Restrictive Zoning Must Go

To create far more nonmarket 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 nonmarket 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 nonmarket 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 multifamily housing is allowed (through a discretionary rezoning process), developers of new housing — nonmarket 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 multifamily 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 multifamily housing creation in the places that need it most.

For nonprofits trying to build affordable housing, going through the rezoning process itself can be very costly. Higher costs for nonmarket housing translate into higher rents, hurting housing affordability. In a city like Vancouver, nonprofit housing developers estimate that a rezoning process can easily cost them CA$500,000 to $1 million, including required predevelopment 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 pr-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.

If the rezoning process results in changes to the initial project proposal (e.g., to appease opponents), costs are driven up further as predevelopment work needs to be redone. A rezoning might also be conditioned on scaling down the project to appease neighbor concerns about building height and shadows, meaning fewer nonmarket 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 predevelopment expenditures are simply lost, which is devastating for a nonprofit to absorb. Of course, this is a situation that nonmarket 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 nonmarket homes are built or even proposed, needlessly exacerbating the housing crisis and effectively blocking homes where they’re most needed.

Upzoning for Housing Density

With a stroke of a pen, policymakers could dramatically reduce these costs, delays, and uncertainty related to rezoning for nonmarket housing projects. The province could change municipal zoning to allow development of public or nonprofit 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 nonmarket housing with at least double the prevailing densities in a given area, public and nonprofit 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 nonmarket 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 eight to ten thousand 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 nonmarket 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

Another way to help get nonmarket 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 nonmarket 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 nonmarket 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., fifty basis points) to nonmarket housing projects.

But to achieve more affordable rents, nonmarket 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 nonmarket 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 centers.

Even without capital grant funding, under the right conditions nonmarket 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 nonprofit 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 nonmarket housing will depend on changing market conditions, including interest rates, land costs, and construction costs. By-right upzoning for nonmarket 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.

Public Sector–Driven Housing

Governments should also become more proactive builders of nonmarket housing through public developers. Many housing programs like BC Builds rely on a partnership model where nonprofit 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 nonmarket homes — e.g., twenty-five thousand per year as Canadian Centre for Policy Alternatives–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 nonprofit developers. That effort should be scaled up either by BC Housing or a new arm’s-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 nonmarket 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 nonprofit community housing sector should play complementary roles in ensuring we’re building as much nonmarket housing as we can — and as quickly as possible. Upzoning province-wide for nonmarket 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 twenty-five thousand new nonmarket 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 — nonmarket 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 nonmarket housing at double the base densities, public and nonprofit 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 nonmarket 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.