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The economic reasons for the shortages of residential rental accommodation in greater Vancouver

University of British Columbia

In the last three or four years a shortage of residential rental accommodation has been developing in Metropolitan Vancouver. This shortage has been brought about by a continuing decrease in the annual number of apartment completions since 1969. To determine the cause of this shortage, this thesis concentrated on defining the reasons for the continuing decreases in the annual number of apartment completions since 1969. Information on apartment land costs, construction costs, financing costs and operating costs were collected for the period commencing in 1964 and ending in 1972. Annual percentage increases for each of these costs were calculated and compared with annual percentage increases in apartment rents over the time period. It was found that the capital costs of producing apartment buildings (construction and land costs) have been increasing at a faster rate than rents in most areas of Metropolitan Vancouver between 1964 and 1972. More rapid increases in capital costs than in rents reduce the yield that is available from apartment investment and thus reduce developers' incentive to produce new apartment rental units. An analysis of apartment operating costs indicated that they have been increasing at the same rate as rents for buildings of similar ages operating between 1964 and 1972. Thus, operating costs have not been responsible for the recent reduction in construction of apartment rental units. Investigations were also carried out to determine what effects the amendments to the Income Tax Act have had on the continuing production of apartment rental units. It was found that the amendments destroyed many of the advantages that apartment investment had over other forms of investment. They have reduced the profitability of apartment investment and have discouraged the individual investor, who was largely responsible for the tremendous growth in apartment construction during the 1960's, from investing in new apartment buildings. An examination of the procedures, costs and the lengths of time required to obtain municipal approval of apartment development applications was carried out for the Cities of North Vancouver and Vancouver and the District of Surrey. It was found that municipal regulations often substantially increased the costs of apartment development and delayed the initiation of apartment construction for lengthy periods of time. This was found to be especially true where land use contracts were used. An analysis of the expected future demand for multi-family accommodation to the year 1991 was conducted. It was discovered that approximately 10,000 additional units per year will have to be provided in Metropolitan Vancouver until 1991. With the present rate of apartment completions, this demand will not be met. Only if rents rise high enough to make apartment investment attractive relative to other forms of investment will this demand be met. Increasing rents could cause governments to implement some form of rent control. A study of rent control systems in the United Kingdom and New York City indicated that they do little to solve housing problems and aggravate the shortages that exist.

Text

2010-01-20

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http://hdl.handle.net/2429/18781

Business Administration

University of British Columbia

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