Will Langley's family-sized apartments mandate help more than it hurts?

Hopes, dreams and ideals die hard when it comes to housing economics

In the realm of housing, well-meaning policies can sometimes hurt as much as they help. Homeowner grants can boost demand—and prices; some rental restrictions can discourage the building of desperately needed new rental buildings. And ad hoc land use changes can stoke speculation.

Most policies come with a trade-off of one sort or another. But not all are necessarily doomed.

Langley Township’s council is considering new rules that would require a certain number of family-sized three-bedroom units in new apartment buildings. Buildings up to six storeys tall would need to ensure that at least 10% of units have three bedrooms. Taller buildings would need 5% of buildings to have three bedrooms or more.

It’s a move aimed at addressing a shortage of family-sized units in the Township’s growing number of apartment buildings. But is there a downside? And, if so, do the benefits still outweigh the costs?

[Teaser] We called up UBC professor Tom Davidoff, one of the province’s foremost experts on housing policy, economics, and finance, to learn more about the pros and cons of such a policy.

The pros and cons of housing rules

FVC: “To start with, what are the benefits and what might be the drawbacks of rules dictating apartment buildings having certain percentages of three bedroom and family sized units?”

Davidoff: “So the clear benefit and cost is this is giving lower prices and more availability to families with children or generally households that then can afford large spaces, and it's subtracting apartments from the choice universe of households that prefer smaller units, be it for affordability reasons, or family size.”

“That's, I think, a political decision. Generally, we don't love the idea of telling the market what to do, unless there's a good reason. But politically, supporting families, in the set of things people do to intervene into markets, it doesn't strike me as particularly crazy. The real costs would be fewer apartment buildings getting built because developers make more profit from building small [units], obviously, because that's their preference—presumably, they're maximizing profits.

“So there'll be less profit available if they have to build a particular mix of units—sort of like when you require developers to build affordable units. So to the extent that you're not scaring off development, you're getting what the politicians desire. But you might scare off some development. And so that's the trade off. “

FVC: “You're saying there's a reason why the current apartment building universe exists the way it is, and it's because it's in the economic interests of the developers to build these units in this way, so reducing that economic incentive can decrease the number of apartments being built. But it depends on where the threshold is—how much you're pushing and much you're pulling, right?

Davidoff: “That's right. Suppose upzoning to apartments generates spectacular land lift, then all you'll do is reduce the land lift and some of that comes out of the city's ability to grab amenities and some of it comes out of the land landowners pockets.”

By “land lift,” Davidoff is referring to the increased value of land when it is zoned for higher densities. That value can help make a developer millions when a local government changes the allowed land use on a property. But the scale of that profit varies, depending in part on construction costs, required contributions to a municipality, and whether the original value of the land already reflected the belief that more density was likely to be approved.

Davidoff: “But if these deals are marginal, as certainly rental building deals are below marginal now, mostly, you'd think you would scare off some buildings. But if you're requiring a couple of [three-bedroom-sized] units, maybe it's a modest impact.”

In a follow-up text message, Davidoff confirmed that increasing the supply of three-bedroom units would be expected to exert downward pressure on the price of such apartments. It would have a reverse impact on one- and two-bedroom units. However, if the new requirements were so severe as to significantly reduce the amount of new apartments being built, the rules could hypothetically contribute to an increase in prices of all unit sizes. That, though, seems unlikely he said.

Davidoff also said those impacts could also be mitigated by changes to rules that would allow many buildings to be constructed with just one staircase access, instead of two. The province is currently considering such a move. Advocates say the move would reduce the cost of building, and thereby make it easier to include units with a smaller dollar-per-square-foot profit margin. But those changes come with potential safety impacts and are still under consideration.

Langley Township has also proposed to require buildings to have an average unit size of 750 square feet. One councillor noted that most units now are slightly smaller than that. (Creating a minimum average unit size would mean that some units could be smaller than 750 square feet if enough other units were larger than that.) We asked Davidoff to explain the costs and benefits of such a rule.

Davidoff: It’s almost identical [to the three-bedroom policy]. You’re making it a little bit less profitable to build but you're building better units. So are consumers better or worse off? You could see how they might be better off. But it depends, again, on the extent to which you're crowding out construction with the regulation making it unprofitable

FVC: “Has there been a market failure in terms of ensuring that there are enough affordable homes for young families? Because I think that's what this is attempting to resolve; the fact that apartments are now the cheapest housing out there and if you're a family that may in the past have looked to a townhouse, like I did 10 years ago, that's now not an option for many people. [That seems to be] the general gist of these types of rules.

Davidoff: “I don’t see it as a market failure. I see it as a market outcome. A market failure is when the market doesn't deliver what the highest bidder wants. I think it might be an outcome of markets that is politically not desirable. And by politically, I don't mean, it's just politicians being politicians. I mean, society might judge that we value families with kids more. There is a market failure, though, if you want to talk about the absence of townhomes.

“Single family zoning throughout the region has certainly deprived us, historically, of many, many, many, many townhomes. Back when it probably wasn't economical to build towers, townhomes might have been very prevalent, where we mostly have single-family homes. And single family homes are just fantastic for families with kids but you can only have so many of them and they're very expensive. We would historically have had more townhomes if not for single-family zoning, and that's being addressed with the missing middle stuff.”

FVC: “So the underlying reason that Langley Township might need these three-bedroom apartment rules is potentially a legacy of previous land use decisions made in the region.”

Davidoff: “Right. It's not just Langley Township right. Townhomes have been hard to find everywhere, relative to what they would have been.”