Do community amenity contributions drive up housing costs? Vancouver’s former housing director says no

In her recent, provocative assessment of Vancouver’s homelessness and housing affordability crisis, Penny Gurstein, director of UBC’s Community and Regional Planning School, hits some hot button issues — like the persistence of vacant condos in new buildings — and proposes some solutions already in the city’s policy book.

The Housing First program has been strongly supported by Vancouver, the city is working on a community land trust and Mayor Gregor Robertson has been pushing hard to win more support for housing from senior governments.

But Gurstein’s suggestion that community amenity contributions, the extra payments made by developers when seeking additional density, may drive up housing costs, doesn’t wash with Cameron Gray, who directed the city’s housing program for many years.

Gray believes CACs do not drive up prices — the market sets the price — but can contribute to housing solutions.

Here’s his reply from a letter he sent to council on Monday, reprinted with his permission:

In her May 3 op-ed, “What Needs to be Done to End Homelessness”, Dr. Gurstein asserts that Community Amenity Contributions are “costs passed down by developers to home buyers”.

Back on March 14, Barbara Yaffe noted that “Many believe the developers simply pass along the costs of the amenity contributions to their residential buyers boosting housing costs.”   This is a fundamental mistake in economics: prices are determined by supply and demand, not by costs.

As the province’s recently published “Guide to CACs” notes, the only way that CACs can reduce affordability is by restricting the supply of development sites, thereby reducing the supply of new housing.  The impact of CACs on affordability, if any, is indirect.  To put it another way, eliminating CACs will not result in developers lowering housing prices; the most likely result would be increases in land prices, which are already high in Vancouver.

It is unfortunate that the “Guide to CACs” does not explore this issue further because CACs can, and in Vancouver’s case I believe have, had a positive impact on the supply of new housing and as a result should have a positive impact on affordability over the long term.  CACs, whether flat rate or negotiated, only consume a portion of the increase in value generated by a rezoning; the increased costs are outweighed by the increased revenue to the developer.

This is why developers offer CACs and are willing to pay them.  Developers would prefer to get the rezonings they want without having to offer CACs, in other words to have their cake and eat it too, but they understand that a rezoning with CAC obligations is much better than a rezoning at lower densities or no rezoning at all.

CACs justify increased densities by providing the amenities required to serve the new population.  They generate support for increased densities in neighbourhoods – or at least reduce the opposition to rezonings – and the result is the rapid redevelopment obvious to any one looking around Vancouver.

All of this new supply is essential if Vancouver is ever to become affordable to moderate and middle income households.  Without CACs it is hard to imagine that Vancouver’s neighbourhoods would support the level of redevelopment underway, and it is hard to imagine what Vancouver would look like without the amenities that CACs have generated over the past couple of decades.

I hope council will continue to expect CACs and that developers will continue to offer them in return for rezonings that increase housing supply, and I hope council will not be tricked into thinking that CACs are costs that are simply passed on to home buyers resulting in a loss of affordability.

An objective analysis of Vancouver’s CAC policies will, I believe, show that CACs result in more housing supply than would have been achievable without them, and that they should have a positive impact on housing affordability over the long term.