AKA why supporting intensive infill helps affordability and actually combats gentrification.
A couple months ago I wrote and article about 'why your old neighbourhood doesn't get nice new things like the suburbs do'. I argue that older neighbourhoods need to endorse YIMBY policies - endorsing significant and intensive redevelopment of infill sites is in the best interest of citizens. New development is what finances public upgrades and rebuilding of sidewalks, and tree lined streets, and things like that. I want to dive a little bit into how promoting new development in existing areas has other beneficial ramifications for society at large, not just making your own street nicer and getting older homes in disrepair into better shape. Infill intensification will have positive ramifications against gentrification and increasing housing affordability.
In the past I have also argued why intensive, mixed-use development is necessary if you want to see more local, healthy, community oriented small businesses in your area - the "anti-local" design of stripmalls. Finally, I have also made the pitch that we need urban, infill, development to help lower our taxes, and get better services, all at once.
The subject of this argument is that unless new development is highly encouraged - your old neighbourhood will become increasingly unaffordable, promoting gentrification and the pricing out of the area for some citizens, leaving low end properties crumbling - and when the change does finally come it will be huge and massive - destroying the character of the neighbourhood that NIMBYs are often trying to protect. We need new development, both to replace homes and properties that have deteriorated, as well as we need increases in housing supply, to meet demand and keep housing prices down.
I would argue that good neighbourhoods have a mix of densities including some larger buildings, like you can see in aerial photos of the North Shore. Larger buildings mixed in with others. When you have a strong mix, individual new developments can accommodate new demand as well as preserve neighbourhood character, by only making small changes at a fine grain. The problem is that currently, we get large, or get nothing at all. When it does finally come, in the current regulatory environment, its going to be at the expense of neighbourhood character, and its not going to be affordable. We call it gentrification, and its the only way our municipalities actually allow development to occur right now.
Existing homes with diversity of sizes, ages, styles (neighbouhood character)
The types of development we will get, if we wait for multiple properties to be brought together for single building redevelopments, removing all the mature trees, and replacing the diversity of buildings with single building types all at once (destroying neighbourhood character) and in infill applications, inherently unaffordable. Not saying these are bad buildings, but if neighbourhood character and affordability are important, you won't get that in these
Aerial photos highlighting that Infill areas, like the North Shore, already have mixes of townhomes, duplexes, single family homes, apartments, institutions, commercial uses - all mixed together.
Let us start first with understanding the "floor" in housing prices, the minimum viable price for new homes - both City Wide and in specific neighbourhoods.
Development is like making sandwiches in a restaurant. In a restaurant, you take the cost of ingredients, the cost of labour, and the a projected amount of volume to overcome your fixed overhead costs. Development is just the same, you take your land, your cost of building, an allowance for risk and a projected timeline to overcome the overhead costs - and you sell the units. In general both restaurant owner and property developer is pretty happy with 10% return on investment/profit. They both make widgets, its not like a software company you start on a shoestring and sell for millions when it gets cool, or like being the one pop-star that makes it while others starve. Developers earn their living by risking capital and building homes. To make a sandwich, a restaurant risks $13.50 to make $1.50 hundreds of times a day. Big Property Developers risk $40,000,000 to make $4,000,000 every couple years.
In understanding that, lets look a little closer as to the costs a developer incurs to build a new home. We can find some clues in Tax Assessments. To be clear, I completely acknowledge that few people ever look at a tax assessment all that critically - I am not saying that people make conscious decisions based on tax assessments, but the other way around, tax assessments show us indications of lots of unconscious decisions at work. There is two numbers that make up your tax assessment. One number is the Land Value - the other is "Improvement" Value - generally meaning the value of the building(s).
Essentially what the Improvement Value part of your tax assessment is getting at is, a hypothetical building in Kamloops of X age, of X size, generally sells for $110,000.
The Land Value adds that layer of "in this area". So a house of 30 years old, of 1200 Sq. Ft. with 2 bedrooms and one bathroom in Kamloops is worth $110,000 - and in McDonald Park, is worth $303,000. The Land Value is therefore $193,000. In your tax assessment it looks like this. This is an actual one from McDonald Park:
Banks, municipalities and others want to be able to make a nice little category for both a properties location as well as building. All homes that are X big, sell for X much. Simple. But what all stakeholders acknowledge is that you can't make housing a commodity, without finding a way to account for location. We all know, location, location, location. Because X home sells for different amounts in different areas. Not all locations are equal.
(I would refer you to "The Geography of Nowhere" by James Howard Kunstler for more on this.)
To see how this plays out in some real life examples, and how the land value impacts redevelopment, lets look at what happens when you tear down a house to build something new:
In the McDonald Park Neighbourhood - there is a street called Royal Avenue. Royal is fairly unique in the whole city. You have private land that is on the River, you are in an eddy so you can keep your boat in a private dock. You face south and get lovely sun. The land across the way is undevelopable - its steep cliffs and forested Rabbit Island. The southwest aspect makes for spectacular sunsets. You are also minutes walk from restaurants and commercial amenities - and minutes drive from anything Downtown or up the Hill. As central as can be. Yet the street is quiet, and the trees are big. Many of the homes along Royal have, after 70 or more years, are falling into disrepair, under developed, or in many cases, simply no long fashionable - or not old enough or of high enough caliber to renovate and return to fashion like you might in the West End.
But under the house, the land is worth alot. It is a unique good. It is impossible to create new lots, in the centre of the city, on a river eddy, with an unobstructed south west view. And as the the number of lots in the city grows, the percentage of lots on Royal as a part of the whole, become more and more rare and more and more people in the City might like to live there.
What does this mean?
It is typical for Tax Assessments of old properties on Royal to have Land Values equal to, and often much greater than, the Value of the Improvement Value. Here is an actual Tax Assessment from Royal Ave:
On Royal, it is common to see these lots being purchased, torn down and then being turned into luxury homes. The investment is good, and because they are building single family homes, the regulation is light - but new affordable homes, this redevelopment does not create.
In a general case, the person has bought the lot for $500k, built a $500k house, and the resulting house is worth $1m+ and the buyer spent about that much. The property is viable and financeable. The property you arrive at is comparable to other homes all over the City in the same or higher price points.
While a $1m home in Juniper might be on a larger lot with a grand view, it is far from amenities, and certainly your boat isn't out the back door. So for myraid reasons you see many people choosing to buy and build luxury homes on Royal. A couple examples:
So in infill locations like Royal, generally places in which land values outweigh the improvement values, and are desirable locations for affluent purchasers - it makes sense as both investments and desirable places to build a home, to buy an old property and spend either a ton of money fixing up a quality character home, or knocking down and building a new home. A healthy neighbourhood should have Improvement Values which exceed Land Values.
But that does not happen in most infill areas, and not just in Kamloops either. In almost all central neighbourhoods in almost all cities in North America, you see places like McDonald Park, the East End, John Tod (with Valleyview and Lower Sahali probably a decade behind) where Land Value/Land Cost is the primary driver of the huge increase in housing prices - but the lots have not become vogue for million dollar homes. How else could these homes at the end of their lives redevelop, perhaps into something more affordable?
Tearing down a house to redevelop it, only makes sense when the land value is dramatically more than the value of the home on top. If you have a $250,000 house on a $100,000 lot - it will never make sense to buy that property for $350,000 (paying $350,000 for a $100,000 lot) and tearing it down, to put another $250,000 house on it. The resulting property is still worth $350,000, only you spent $600,000 for it. In summary, the business case for redevelopment is as follows:
Land Cost
+
Improvement Cost (Relative Demand and Supply for Old Homes, Construction Cost + Profit for new ones)
=
Price of the Home
In the rest of MacDonald Park buying a $500,000 lot, and building a $1,000,000 house is never going to sell. All the other things that make Royal worth the investment, private water access, views, etc - do not exist in the rest of the neighbourhood. How can you then buy an underdeveloped, end-of-life property and afford to redevelop it viably. The answer to that is to split the land cost between multiple homes. In McDonald Park, you are not allowed to build 6/8/10 plexes (even though lots of them exist from pre-zoning days), but you can build a duplex. Lets look at how that bank rolls:
What we are looking at here, is actually a fantastic little business for a family owned home builder. Net take home of just over $100,000. A years worth of work. The only challenge is that half duplexes on the North Shore for $570,900 is not affordable housing. To purchase your mortgage payment is $2485.62, not including taxes, upkeep, ongoing maintenance, insurance, etc.
To turn this into a rental as an investment, putting aside 10% for overhead, and 10% for profit on your investment, you need to charge $3000+ in order to make anything. And this, like the luxury homes on Royal are getting built in this infill situations, and the math lines up quite nicely:
As far as neighbourhood character goes, these types of buildings do generally fit in quite nicely. They are not terribly out of scale, and are part of a neighbourhood filled with eclectic style already. Pictures of these listing in real life:
I say it again though, this is not affordable housing. So how can we arrive at affordable housing? Well adding more units. Currently, more units as far as City Zoning goes, means only one thing. Large apartments. There is another way - 6/8/10 plexes. Which can take a variety of forms, Triplexes, each with basement suites, combined with carriage homes on the alley. All under the 15m high limit that single family homes also enjoy. These types of homes though are illegal to build. An example of one on Chesnut that was denied by the City:
This building would have been 12 units, and under the 15m height limit. The proposal here was 12, market rate 2 bedroom units. The building also backs on to two other buildings, that are in a different zone, but much larger. There is no elevator and no amenity space. These units are for people who need a place to live, at an affordable price, in a neighbourhood close to amenities and transit. The developer could have built all kinds of mixes of units, and a matrix of what that could look like is below:
So in this case, the developer would have been able to bring to market, 2 bedroom units for small families or couples, at the very affordable $209,666.67 cost. This is less than 1 bedrooms are selling for elsewhere in the City. A common complaint is that, this developer likely will not sell these for ~$250,000 when two bedroom apartments in other buildings are going for $400,000+
The problem with that line of thinking is three-fold. First of all, this two-bed on Tranquille is in a building with an elevator, and is larger, and higher, with a much improved view. The property on Chesnut would have no view, and no elevator. This is also the 'Penthouse'. They are not comparable properties.
Second, we need homes, lots of homes, and as soon as possible.
The third, is what if the developer of this Chesnut property can actually get $400,000+ and pocket all that extra money? If that is the case, hundreds of us should be rushing into property development. If we can provide homes for people who need them, and make 35% returns or more, shouldn't we be investing in that straight away instead of keeping our money in RRSPs which invest in factory farms and pipelines at a 7% return?
The problem is that you can't. Because of Parking Requirements, Lot Coverages, Landscape Bonds, Floor Area Ratios, Unit Limitations, Amenity Contributions, and the upfront, non-financeable cash costs of the Development Permit and Rezone/Variance applications and processes with the City means that you need to be able to buy, and hold, many properties for many years, and hire lots of Lawyers, Architects and Consultants, and pay them with cash you cannot finance, to goto City Hall and eventually be told NO, you cannot build, as the developer of this 12-plex learned. The costs of this failure get bundled into the costs of the homes, and the price just keeps on going up to recover the costs.
Even in big buildings, for big developers, in places like Tranquille, on big lots, overcoming the Land Cost, and what you are allowed to do with it can be nearly impossible to overcome. This matrix is for a Development at 501 Tranquille which has been in permitting for nearly 3 years, and has been recommended against by City of Kamloops Planning Staff:
In fast growing, low inventory economies like British Columbia, the demand is perpetually high, and the supply is perpetually low. So old housing costs alot, as a function of many people competing for limited land, driving up the Land Value specifically.
In any situation where new housing inventory is able to keep up with demand - new housing is always coming on the market, making most older housing less desirable, lowering folks willingness to pay for it, and making dated housing the affordable housing of the City. In Vancouver and Kamloops now, this is not the case, as supply has been so restricted, that the cost of the land rather than the quality/age of the structure is what drives the price of housing rather than cost of construction.
As we have no ability to inch up density as land values in specific areas grows, we end up where we are now, that even with large apartments, with current zoning requirements - it is nearly impossible for developers to deliver homes at an affordable rate. Conversely, if we look at those aerial photos of North Kamloops again:
You can see that before the mid 1980s, when development responded to changing markets, many homes from the originals in the 1910s-1930s were replaced with larger more luxurious homes in some places, duplexes, four plexes and row housing in others, walkup apartments in others still. In the 1950s-1970s census data shows that most homes in this area commonly housed more than 5 people. Some homes were replaced with businesses like daycares, in order to service their little, densifying area - increasing the amenities of the area and contributing to neighbourhood growth.
Today many homes only house one or two. Our neighbourhood has already dropped in density. What was built before the 1980s and restrictive zoning was continual investment and renewal. You had a mix of all kinds of buildings and they responded to the demographics and affordability requirements of the area. While walk-up apartments on Marcel were built with little to no parking and had no problem renting, walkup apartments on Arrowstone in Sahali of the same time period built seas of parking to respond to that areas affordability and demographics of the time.
What we are left with now is a neighbourhood full of lots that can only be redeveloped into Luxury Homes on the river, and duplexes that existing residents could never afford. Even then, the lineup of folks wanting to pay $600,000+ for half duplexes on the North Shore might not be very long, and so the business case of redevelopment remains hairy at best. We have lots like this one on Rose, that with current parking, setback and coverage limitations cannot be turned into viable projects, and instead remain homeless while so many cannot find affordable homes.
This is why people struggle to invest in infill areas. The only people who can are people with large pocket books and political goodwill - who can buy dozens of properties and wait. Wait for the value of their land to jump up, or wait until regulations can be overcome, and redevelop whole blocks like is happening downtown. In the meantime, housing gets more expensive.
We need to change this paradigm to start regulating the things we do care about, and stop regulating the things that make investment other than government housing nearly impossible. Knowing what we know now, it should not be a surprise that most of the projects proceedings on the North Shore are government backed.
We should be encouraging developers to keep existing mature trees, and ensure traffic calming is in place on residential streets, thereby preserving the neighbourhood character we moved here for. We need to stop regulating that only 2 units can be built on a single lot. For example, if instead of a 3000 Sq. Ft. duplex with each side selling for $650,000 - with only modest lot coverage increases, you built a 3900 Sq. Ft. 6-plex instead, you could be providing 4 extra homes (200% more) with their own front doors, for only $331,000. This would be a similar scale and size of building to the duplex or single family home, preserving neighbourhood character. It would be a similarly sized building and complexity that the small family homebuilder could bring home a middle class yearly income with one project per year.
A final note - housing affordability in infill neighbourhoods is about affordability beyond just housing costs. Infill areas allow many to live with less cars, or even without a car - as not every trip requires driving. Access to transit means access to employment for the lowest rungs on the Socio-economic ladder is best fulfilled in infill areas. The affordability of housing on the fringe is often quickly over compensated for by expensive transportation costs.
To illustrate how up to 12 units can fit into an existing neighbourhood, check out some of these examples. Interestingly, at least to me, most of these infill projects are on the prairies, where they do not struggle with the housing affordability problem to nearly the degree that we do here:
Still to come in the series - some of the particulars of the zoning changes proposed are below. How those play out in real world examples will be Part 3. Discussing how limiting apartment development is also driving up the cost of Single Family homes will be the subject of Part 4. In the meantime, some of my recommendations below:
-Remove limitations around unit density.
- A 4400SF building, currently allowed for example in most of the cities Core Zones, could be a Single Family Home, a Duplex, Duplex with Suites, Duplex with Suites with Carriage Home/Homes, a small apartment building of 8 studios for young people, seniors, singles, those less affluent.
-Remove Parking Minimums
-Importantly, it is unlikely that most buildings will build no parking what-so-ever. But parking is left to the market to decide who wants how much and how much their are able to pay. Parking works like Unit Density restrictions. For example, on a North Shore lot that is 100' by 100' - you can fit roughly 8 parking stalls along the lane. But by current code, you would need 3-4 stalls per unit depending on how the calculation is done. You would not be allowed to build 6 units, or 8, or 12 for that matter, some with parking, some without. Also parking is extremely expensive to build, just refer to that Tranquille road example aboue.
-Create incremental up-zones
-As you allow higher densities in an area, over time, also allow larger buildings, but only in keeping with what is already there. If you are allowed to build 4400SF up to 15m (which is the average for most MacDonald Park lots) now - increase that to 6200SF up to 18m once half the block has redeveloped. In this way, the natural renewal and reinvestment continues to happen as the 4400SF buildings too will start to push against affordability in time.
-Remove Sideyard Setbacks.
-The equilibrium Value Density that we were talking about before, will look different on different streets. Some will be row housing, some will be grander duplexs, or side by side triplexes with carriage homes, some will be low or mid-rise apartments.
But in all cases, sideyard set backs give up between 12-25' of a building lot to "nothing space" in between the buildings that grants utility to almost no one. People do no hang out in the sunless passage between their house and the fence. They don't put windows on those walls. This "landscape bandaid" does not reduce the urban heat island effect, or provide a reduction on the capacity restraints of the storm water system. It is just wasted space. Some people want it, which is no problem, but amid a housing crises, don't force everyone to have it.
-Relax or Remove Front Yard Setbacks
-Same reasoning as Sideyard Setbacks. In residential areas I can acknowledge that some amount of front yard landscaping and/or porches is both wonderful and aesthetic, and many folks find pride and activity in cultivating their yards. However I would argue that Front Yards as necessity is also a response to the impoverished state of the public amenity which is our common public street. Streets in our City are views are automobile transportation corridors and their sizing, dimensions, landscaping and capacity are calculated with similar calculations as sewer pipes. The concept of our public streets being public spaces is neither acknowledged our nurtured in our City. Our cities best public street, Victoria, does not hardly have a bench on which to sit - so it is quite clear that Victoria is a place of commerce. Despite most parking being removed during Covid for patios - and despite incredibly successful car-free days, our culture seems to still regard our Streets as only transportation (cars) corridors. Change the Front Yard Setback rules in tandem with meaningful investments in our streets and changes to the Transportation Design Criteria Manual.
-Overhaul the Transportation Criteria Manual
-Despite decades of Transportation Master Plans and Official Community Plans, on which hundreds of thousands of hours which dedicate the majority of their hundreds of pages to non-car transportation - the documents which actually designs our streets is entirely focused on car speed, car capacity and all else is secondary. When a street is not wide enough for a bike lane, or a sidewalk, the default should not always be to ditch the sidewalk or bike lane, but in many circumstances, especially in Core Residential and Mixed-Use areas, should perhaps be to adjust what the driving lanes look like. Examples in the follow up.
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