Palo Alto—a cautionary tale for Vancouver

Printer-friendly version
Appeared in the Vancouver Sun, September 2, 2016

Palo Alto, California, home to high-tech giants including Facebook and Tesla, made the news recently when planning commissioner Kate Downing resigned and announced her family’s plan to move to another city, due to her family’s inability to afford housing in Palo Alto’s red hot market, where a typical home goes for about $2.5 million.

The irony of a housing official not being able to afford housing in her own city led the story to go “viral” on social media, but it’s more than an amusing anecdote. There’s an important lesson here for cities such as Vancouver that aspire to be major tech hubs—in order to maintain housing affordability in the face of strong population growth, the supply of housing needs to keep up with demand.

While residents and activists in the San Francisco Bay Area often blame tech millionaires for pricing them out of the market, as Downing observes, the underlying cause of the problem is that Palo Alto, like nearby San Francisco, has onerous land-use regulations that put severe constraints on new housing development.

The situation in the Bay Area should serve as a cautionary tale for Vancouver, which seeks to bolster its own tech sector. Vancouver policymakers should recognize that it’s impossible to achieve housing affordability unless the supply of new homes keeps up with demand. Increasing the number of homes in the region will inevitably alter the character of neighbourhoods, but in exchange, can produce thriving communities where average families can live, work and play, and not just another playground for the rich. While Vancouver rightly aspires to emulate the economic successes of Silicon Valley, it should also heed the lessons of Silicon Valley’s economic and social failures.

Again, the core problem in the Bay Area is housing supply not keeping up with demand, due largely to onerous land-use regulation. Harvard economist Edward Glaeser, among the foremost experts on the economics of housing and land-use policy, noted that in 2013, the Bay Area issued only 15,000 permits for new housing units compared to 43,000 and 35,000 in Houston and Dallas, which are roughly the same size as the Bay Area.

Building on previous research by Glaeser and others on the relationship between regulations and housing supply, a recent Fraser Institute study found that supply constraints are having a similar impact in Greater Vancouver. Long and uncertain building permit approval timelines, and opposition to new homes by residents and city councils, are slowing the increase of much-needed housing in Canada’s most desirable markets.

Like the Bay Area, Metro Vancouver is locked in by mountains and the ocean. However, both regions have plenty of room to grow upward. Vancouver is dominated by single-dwelling houses, which represent the largest portion of the city’s area. Allowing higher density development will likely mean an increase in high-rise apartments and condominiums. However, increasing the number of laneway units, townhomes and walk-up apartments can go a long way in growing the housing supply without drastically altering the character of neighbourhoods.

Like Vancouver today, the Bay Area was an expensive place to live even before its tech boom; it has always been a highly desirable location. Similarly, even though incomes in Vancouver are not particularly high compared to other large North American cities, people are willing to pay a premium to live in the city. If Metro Vancouver’s tech sector reaches its full potential, drawing more people into the urban core, the region could find itself in a situation like the Bay Area, where housing is priced out of reach of all but the ultra-wealthy.

Rather than letting economic growth be the enemy of affordability, Vancouver should embrace the fact that businesses and people want to move to the city by reducing burdensome regulations that prohibit the construction of new housing units. Otherwise the best case scenario for the city is to reap some of the benefits Silicon Valley has seen, with the predictable downsides.

Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.