Category Archives: Homes

A Different Kind of Home-Buyer

My husband and I are house-hunting in one of the most expensive housing markets in North America – Vancouver. We moved here two and a half years ago from London, UK – where my husband grew up and where I had been living for the preceding 12 years.

The first 18 months or so in Vancouver we spent many of our weekends walking around neighbourhoods – exploring, acclimatizing, and learning about our new city. We have been on our house search, on and off, for a year. More recently we’ve started to widen our search to neighbouring suburbs and cities, Port Moody and New Westminster in particular, and have talked to local real estate agents. What they’ve advised us is insightful about the residential real estate market and the attitude of the “average buyer”. I’m paraphrasing, but here are some of things agents as well as friends are saying about the suburbs:

  • “New Westminster has poor amenities. It’s not close to stores like Costco, Walmart and retail parks. That’s bad for resale value.”
  • “If I were to choose between Port Moody and New Westminster, I’d choose Port Moody. It stands a better chance of growth in values. It’s a development hot spot and it’s going to get the new Skytrain line.”
  • “New Westminster’s problem is that it’s not Vancouver and it’s not Surrey. Cross the bridge and you get a significant drop in price in Surrey so people would rather buy in Surrey than in New West.”
  • “I’ve been in New Westminster for over thirty years. New Westminster is about community. For example, my eldest son’s oldest friends are people he met when he was three years old.”
  • “Port Moody has a strong artist community.”
  • “Port Moody isn’t planning to develop quickly. It’s being thoughtful about development and isn’t going to be crowded with a lot of high-rise towers.”
  • “Homes in Port Moody cost more (than homes in Coquitlam) because it’s closer to the water. There are places for people to park their boats.”

A Different Way of Looking at Home-Buying

To be honest, all of the real estate agents’ talk of resale value and potential rises in prices puts me off Port Moody and other similar areas. My husband and I didn’t move to Vancouver to make a buck on the housing market. We moved here because we wanted to build a life, enjoy the lifestyle, and make our livelihoods here (the three “Ls”, I call it). I like events and festivals that celebrate art, music, and food rather than shopping malls where the art, music, and food is mass-produced and mass consumed. I like neighbourhoods that feel safe enough to walk through at night from the Skytrain station or bus stop to my front door rather than neighbourhoods divided by busy roads and motorways that are unwelcoming to pedestrians. I like walking through, running through and picnicking in parks and amongst nature over walking through or next to parking lots. My husband and I prefer farmers’ markets, vintage stores, and locally-owned shops over retail parks and big box stores.  I want good schools and community amenities over condos and construction sites.

If we buy a home somewhere in Metro Vancouver, we hope our house value doesn’t go down and we might be better off in the long-run if its value doesn’t go up. Rising house prices keep out the artists, teachers, key workers and other great people who could be great neighbours if only they could afford to live there. I’d be perfectly happy if my house price went up by the same percentage I’m paying in mortgage interest – if I ever sold my house, I will have essentially lived there for free. Even if my house price stayed the same as when I bought it, I’m perfectly happy paying something for my housing costs (essentially the interest cost on my mortgage, plus maintenance costs, property taxes, and the opportunity cost of the money locked up in the house) because I’m getting use value out of living in my house in the first (a place to call our own, safe and secure shelter, our little patch that can be decorated any which way we want).

Call me old-fashioned, but I’d like to live in a neighbourhood where there is culture and community. It’s not how much cash I can sell my house for sometime in the future, but the other “Cs” that will be the deciding factors in our house hunt.

Trading Off Homes for Heritage

I wrote the following on 1 May 2011 as a comment to an article on OpenFile about a property developer whose plans involved evicting tenants as a trade off to preserving a heritage home of historic character in the East Vancouver neighbourhood called Grandview-Woodland (near Commercial Drive).

Rising housing density will feature in an attractive city, with a rising population and limitations on urban sprawl… Older homes likely don’t serve people’s needs or desires these days (due to layout, insulation, energy efficiency, different family dynamics), but their preservation/ conservation is important – it tracks a city’s history, tells a story about how we lived in previous times. However community conservation is a different story and one that is often missed when we speak about real estate development. Development and heritage revitalisation that only pays attention to the number of units and the financial cost and rewards fails to recognise what makes a neighbourhood attractive (and one of the reasons why density might be rising there). If community values are not kept in mind, neighbourhoods run the risk of trading community cohesion, shared values, relationships and connections for money – this can happen by current property owners selling their homes for the “profit” and moving elsewhere or local councils accepting tradeoffs and property taxes. These are immediate term gains with long term consequences.

I believe “community-oriented neighbourhood” means knowing who your neighbours are, connecting with them, sharing values, sharing resources – if you’re in a bind, you know you can count on your neighbours (which is far more important and valuable than any money in the world.) Many communities have lost this sense in the pursuit of personal gain and wealth, but really – what’s the point of having a big house, big car, and big TV if you are a stranger in your own neighbourhood?

Here, I believe, are some of the solutions – take rising property values out of the equation. Property and real estate are no longer (some could argue not ever) a commodity – you cannot sell it and replace it with something identical. You can’t take it with you. So market supply and demand forces on real estate do not work the same way as they might for other portable, replaceable, tradeable goods like a car or computer for example. If your property value rises and you want to cash-out – you must move to another neighbourhood with different features. If you want to stay in the same neighbourhood, all your profit goes back into the new house. This requires a major behavioural shift…

Co-op structures and principles are a good start and I am keen to see co-op housing brought in the mainstream and not seen just as an affordable option – but that living co-operatively with your neighbourhoods is a regular thing (I am working on developing these concepts further). So where does the capital come from to acquire properties? Community equity (community share issues) or working with a like-minded partner who has patient capital. But the key piece of the puzzle is not the money nor the legal structure – it is around values, behaviours, and a change in perception of how land economics works.

The New Economics of Affordable Homes

The New Economics Foundation released a new publication today about housing – how to build 1m new affordable homes.  Here’s highlights from the nef website:

1.  Measures to reduce the cost of land.

  • 80% capital gains tax on all land sales over £80,000 per acre.
  • Planning permission for large residential developments would only be given to social housing developers.

I agree that the high cost of land is a major contributing factor to the unaffordability of housing.  I suggested taking land cost out of the equation in an earlier post about house prices.  The economics around land in the UK is broken.  There is little volatility in land values – the belief is that they generally only go in one direction – up.  One could argue that the demand exceeds supply thereby pushing values upwards, but where is the demand coming from?  The boom had been fuelled by foreign investors – either directly or in the form of investment in UK property companies and funds.  The demand comes from a few, increasingly segregating those who own from those who rent.  nef is very astute at public policy that can change behaviours and attitudes and this gets to the heart of it.  Make investment in property for gains from capital appreciation inefficient and costly thereby stemming this constant expectation and driving of property price increases.  Make investment in property about providing housing, meeting basic needs rather than returns-driven.

2.  Measures to reduce the cost of capital.

  • Introduce a new bond scheme, linked to the retail price index. Housing associations pay 6% p.a. on bank loans: a bond scheme could lower this to 3.5% creating massive savings for social housing landlords.

I’m cautious about cheap credit.  These needs to be paired with good advice and education about managing debt.  So long as people remember that bank loans should be repaid over time (no more interest-only mortgages which were prompted by an idea that house prices could only go up).

3.  Measures to increase the revenue generated by social landlords.

  • Higher rents in new developments.
  • Drive down operating costs, for example by increasing tenant self-management.

Transparent business and revenue models and ensuring that the cost of housing does not include unreasonable profits to the few would be helpful.  Trust models which require the reinvestment of profits from housing into new developments would also help build more.

I also think shrinking the gap between average incomes and average house prices requires not only a focus on the cost of housing, but also on education, skills development, training, and employment opportunities.   The healthy participation of people in the economy helps keep a sustainable cycle of livelihood and lifestyle going.

How to Incorporate Historic Buildings into Contemporary Development

Eight Georgian cottages of yellow stock brick remain of an early residential development on Greenwich Peninsula. These are 70-84 River Walk, SE10. At the west end of the terrace is the Pilot Inn, Fuller’s public house and hotel. A painted stone tablet on no. 68 on the wall of the pub reads “CEYLON PLACE New East Greenwich 1801”. These homes were constructed for workers at the adjacent tidal mill and chemical works and “are a rare survival of late Georgian artisan housing.”

The cottages are grade-II and were added to English Heritage’s buildings-at-risk register in 2009. Although sitting idyllically amongst gardens to the north and south, it is flanked by strange roadways to the west and east. I wonder if someone decided to “preserve” these historic buildings by “protecting them” from further development with parks and roads. This planning strategy appears to have isolated these buildings, making them novel and a bit freakish. The pub is lovely (and has an amazing cheese selection), but eight homes and one pub does not a community make.

Rising to the east, on the riverside, separated from River Walk by the East Parkside road will be the closest residential development, a collection of over-priced urban walk-in closets being built by Bellway Homes (at £270,000 for a 489 square feet one-bedroom flat, this description is not far from the truth – that’s £552 per square foot. Cost per square foot is a measure I frequently use to compare the relative prices of housing.) To the south-east of River Walk is Greenwich Millennium Village with local amenities such as a chemist and small food shop. A saving grace is the adjacent Greenwich Ecology Park with its pondlife, boardwalk, pipistrelle bats, and bridge connecting it to the Greenwich Millennium Village homes. Overall, the housing developments lack cohesion with each other, separated by roads and separated in character.

My idea for River Walk would be to build housing and community amenities around and incorporating the existing cottages. Possibilities include additional terraced homes built using modern materials in a contemporary, but sensitive and complementary style across from the existing cottages. Or they could form a forecourt or courtyard of homes with multi-unit housing built behind it. The main premise being to include the historic homes as part of the new community that develops around them, saving them not only in a structural and physical sense, but also in a social sense.

The Mathematics of House Prices

I was talking and thinking about affordability of housing a couple of days ago and that same day saw a series of interactions on Twitter which included this one. I thought I’d play around with the mathematics of a simple example of housing.

Let’s hypothesise that the average affordable one-bedroom home price should be a maximum of £150 per square foot of living space. Assuming an average, reasonably-sized one-bedroom home comprises 600 square feet of total living space, the price of this home would be £90,000. In 2009, the UK average weekly pay was £489 or around £25,000 per annum. Assuming a homeowner could save up enough for a 10% deposit and pay the stamp duty and transaction costs (conveyancing, survey), they would need a mortgage of at least £81,000. This loan represents 3.2x the average salary and assuming a total interest rate of 6%, a 25-year mortgage, the monthly payments would be one third of the homeowner’s net monthly salary. Based on prudent borrowing principles and affordability, this is just about manageable and housing costs should certainly not cost more than one third of someone’s net salary.

The last time the price of an average flat was less than £90,000 was in August 2000.

More recently, the average flat or maisonette (using data over the last 12 months) has been priced at £153,000 or £255 psf. House prices are increasing again since the low in March 2009 when the average cost was £141,000. The last time the average house price was at this level was March 2004. For those who are able to buy their homes, they continue to buy and house prices are on the rise again.

In London it is even more accentuated with average salaries around £33,000 and average flat prices around £295,000 – that’s 9 times the average salary. And assuming a 600 square foot flat, a cost of £492 psf, more than 3 times the hypothesised affordable flat.

So, what’s behind these house prices? The rule of thumb on residential developments is one third land cost, one third development cost, one third profit. If such a ratio were to be maintained, each of these elements must be reduced by a third which requires a complete re-basing of land values, materials, labour, and remuneration.

Having spoken to architects about the average development cost, this ranges between £150 psf to £200 psf (not including professional fees and financing costs). The price of the hypothesised affordable house is in one way based on the development cost alone. To bring the price of buying a house back to affordable levels, one way which would have the greatest impact would be to remove the cost of the land and the profit element from the purchase price paid by a home-buyer. Community land trusts, housing elements of development trusts, co-operative housing, and other not-for-private-profit housing initiatives aim to achieve this. Land values are locked in, owned in perpetuity by a trust.

Let’s stretch the imagination. Imagine a place where the price of all land did not increase over time. Where capital appreciation in the value of property came only from improving property or possibly changes in its use. Is this possible? What would the economics of such a place look like? A community land trust would fit right at home in such a place.

(The data for average salaries was taken from the Office of National Statistics and average home prices are for maisonettes and flats taken from the House Price Index tool on the Land Registry website. There is a margin of error due to the use of averages and incomplete information, but such margin of error is not so big as to counter the pattern and trends of house prices and average earnings.)

Related Links:

  1. One way to maximise the use of empty homes
  2. Community land trusts and affordable housing

One Small Flat, 24 Clever Rooms

I read about this on Twitter – an architect in Hong Kong designed his small 344 square foot apartment into a multi-modal living space.  Sliding walls and shelves create and remove room partitions and provide clever storage.  I love the flexibility and adaptability of the design and I’d like to apply it for wider use – can a non-residential space be just as flexible?  Office space by day, event or rehearsal space by night?  I wonder how much maintenance the sliding walls require.

http://www.nytimes.com/2009/01/15/garden/15hongkong.html

Affordable, Sustainable Buildings in London

How can we create nice communities to live in, with affordable, sustainable buildings?

We’re limited on space here.  So one solution had been to build tall and London saw the rise of tower blocks.  These tall apartment buildings don’t seem to have a lot of fans.  The funny thing is, a lot of these buildings would be perfectly fine in a city like Toronto.  They would be privately managed, well maintained, there would be a mix of income types, families, and individuals choosing to live in them.  Why doesn’t it work so well here?

There is still a shortage of affordable, sustainable housing in London.  How do we find the solution to this?  How do we build affordable, sustainable buildings?  Answers on postcard please – for your convenience, that means please leave a comment below.