BC Budget - Housing

Source: https://www.facebook.com/homeiswhereitstarts/

As expected one of the big highlights of the recent BC Budget (yet to be passed in the legislature) is the focus on implementing new policies in order to deal with the housing affordability issues we have seen in BC over the last decade.

The full BC Budget can be found here, the highlights here, and finally the focus on the housing action plan here.

First some praises for the plan.

The plan, although not perfect, aims to deal with both demand and supply side problems currently being faced by the real-estate market. With these policies being aimed to cool demand and stimulate supply (Contrast this to previous policies such as 0% downpayment loans to help first time home buyers. A policy which further stimulated demand).

On the Demand side:

• Introduction of a speculation tax.
• Increasing the foreign buyers' tax from 15% to 20% and expanding this tax out of Metro Vancouver to include the Fraser Valley, CRD, and Okanagan.
• Increasing property taxes (school tax rate) for properties over $3 million. 
• Actions to prevent speculation and pre-sale condo re-assignments. 

On the Supply Side:

• Government $6 billion dollar investment in affordable housing
• 14,000 rental units for 'middle' working families.
• increasing student residences at universities and colleges.
• Providing changes to property taxes to encourage rentals. 

What does all this mean? Let's start working on the demand side followed by the supply. 

First the speculation tax, other than the announcement of the idea of a speculation tax, we know very little as to what this would entail, as a result, it is difficult to say what effect this may actually have on the market. Just the same, I am under the belief (normatively) that if effectively placed could have a significant impact on cooling the market. I have written several times on the role of speculation in the housing market, starting with this article here.

Second the Foreign Buyers Tax. I have written about this before as well. to be brief - I am not a fan of this policy. To read my reasons why you can find the previous post here.

Increasing property transfer taxes and school rate taxes for properties over $3 million: There is a part of this policy which seems satisfying. Ratchet up the taxes for those rich enough to afford a $3 million mansion, but keep in mind, many of the people who have found themselves owning multi-million dollar properties are seniors, on fixed incomes who have just always lived in their house and seen property values rise exponentially around them! 

I have witnessed several sad experiences where seniors have come into the bank, they had bought their property decades ago, out in the boonies, only to find that now their property has exploded in value, with the property taxes being so high that they can no longer afford to pay them through any method other than a reverse mortgage, or city lien on their property. 

Finally, actions to prevent speculative pre-sale re-assignments of condos. Again my belief is that this could be an effective policy, as with the speculation tax, however, the big question I have is what does this look like and how will it be enforced. 

To the supply side: 

A $6 billion dollar investment over the next ten years. Let me start by saying that a minority government releasing a spending plan over the next ten years is rather wishful and thus leaves me skeptical. 

I am not sure of the exact details or conditions of this $6 billion, so let's assume this money is available as financing, and funding for public institutions to increase rental housing and student residences. 

First, building 14,000 rental units for the 'middle'. This may be a great idea, but ultimately I feel it will fall into the slow molasses of municipality zoning and bylaw processes which many have argued to be the primary supply problem contributing to the current affordability crunch. Thus I am interested to see how this materializes.

If this does materialize and if this materializes as 14,000 new rental units, not just "14,000 rental units over the next 10 years" then this may have an effect of driving down rents in areas like the CRD and Metro Vancouver where rental affordability remains just as much of an issue as purchasing a home (near 0% vacancy rates in both regions). 

An increase in investment for student housing will also help to relieve the pressure on rental markets (again primarily in university towns such as Nanaimo, CRD, Lower Mainland and the Okanagan) by allowing students their own specific residence it frees up more rental units for the rest of the population, thus allowing an increasing vacancy rate and decreasing price pressure for rents. 

In conclusion, there are still a lot of unknowns with this housing action plan, but preliminary evaluation looks promising to slow (or temporarily) reverse the acceleration of home and rental prices through policies aimed at cooling the demand while stimulating the supply. 

In the coming weeks, I am sure the specifics of these policies will be revealed. Given the nature of politics, come that time I may have to retract the optimistic tone I have. 

What are your thoughts on this policy?  I have taken a rather one-sided approach in my discussion above, but all policies are going to have both winners and losers. Think about who the losers are following the imposition of these policies and what this means for them. 

Feel free to comment below. 

Cost of red lights on Vancouver Island

I, like many residents of Victoria, frequently make the trip up island to visit the rugged beauty and outdoors of the north island. Like many, I find my self increasingly frustrated with the traffic lights on a highway.

For those not familiar with Vancouver Island. there is one main artery, highway, running from Victoria, north to Nanaimo. At Nanaimo, this highway (Hwy 1) enters the city to the ferry terminal before continuing across the strait in Vancouver. For those of us who want to continue further north than Nanaimo we more or less stay on the same highway, although it changes names to be Hwy 19.

Although this is a highway, stretching approximately 130 km from the CRD to Parksville and is the main route to travel North/South along the island, it is littered with traffic lights continually stopping traffic and creating congestion along the route.

Finally, in a recent trip, I watched to my horror as I was stopped an astounding 23 times during this stretch for a red light - I figured (as many people say) that I hit every single red light along the route.

Well, in fact, I did not, there are 42 traffic lights along the route between the Goldstream turn off (start of true Hwy at the edge of the city) and the Parksville turn off (where oddly enough, fewer people drive but they have done away with lights in favour of overpasses...). That is I was only stopped by about 50% of the lights.

Regardless this had me thinking about the social cost of these traffic lights due to idling and additional fuel usage through acceleration.

The first thing to determine was the average idling cost. Now there are many different types of vehicle on the road, so utilizing information from Natural Resources Canada to determine the % of vehicle by class (here) - as well as idling information from the US (here) I attempted to link idling information up to vehicle class and determine a weighted average of fuel used while idling. this worked out to a low 0.01884 L/minute. or 0.000314 L/Second

With a loose estimate of idling usage, at a cost of gas currently at $1.36/L this works out to a cost of:

$0.0256/minute or $0.000427/second ... does not seem too horrendous.

Next task then was to determine how much fuel is used every time we need to accelerate back up to speed. Casually googling this information yielded that acceleration can increase fuel consumption by 10-30% ... to pick the middle path, I chose to utilize an increase of 20%.

If acceleration causes an increase in fuel usage by 20%, I needed to figure out what base fuel usage is. utilizing the above date I worked out that the average fuel usage could be expected to be around 11.34 L/100km (remember we have everything from small sub-compacts to Semi trucks driving the road). this yields us an average cost of $15.42/100km

Assuming this 20% increase in fuel usage, and further assuming that it takes us a full Km to get back up to highway speeds from a full stop, this gives us a cost of accelerating at $0.1851 each time we have to stop.

So we have our cost of idling, we have our cost of accelerating. anecdotally I find that on average if I am stopped, I am stopped for at least 20 seconds. extrapolating our previously calculated amounts, this gives me an average cost per redlight of $0.19364 - Just under $0.20 each time we have to stop.

At this point, the whole task seems rather trivial. Even if I was stopped at every red light (42) that would only be an extra fuel cost to me of $8.13.

So turning to the ministry of transportation I collected their traffic volume data for this highway over the stretch of interest (here). I found that on average 26,728.39 vehicles are traveling this stretch on any given day. Now things begin to add up ... but clearly, they are not all stopped at all red lights!

Suppose that a driver has a 20% chance of being stopped by any given traffic light, we can use a binomial distribution to determine how many times these 26,728.39 cars are stopped over their travels.

We find based off this that on an average trip we will be stopped at 10.53 lights (which seems about right from my experience). Further - my event of being stopped 23 times does not even register as a likely outcome!

From this distribution, though we determine that on average on any given day vehicles on whole stop 281,478 times between over this distance.

That is, at an average cost of $0.19 per stop, we have a daily fuel cost of $55,102.04 ... no longer a trivial amount! Extrapolating this out for a full year (365 days) and we have an annual fuel cost resulting from these traffic lights as $20,111,244.60 - that is $20.11 Million dollars a year at present fuel prices.

Add on to this environmental impacts (from burning all this extra fuel) as well as extra transportation time for shipping companies etc. and these red lights turn out to be quite an expensive toll on society!

What are your thoughts on these traffic lights? feel free to comment below.

Update May 2018: the Gas price has increased from $1.36 to $1.55 due to this spike in gas prices - estimated annual cost due to traffic lights has increased to $22,922,044.