garry sangha

The Cities We Want

Transit oriented development is a great idea.

Recently, the provincial government of British Columbia laid out ambitious and welcome plans to combat the crushing housing crisis that Metro Vancouver has been facing. By orienting future high-density developments to public transit, the government in my opinion has taken the right decision, albeit one that comes a few years too late. Still, better late than never, right! As someone who is in the business of building houses, I am frankly excited about the future.

The other aspect that needs to be discussed in this context is of course the expansion of public transit itself. Transit oriented development is great, but transit facilities must be established first and expanded if we want such developments to succeed. Transit is crucial after all. We understand that at Allure Ventures, and hence our current and future developments, are all around major and existing transit corridors and hubs in Surrey. Given the profile of the majority of our buyers, almost all of them would have the capacity to purchase and maintain a car. However, the question that we asked ourselves while planning these developments was, would everyone want to?  The world around us is changing, so are preferences and lifestyles. As people who are developing homes for the future, it is hence critical that we understand what that future might look like.

So, given that we have established that transit is critical, and especially so in the future, and the fact that current and most future governments will operate and plan on the ideology behind transit-oriented development in Canada, it is important to discuss costs, or more precisely, the funding that is essential to cover the costs of building future transit.

The balance: Transit is a net debit, housing a net credit.

In very generalized terms, investment into critical infrastructure like transit and roads is a net debit, meaning you will bleed money. It is the single biggest reason why governments across the world are wary about new infrastructure, critical though it may be. While it is the duty of every government to invest in new and existing infrastructure, it is also their responsibility to be fiscally disciplined and ensure solvency of the system. Any infrastructural development will always start from a net negative in terms of finances, and the money invested is then supposed to be realized from the end user over a period. However, that might not always be possible, and thus you see public transit almost always in need of government subsidies. To counter that, many transit models have provision to earn from land usage, advertisements etc. For instance, in Japan and Hongkong, where public transit systems are highly developed, public transit authorities or companies either own, or have rights to the revenue generated from transit adjacent real estate, which then help these entities stay in the “green”.

The same is not true for a place like Canada. However, given the fact that property taxes play a big role in funding infrastructure built by local (read municipal) governments, it stands to reason that the more the houses, the more financially secure the local governments are, meaning more money for transit and other local infrastructure. So, in very broad terms, housing is ultimately a net credit. This ties in nicely with the government’s goal of building new houses, especially near transit then, doesn’t it?

Not so fast!

The risk of double spending

There has been considerable momentum in the demand for not just housing, but a very specific type of housing, namely below market rentals. While the demand is understandable and a commitment to the cause commendable given the desperate situation, it is, in my humble opinion, the wrong solution, one that is bound to compound the problem further. How, you ask?

Well, for starters, below market rentals will severely curtail the potential that any development has. So leading developers might not find enough motivation to come forward and create quality housing. Secondly, it will require governments to step in and spend public money on something that they should not be spending anything at all. Else, the concept of housing being a net credit goes away. Moreover, housing does not become cheaper this way, as previous fallouts from rent control regimes in Canada have shown. There are multiple scholarly articles in reputable publications like Forbes on this which I encourage you to read. However, it disincentivizes home ownership creating artificial deflation in demand, which will then, over a period, lead to less homes being built. So, the aim of building more housing falls flat.

What should the government do?

Short answer? Trust the power of the free market. I can feel the several objections that have started forming in your mind. Before they form completely let me also add – provided the municipal governments make building more houses simpler and more attractive for a developer. So, what do I mean by that? One can argue that has the recent announcement by the BC government that it will allow up to six units on hitherto single-family zoned plots not shown an intention to do just that?

Short answer, yes. But, while the intentions shown by the David Ebby government in Victoria are quite laudable, they end up putting the onus of constructing new housing on individuals. While one can already see several re-zoning application notifications in front of houses all over metro Vancouver, those, if built, are going to be nowhere near enough to meet the housing demand. And it is a given that while many might opt to tear down their single-family homes and turn them into midrise apartment buildings, many might not.

So, to tide over this issue, the government must re-zone existing, single family zoned lands all over the urban centers of Canada to allow big, high-rise developments. Once it does that, the potential value of land increases manifold and the current owners/tenants can be given a better deal by developers who will then be interested in re-developing these plots to create truly world-class, high-density developments, exactly the kind Canadian metropolitan regions need, to solve the housing crisis without needing to impact more green spaces for new housing. Afterall, dense and compact are adjectives that define the best of cities. It will also mean that the government need not worry too much about expanding the transit and services network and can look to improve the capacity of the existing structure, something that will be more cost effective and welcome. With higher density, revenue generation from property taxes will also improve many times over, due to appreciation of land value and increase in the number of taxpayers.

Conclusion: Greater utilization of residential land means more financially secure cities

I think this bit has become apparent to the reader right now. We talk about maximizing profits when talking business. Shouldn’t the same rule of thumb be applied to existing land? Allowing developers to deal directly with the current residents of a place also allows the government to stay away from any potential friction that might be caused. Yes, there will be some friction, because we are talking about making radical changes to existing localities and changing the character of old neighbourhoods. And like gentrification of neighbourhoods in the past has attracted resistance, so will densification, albeit of a very different kind. Were the government to get involved, it will inevitably slow the process down and put it in an unenviable spot in trying to find common ground between people who want to sell for redevelopment and those who want to retain. Private developers are much better equipped to deal with individual owners and understand their needs and concerns. They also need to concern themselves with political fallout. This has been tried in the past, and well-intentioned moves like these have been welcomed by a majority of the residents in an area.

Of course, there must be a few safeguards put in place, especially regarding development of indigenous lands, redevelopment of historical districts, and developing an ecologically sensitive zone. But by and large, the “freedom to build”, will make Canadian cities more affordable, equitable, vibrant, and financially secure. And isn’t that what we all want!