City of Victoria to Millennial Families: Go Live In A Shed

On Thursday night last week the Victoria city council approved the latest housing measure in their fight against millennial families - dashing their last hopes for housing affordability. The latest iteration is a policy that council is calling Garden Suites and the city has done a media blitz everywhere from the local newsradio stations to the local newspaper trying to sell Victoria on how great the policy is. On these issues our local media, whom make a considerable amount of the remaining revenue streams off advertising luxury housing, are little more than parrots and don't present more than one side of the argument. In-fact you can read the same sentence word for word across town on the subject, and to read the paper you'd think they solved the housing crisis overnight.

So what are "Garden Suites"? Garden Suites are small backyard buildings, built to an insanely high luxury standard and that are restricted to 400 sq ft and 25% of the rear yard site coverage. They take the place of a legal secondary suite in the home. If you build one of these sheds, you're restricted from also building a legal rental suite in the house. They cannot be strata titled and unlike a legal secondary suite, they do not require parking allocation.

So right now you're probably thinking this sounds like a no-brainer in a city like Victoria that is experiencing an acute housing shortage. This is the council's line, that any housing is good housing, but as I'll explain below, this policy is a disaster for millennial families and housing affordability.

Go Live In A Shed 

Social justice is a key concern in housing, a vibrant city will have a mix of property classes, price points and enough housing to allow for the market to function properly. It will allow new entrants and existing interests to fairly co-exist and thrive together.

To track this issue there are some key statistics:

First is the Demographia Median Multiple. Victoria ranks as the least affordable "smaller housing market" in Canada and is deemed "Severely Unaffordable". In 2016 Its Median Multiple was 8.1 and the median house price was $542,400 with the median income at $67,300.

The second is the rental vacancy rate. Victoria again ranks as one of the worst markets in the country, with a 0.5% vacancy rate. The CMHC universe tracks property for rent and how many rental units were added and created every year. Rent increased by 5.5% last year, but unevenly as existing rentals are capped by legislation at 3.5% annual increases. This means market rents are going up faster than 5.5% for new entrants or persons searching for a new rental unit. The Average rent is (as of Oct 2016) $1620 for a 3br unit in the City of Victoria, but this is not the new entrant rate which is now anecdotally pushing $1800-$2000+ if you review the classified ads. Worse, the City of Victoria actually lost 3br unit numbers in the CMHC universe going from 205 to 189 over the course of a year. You can read the stats for yourself here: https://www.cmhc-schl.gc.ca/odpub/esub/64471/64471_2016_A01.pdf?fr=1492612541621 

So why do I brand this policy as telling millennial families to "Go Live In A Shed"? Because if you're a Millennial for whom SFH homeownership is no longer a reasonable expectation, you're now facing a decaying situation for even finding a 3br rental in the region. They're simply being replaced by micro bachelor condos and luxury suites that usually have the preceding title of "junior" or "executive". These are not units in which one should be forced to raise a family, but they happen to make for great speculator investments and second homes for the wealthiest members of our city. Even one of our misguided city councillors decries how he would not be able to re-rent his same rental unit were he to lose the security of his tenancy like so many others do here every day.

A 400 sq ft shed or a 280 sq ft luxury microloft is simply not a reasonable class of housing to be expanding in the City of Victoria. We already have too much of this class of tiny-but-luxury housing, and are actually losing our family-supporting 3br+ units and affordable townhomes as a class of property.

The policy disaster that is Garden Suites

Convinced we have a problem, let us now turn to the solutions the City Council is enacting and how those policies are doing more harm than good.

The Garden Shed policy is, in my opinion, the most brutal affordable housing policy failure since they approved the development permit for the Janion. A lot of people, and certainly the city council, are pushing the idea that microhome policy will create new rental supply and help improve the housing crisis. It wont, and, its not designed to. 

At Thursday's meeting, between my watching my 7 month old son sleep while going off on twitter at the City Councillors and the low income seniors who rallied around a very articulate spokesperson speaking before council -- the councillors were very clearly and vocally warned that this policy would be a disaster for housing affordability by the people who actually need that affordability to live here. After that, 4 homeowners spoke in support of the plan saying how they intended to use their Garden Suites not for rental stock but rather for owner-occupied purposes ranging from a guest suite to a place to stash their priced-out adult children.

The councillors discussed housing agreements, requiring affordability measures and how the new policy will deny the community a voice in rezoning. They eventually settled on not requiring any housing agreements (which would prevent owner-occupied uses) and proceeded without a community consultation requirement. They also did not add a parking requirement. They did however remind that AirBnB'ing these sheds was not a permitted use, though assured the homeowners that they had no reasonable mechanism for enforcing that restriction.

The council's actions and the proponents' stated intentions all lead to only one conclusion -- that these Garden Suites will be not be used for rental stock. They will instead be primarily used to expand existing single family homes -- one proponent even declared how it would save them from tearing down an old home and replacing it with a larger house with a legal secondary suite or a possible upzoning to duplex. 

But lets assume for the moment that some get rented, the rare "mortgage helpers" if you will. These garden suites are priced by the market as luxury accommodations -- typically they're wealthy homeowners who don't live downtown but who would like a place to stay after a night on the town. They're the executive-class workers who instead of commuting back to their Duncan acreages want to stay downtown Monday to Friday and see the kids on the weekend. Or they're rarely rented to the poor unfortunate middle class worker who tries to shove their family of 3 into a bachelor suite, because they have no where else to go and simply cant find another unit at all. In any event, they rent in the pricing range from 1800 to 2000 per month making them one of the most expensive classes of rental property in the entire city on a sq ft basis.

The market effect on SFH prices is even worse. Remember the Median Multiple above? Well, due to the strata titling restriction, the Garden Sheds actually add value to a Single Family home and cannot be separately purchased or owned. Upon resale, they don't save anyone any money on the mortgage, as the market has learned to price-in any potential rental income, and the total price of the house increases by approximately the rental value of the suite on a market-will-bear-pricing basis. You're now a reluctant landlord and looking at more expensive SFH's. 

All this means that the median multiple is made worse when the sheds are built. They will be reported to BC Assessment and increase the value of the property for both tax purposes and resale. There is no free lunch here and housing is priced on a market-will-bear basis -- if the suite adds $2000 a month in rental income, that will be factored into the resale price of the home.

So if it will make the Median Multiple worse why is the City Council allowing it?

First, the homeowners, whom are increasingly becoming known as NIMBY's, love the policy. They can increase the value of their SFH well beyond the cost of building the sheds. Increased property values and a guest house for their visitors, you can even borrow against the equity rise to build them and expect to turn a profit. If you own a SFH in Victoria and aren't considering building one of these things, you must really love mowing your lawn. The established, already-in-the-market crowd gets a massive increase in property value at the expense of new-entrant millennial families. In-fact, just approving the policy will have already sent the value of all SFH's in the city up as they are now all "Garden Suite Zoned and 'shovel-ready'".

Second, it prevents density. The NIMBY's hate density and go on and on at length about how their quaint little town is being destroyed by development. (Never-mind that we're actually losing 3br homes, and that those Millennials who were born here -- like me -- are being priced out by foreign speculators buying up the limited supply of existing housing). The NIMBY's love garden suites as they achieve two primary objectives. They increase the property values and push back on more complicated zoning decisions which change the look and feel of their neighbourhoods.

The Garden Suites are the ideal NIMBY defence to the scourge of upzoning and redevelopment to medium-density townhomes and multi-family apartment buildings. If your goal is to keep 3br units out of this city, the Garden Shed plan is your policy panacea.  

The City Council is clearly working towards supporting these anti-redevelopment voices, but the results are a disaster for millennial families -- a worsening median multiple and a loss of available lands to upzone to multi-family-development. Worse, the increased property values from the sheds makes land assembly for MFD project-development more expensive resulting in more luxury-class projects and fewer market-affordable projects. Families end up forced into 400sq ft units that are not appropriate for raising children. 

It is the housing crisis equivalent of building bridges too low for transit buses to ensure only wealthy car owners are able to live in an area. It purposefully prices out everyone else and its not an accident or unintended. This is a policy choice and one for which council has firmly sided with the existing SFH homeowners. 

Worse still is that with the policy as it is, MFD redevelopment of SFH is actively discouraged. MFD projects need to make huge DCC, Amenity, Land-Lift, Bonus-Density, parking and rezoning restriction contributions which can reach millions of dollars and add 100,000+ to the cost of a new unit built in the City. The Garden Sheds have no such overheads and don't even have to pay their direct costs to city staff and planning time. This is grossly unfair to working millennial families who are expected to pay costs that millionaire SFH homeowners are not required to. 

So what is the solution?

The city needs to abandon this policy -- and it should be easy to do too. They need only watch the first few dozen suites created through the policy to see if they are a) being rented at all and b) if those rents are market-affordable as they claim to intend. When it becomes clear that neither are occurring, the policy should be repealed for the failure that it is.

Next, the City needs to begin a very complex and controversial process of council-initiated rezoning of the low-density zones in the City. With a housing crisis like ours, there is no excuse for having R1 zoning anywhere within the municipal boundaries of the City of Victoria. There is no excuse for having 600+ spot zones which require ludicrously expensive rezoning, and punitive taxes and requirements every time a project comes before council. This will be unpopular with a vocal minority of the population -- those homeowners who have become known as the "grey-haired elite" and who stand to benefit from the Garden Suites....  But nonetheless, it is the only solution to our crisis. We must improve the supply of market-affordable 3br+ homes, MFDs, if we want to maintain the social fabric of Victoria and support a family-compatable community.

We also need to take a long hard look at policies like the Urban Containment Boundary that is regularly used to deny clean water services to the JDF region; and we need to have a critical look at taxpayer-subsidy of luxury homes by council holding down zoning beyond what the market would otherwise allow for. Each lot that is under-zoned is a massive amount of tax dollars the city does not collect and effectively pays as a direct subsidy to the existing landowners. Its time to end this millionaire subsidy and let the market choose the appropriate neighbourhood density.

If I were in the Mayor's chair I could solve this housing crisis within a year simply by changing the policy framework. I would make land in the city much more valuable but reduce the cost per sq ft of housing. Will it push people from aging-in-place in their big SFH luxury homes? You bet. But it will put 10 or more working families in that same space and see the SFH owner leave with a golden parachute.

So to city council I say, stop fighting families, abandon the sheds-as-homes plan, and start taking this crisis seriously. We will fight back at election time.