Report 5 Summary

Demand and Occupancy: Micro-Economics and Metropolitan Vancouver's Housing Market, June 2016

Recently there has been much critical comment about the ownership of residential real estate in Metropolitan Vancouver for uses other than full time occupancy as a principal residence (socially unacceptable uses), which are seen as taking housing away from and/or pushing up housing prices for residents.

No one has yet articulated a comprehensive and specific definition of socially unacceptable uses that can be used for regulation. No one knows the extent to which units are used for socially unacceptable uses, the period of time they are used for these purposes, or who owns the units. Governments are being asked to, and are proposing to, regulate an activity that has not yet defined in an enforceable (i.e., legal) manner.

Presuming definitions of socially acceptable and unacceptable use of residential property, to the extent that supply can adjust to demand for these uses, in the long run residents face neither higher prices nor loss of housing due to demand for purposes other than full time principal residences. Conversely, banning these uses after supply has responded to them will provide a one time only larger supply and lower prices than otherwise would have prevailed. This stems from the fact that the appropriated units that result from retroactive regulation result in a larger supply than that dictated by resident demand. In areas where supply cannot adjust to changes in demand, the effects of both the existence of, and banning of, these other uses will be purely on prices.

The degree to which prices and supply might be affected by demand for uses other than full time occupancy as a principal residence, and by the regulation thereof, is dependant upon the extent of this demand. At this point, that is all that can be said, as the neither their definition nor their magnitude is known.

The supposed benefits of greater supply and reduced prices as a result of such regulation has been touted by proponents – but they have been remarkably silent on the associated costs. There will be external costs which will be borne by a) persons owning subject property at the time the regulation is introduced, b) all property owners to the extent that property prices fall as a result of regulation, and c) persons owning property not subject to regulation to the extent that the tax base shifts from regulated property. There will also be internal costs, including the costs of identifying subject properties, administering the regulation and dealing with appeals.

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