a good step, but a more scalable approach is needed since the program is only expected to create 8,000 to 10,000 homes.

In recent legislation aimed at reforming municipal zoning and housing approvals processes, the province has recognized and begun to tackle roadblocks to badly needed new housing. Further zoning reform aimed at clearing the path specifically for non-market housing is a natural next step. Of course, cities could advance this agenda themselves, but their track record doesn’t inspire confidence.

Increase public financing and capital grants 

Another way to help get non-market and rental housing built is to ensure ready access to government-backed construction loan financing at low interest rates. Since these loans are repaid, they come at little or no net cost to the public sector and funds can be lent out repeatedly.

The federal and provincial governments have stepped into this space in a big way in recent years, providing low-interest loans for rental housing through the federal Apartment Construction Loan Program and the provincial HousingHub program. The latter included a $2 billion revolving fund of loan financing, which is now rolled into the new BC Builds program. 

Amid the housing crisis, governments can and should ensure that lack of access to loan financing is never a barrier to non-market and rental housing proposals. Indeed, the federal government recently expanded the total funding envelope for the Apartment Construction Loan Program from $25 billion to $55 billion. This federal loan program should also be amended to give non-market housing projects first priority and expedited approvals relative to market-rate projects. Another option would be to consider providing an additional interest rate discount (e.g., 50 basis points) to non-market housing projects.

But to achieve more affordable rents, non-market housing needs to be assisted directly with tax-funded capital grants. The more deeply affordable rents we want, the larger the grant must be. This type of funding is provided by programs like BC’s Community Housing Fund and the federal Affordable Housing Fund, though at a scale that remains far too small (with demand for funding greatly outstripping supply). The obvious way to raise more revenue for social housing capital grants would be to increase taxes on wealthy landowners. After all, residential property values in British Columbia have increased by an extraordinary $1.7 trillion in less than two decades—a huge source of wealth inequality.

Contributions of existing public lands can also help lower project costs and rents for non-market housing, though this should be understood as its own form of public subsidy. Public land is a valuable resource and it’s needed for a range of other public goods like schools, parks and child care centres.

Even without capital grant funding, under the right conditions non-market housing can be built on a break-even basis; that is, where ongoing rental income covers the repayments on up-front capital loans. In this model, homes are initially rented at or slightly below market rates, but since they are in public or non-profit ownership, rents remain at cost-recovery levels even if market rents are rising faster than costs. The viability and rent levels for this type of non-market housing will depend on changing market conditions, including interest rates, land costs and construction costs. By-right upzoning for non-market housing can improve the viability of this model by making more developable land available at lower prices per unit. Providing plentiful access to low-interest loans can also help reduce costs. 

Take the initiative with public sector-driven housing

Governments should also become more proactive builders of non-market housing through public developers. Many housing programs like BC Builds rely on a partnership model where non-profit developers and landowners must take the initiative and apply to the program. That’s an important approach in its own right (and these programs should be expanded and made as seamless as possible). But they should be complemented by a more concerted effort by public-sector housing agencies to initiate the development, financing and completion of their own housing projects on a large scale. If the BC government were to set a truly ambitious goal for creating non-market homes—e.g., 25,000 per year as CCPA-BC has called for—it would need to build up its internal capacity to take the initiative in this way.

Agencies like BC Housing already develop their own social housing projects in addition to partnering with non-profit developers. That effort should be scaled up either by BC Housing or a new arms-length public agency. For public housing projects designed on the break-even model mentioned above, the required capital borrowing could be booked as “self-supported debt,” meaning it wouldn’t put pressure on government finances and taxes since repayments are covered by the rental income generated (see my previous analysis for more on this model). This self-supported debt model is not typically used in BC but if adopted it would be highly scalable in fiscal terms, allowing the government to invest in a massive increase in public housing (albeit still at relatively high break-even rents). For more affordable rents, capital grants would still need to be layered in through a separate funding stream.

We need more housing, period

Governments should act to ensure there are a much larger number of non-market projects being initiated and completed for the foreseeable future. The backlog of housing need in this province is enormous with waitlists for social housing growing rapidly and contributing to rising homelessness.

The public sector and the non-profit community housing sector should play complementary roles in ensuring we’re building as much non-market housing as we can—and as quickly as possible. Upzoning province-wide for non-market housing, increasing loan financing and capital grants and enabling public sector developers to initiate more homebuilding directly can help make this happen.

Moreover, even our recommended target of building at least 25,000 new non-market homes per year can’t meet BC’s housing needs on its own. A much larger increase in overall housing supply is also needed. The Canada Mortgage Housing Corporation estimates that BC needs to build 610,000 more homes by 2030 above current trends, consistent with the findings of independent analysts. The overall housing shortage must be addressed. Indeed, housing shortages hurt the most vulnerable people while adding new housing of all kinds helps reduce upward pressure on rents (or lowers them outright).

Addressing this broader housing shortage means, among other things, ending exclusionary zoning and the effective ban on rental apartments that continues in most areas of our cities. Recent provincial zoning reforms are a good first step (and indeed they lead the country), but they don’t go far enough. An important next step would be to allow low- and mid-rise apartments—non-market and private rental housing alike—by right on far more land zoned for single-family homes (including the wealthiest enclaves like Vancouver’s Shaughnessy and West Point Grey). This would allow more housing to be built and reduce displacement and exclusion. If combined with the proposal above to upzone for non-market housing at double the base densities, public and non-profit developers would always have a leg up. 

Tackling the housing crisis requires an all-of-the-above approach, including taxing land wealth, strengthening tenants’ rights and building renter power through organizing. But massive increases in non-market housing and the supply of homes overall are linchpins to a policy agenda capable of bringing the crisis to heel. BC has become a housing policy leader, but it’s time to take the next steps. Bold action is needed now to ensure people’s right to access safe, affordable homes for years to come.

Notes

1.  Specialized programs have emerged from lenders like Vancity to assist non-market projects at these early stages.

Topics: Housing & homelessness, Municipalities