housing for all: global practices for vancouver · 1 mumbai, pio de janeiro, and riyadh, 2009;...
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Housing for All:
Global Practices for Vancouver
URBAN DEVELOPMENT INSTITUTE
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Presentation | February 21, 2019
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2McKinsey & Company
The century of cities
SOURCE: McKinsey Global Institute cityscope database
1.6B people or at least 1/3rd
of all those living in cities will
face an affordability
challenge by 2025
~440M
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0 0.5
50
10
2.5
15
0
20
25
30
5
2.0
40
45
35
3.0
55
1.51.0 Households
Million
Annual income available for housing
$ thousand
SOURCE: McKinsey Global Institute analysis
1 In European cities incl. London; smaller/ larger in other economies
Affordability gap
$ billion
18
Annualized market price
of standard unit
Mortgage interest rate and
amortization over 30 years for a
decent non-city center 60 sqm unit1
2 3 7 6
30% of
household
income
We define the affordability gap as the difference between the annualized market price of a standard
unit and the income available for housing
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1 As defined by World Bank.
19 228
10
4
10
14
11 12 239 2113 37
2
12
1 1420
153 16 17
6
4 185 206 367 38
8
16
London
Dhaka
Population, Million
New York
Tokyo
Beijing
Shanghai
Mumbai
Lagos
Affordability gap, % of GDP
High Low
Mid
Affordability gap
$ billion
Country income group1
SOURCE: World Bank; UBS Prices and Earnings Report 2012; Numbeo; CEIC; Deposits.org; Global Banking Pool; Royal Bank of Scotland; Zillow; Metroscubicos; Exame; Notaires Paris Ile de France; Jones Lang
LaSalle; McKinsey Global Institute Cityscope database; US Census Bureau; national statistics offices; McKinsey Global Institute analysis
Affordability gap can be large
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SOURCE: World Bank; UBS Prices and Earnings Report 2012; Numbeo; CEIC; Deposits.org; Global Banking Pool; Royal Bank of Scotland; Zillow; Metroscubicos; Exame; Notaires Paris Ile de France; Jones Lang
LaSalle; McKinsey Global Institute Cityscope database; US Census Bureau; national statistics offices; McKinsey Global Institute analysis
The cost of the global affordable housing gap is about $650 billion, or about 1 percent of global GDP
Note: Cost of bridging the gap is the amount of money needed to bring the annual income available for housing of all the low- income households to the market annualized cost of a standard unit. Assumptions: mortgage rates by country where available
otherwise regional averages assumed, 30-year tenure of mortgage with 20% down payment.
Affordability gap by region, 2012
$ billion
179 110
81
59
Rest of Asia
Pacific
Nprtheast
Asia
China region Latin America United States
and Canada
48
Western
Europe
37
51
World
total
Africa and
Middle
East
42
Eastern Europe
and Central
Asia
30
South Asia
~640
2.0 2.0 0.4 0.91.30.91.11.20.80.4
Share of GDP, 2012
%
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By 2025, the affordable housing gap could affect 440 million households, or one-third of the global
urban population
1 1 Financially overstretched low-income households in emerging economies are defined as those living in standard housing but facing housing cost burden. 2 Estimated for over 2,400 cities by extrapolating 2012 property prices proportional to
increase in median incomes.
SOURCE: Eurostat; HUD-PD&R Housing Affordability Data System microdata; Australia Census reports; Canada Census reports; Japan Census; Indian Ministry of Housing and Urban Poverty Alleviation; McKinsey Global Institute Cityscope database; McKinsey Insights China Consumer
Survey 2012; China National Bureau of Statistics; Rosstat; Korean Ministry of Land; UN-Habitat; World Bank; UBS Prices and Earnings Report 2012; Numbeo; CEIC; Deposits.org; Global Banking Pool; Royal Bank of Scotland; Zillow; Metroscubicos, Exame; Notaires Paris Ile
de France; Jones Lang LaSalle; US Census Bureau; national statistics offices; McKinsey Global Institute analysis
200235
35
Increase in millions of households
facing affordable housing challenge
99
437
232
99331
2012
7
106
Estimated
increase2
2025
1.61.2 0.4
Living in
sub-
standard
units
Financially
over-
stretched
households
Millions of households facing affordable
housing challenge
32
96
64
Emerging1 Developed Total
Population
Billion
Emerging economies
Developed economies
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Building affordable housing could be an annual market of around USD 220 billion globally
Global
China
Russia
India
Brazil
Nigeria
94–104
12–13
11–12
8–10
5–7
220–250
Construction opportunity
$ trillion
Replacement
of existing
substandard
housing
Global affordability
of housing
opportunity
6.5–8.2
New affordable
units added by
2025
8.8–11.0
2.3–2.9
Annual spending to close affordability gap in top
five countries and globally by 2025 (new units)
$ billion
1 Represents only additional low-income households entering cities by 2025 that will face affordability challenges.
NOTE: Numbers may not sum due to rounding.
SOURCE: Turner and Townsend; Gardiner and Theobald 2011; AECOM; Eurostat; UN Stats; McKinsey Global Institute Cityscope database; US Department
of Housing and Urban Development; Global Construction 2025 report; Mexico Chamber of Commerce; McKinsey Global Institute analysis
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8McKinsey & CompanySOURCE: Geospatial Analytics
Land markets in global cities are inefficient
Mumbai ManilaShanghai Johannesburg
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SOURCE: Land and property values in the US, Lincoln Institute of Land Policy; Guanyu Zheng, The effects of Auckland's metropolitan urban limit on land prices, New Zealand Productivity Commission, March 2013; TOKI
website; expert interviews; ABSA Report; Mumbaipropertyexchange. com; Sulekha. com McKinsey Global institute analysis
Many cities have very high land costs as a share of total housing unit cost
1 Mumbai, Pio de Janeiro, and Riyadh, 2009; Auckland, Johannesburg, New York, and San Francisco, 2013
2 New York and San Francisco figures represent "land value share of home value."
3 Range estimated from average property price and sample land transaction in Goregaon, Malad, Chembur, and Mulund, where land transaction data were available. Assumed floor-area ratio = 1.33 as average of Mumbai city
78
49
42
41
36
22
51
58
59
64
Auckland
San Franciso2
25-60
Johannesburg
New York2
40-75Mumbai3
Rio de Janeiro
50-7525-50Riyadh
Land costs
Other costs
Average share of land cost in unit price1
%
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10McKinsey & CompanySOURCE: OECD Stat; McKinsey Global Institute analysis
100
80
0
110
120
140
150
130
90
2000
Germany
UK
1989 95 05 2009
United Sates
United States
Germany
UK
Labor productivity has been falling for 20 years
Value added (volume)/labor input (hours worked)
Index: 100 = 1989 for United States, 1991 for Germany, 1994 for UK
Rest of economy
Construction
Construction productivity has been stagnating in advanced economies
Purchasing excellence
Lean execution
Design-to-value
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SOURCE: Expert interviews; Raising the roof: California housing development projections and constraints, 1997–2020, California Department of Housing and Community Development, 2000; McKinsey Global Institute
analysis
Regulatory barriers can stall construction indefinitely – California example
1 Based on 2000 report from California Department of Housing and Community Development (see below); 2 Defined as a delay or postponement in the process; 3 Environmental impact report.
Harder
Easier
Single family Multifamily
Sample
projects1
Average
entitlement
process
No rezoning or general
plan amendment
Compliant with specific plan
(streamlined process)
Zoning change or general
plan amendment, but no EIR3
EIR with no litigation
EIR with litigation
Site
Size
Acres
42
61
52
34
34
Number
of units
62
219
187
118
118
Number of
continuances 2
3
4
6
5
n/a
En
title
me
nt co
mp
lexity
Duration
Months
7
9
9
15
33
6
9
9
21
39
Duration
Months
3
7
5
8
n/a
108
249
132
124
124
Number of
continuances 2Number
of units
5
13
7
6
6
Site
Size
Acres
Average
entitlement
process
Sample
projects1
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200
50
650
150
550
100
250
450
300
350
2%
400
500
600
700
7%750
0 0%
1%
3%
4%
5%
6%
1085
Median housing price
$KYOY growth
Percent
1972 75 80 90 95 2000 05 15
Historic data indicates house prices influenced both by supply and demand dynamics
and market factors
SOURCE: US Census 1972-2016
Moody’s Analytics
NOTE: Housing stock data switched from quarterly to annual in 2010; 2009-11 growth rate averaged
San Diego County inflation-adjusted median house price, and population & housing growth, 1972-2016
Downward price inflectionsInflation Adjusted House Price Population Growth Housing Growth
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Vancouver population growth and housing starts
6,474
8,167
6,334
8,300 8,400
6,900
9,900
11,000
5,000
2,000
0
7,000
3,000
6,000
4,000
8,000
9,000
10,000
1,000
11,000
12,000
Q2 2016Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q1 2018Q4 2015 Q1 2016
6,200
Q3 2018Q1 2017Q3 2016
5,277
Q4 2016 Q3 2017 Q4 2017 Q2 2018
4,947
5,542
Q2 2017
Metro Vancouver Housing Starts and Populations Change (15+)
Housing Starts
Population Change (15+)
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What will it take to meet
this demand?
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15McKinsey & CompanySOURCE: “Order Without Design” Alain Bertaud, 2012
Six ways to unlock land
Population densities in built-up areas
People/ha
Six ways to unlock land
0.2 1.00.3 0.5
200
0.8
0 50 100 150 250 400300 350
0.90 0.1 0.70.4 0.6
New York
Atlanta
Paris
London
Los Angeles
Singapore
Hong Kong
Barcelona metro.
Smart, transit-oriented development
Release public land for housing
Unlock vacant serviced land
Land assembly or readjustment
Reform urban land-use regulations
Formalize informality
1
2
3
4
5
6
6
22
40
62
88
107
171
367
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16McKinsey & CompanySOURCE: Alain Bertaud, “Options for new alternatives for development control regulation and justification for increasing FSI,” April 2008; McKinsey Global Institute analysis
Floor area ratio (FAR) zoning in Seoul – density aligned with transit capacity
0.5 8–10FAR
10 4–10 2–4 1–2 <1 Industrial areasFAR
Urban density reforms and TOD…
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Case study: Alameda Ferry Terminal
Upshifting can deliver density without changing character
SOURCE: Southern California Association of Non-Profit Housing, City of Menlo Park
Medium-low density single family
homes near agricultural land
Slightly denser distribution of single
family homes
Condo complexes and single family
homes
Total units603 1583 Total units 3245 Total units
Units/net acre 3.7Units/net acre
(new development)9.8 20Units/net acre
(new development)
Lohart Homes, Montebello (14 du/acre)Vecino Self-Help Project Indio (4.5 du/acre) Iron Horse Lofts, Menlo Park (25 du/acre)
Density Illustration Density Illustration Density Illustration
Current state Conservative densification “Upshift” to Urban Center
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By raising density, land for affordable housing can be provided
37
136106
71Residential
Other
143143
6
6
After developmentBefore development1
Other housing
Affordable housing1
12
2.3
1.0
SOURCE: Nico Calavita and Alan Mallach, eds., Inclusionary housing in international perspective, Lincoln Institute of Land Policy, July 2010;
Barcelona City Council; McKinsey Global Institute analysis
1 Calculated based on number of housing units, with a floor area ratio of 1, unit size 78 square meters (average size in Barcelona).
Example Barcelona
Floor area ratio
Land use
Hectares
Housing units
Thousands
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80
0
20
60
40
100
0 5 82 3 4 76 9 10
Floor area ratio
Developer economics by floor-area ratio and share of affordable units
Affordable housing units
% of total
Implied land cost >0
Affordable units need to
share some cost of land
Implied land cost <0
Affordable units can be
offered below
construction cost
SOURCE: McKinsey Global Institute analysis
1 Assuming the following cost breakdown: 50% land price, 40% construction cost, 10% margin, and affordable housing sold at 50% of market price
Break-even line
for developer vs.
traditional market rate
development when
providing affordable units
at construction cost only
(zero implied land cost)
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20McKinsey & Company
In Los Angeles County, 28 percent of multifamily parcels use less than 50 percent of zoned capacity,
with potential to add 306,000 units under current zoning
<25
25–50
Parcels not zoned
for multifamily
50–75
75–100
>100
Utilization rate Percent
Hollywood
West
Hollywood
Hancock
Park
Park La Brea
Sentous
Echo Park
Downtown
Silver
Lake
A closer look at Los Angeles County’s multifamily utilization1
1
SOURCE: Los Angeles County GIS data portal; McKinsey GIS analysis; McKinsey Global Institute analysis
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21McKinsey & CompanySOURCE: US Census; San Diego Housing Commission
Parking norms should reflect technology impact
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22McKinsey & CompanySOURCE: Alain Bertaud, Mumbai’s FSI conundrum, 2002; World Bank; McKinsey Global Institute analysis
5
0
1
6
7
2
3
4
8
9
Maximum floor-area ratio
4 8 24
Distance from city centerKilometers
16 20 32Center 2812
New York
Vancouver
Seoul
Singapore
Maximum floor-area ratio decreases with distance from city centers
Vancouver has a lower variance in FAR compared to cities with similar population densities
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23McKinsey & Company
View cones
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24McKinsey & CompanySOURCE: Expert interviews; McKinsey Global Institute analysis
Time savings
40-50%
Cost savings
30%
Impact from industrial approach …
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25McKinsey & Company
Examples
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26McKinsey & Company
Taxes and fees in Vancouver
Site Size 20,000
FSR 2.5
Total Buildable for site 50,000
Site Price $ 30,000,000
Value per Buildable for site $ 600
Condo Value 1,200 PSF
Average Unit Size $ 800 SF
Average Unit Value 960,000
Residential Property Tax $ 22.05 1.26% Municipal 3 years until permit and 2 years construction
Vacant Home Tax $ 12.00 1.00% Municipal 2 years
Community Amenity Contribution $115 PBA ON 1.9FSR increase $ 87.40 $ 115 Municipal Now proposed at $330 to $425 on Broadway vs $115
Metro Vancouver Sewage Development Cost Charge (DCC) $1,072 PER UNIT $ 1.34 Per unit Municipal
Development Cost Levy (DCL) $ 15.62 Municipal
Public Art $ 1.98 $ 1.98 Municipal
Building Permit Fee $ 2.20 Municipal
Development Permit Fee and Zoning Charge $ 4.00 Municipal
TransLink Development Cost Charge (DCC) $1,500 per unit $ 1.88 Regional
Property Transfer Tax-Purchase of an assembled site $ 28.36 3.00% Provincial
Speculation Tax $ 18.13 0.50% Provincial Presumed during development process pending details of legislation
Property Transfer Tax on Average unit of 800 SF $ 21.50 2.00% Provincial
GST On unit ($1,200 PSF condo value) $ 60.00 5.00% Federal
Total Taxes and Charges $ 276.45 Per Buildable
Total Taxes and Charges $ 314.65 Per Saleable *excludes gross uo on sale value
Cost On 800 SF unit* $ 251.721 26.22% Total
* excludes payroll taxes on labour and taxes on materials
Size Tax Fee Percentage Purchase price
FSR 500 $ 157,326 26.22% $ 600,000
Total Buildable for site 700 $ 220,256 26.22% $ 840,000
Site Price 900 $ 283,186 26.22% $ 1,080,000
Value per Buildable for site 1,200 $ 377,582 26.22% $ 1,440,000
GOVERNMENT ADDICTION TO TAXING REAL EXTATE
Project Analysis (Typical Cambie Corridor Assembly Project)
Government Taxes/Fees/Charges on Housing
This expert analysis provided by Paul Sullivan, Senior Partner, Burgess, Cawley, Sullivan and Associates Ltd., one of largest commercial real estate appraisal and property tax consulting groups in Canada
Based on conservative, three-year approval process and two years to build
Based on a Local Purchaser/Developer so no Foreign Buyer Tax Levied
COST IMPACT ON TYPICAL HOUSING UNITS
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29McKinsey & CompanySOURCE: McKinsey Global Institute
The Seattle story (1/2)
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30McKinsey & CompanySOURCE: McKinsey Global Institute
1 In the primary mortgage market, lenders originate loans directly with borrowers.
Thoughts from Seattle (2/2)
Themes Tactics
Lower the cost ▪ Renew multi-family developers tax exemption
▪ Limited use of incentive zoning for affordable housing including
public subsidies and tax incentives (now under review)
▪ $30 million annual Housing Levy for affordable housing
▪ Generate pre-approved designs for detached Accessory
Dwelling Units in order to fast-track (2019)
Engage the people ▪ Cut support for the Neighborhood District Councils
▪ Create citywide Community Involvement Commission (7/16)
▪ Create Middle-Income Housing Advisory Council (1/19)
Change the rules ▪ Restrict short term commercial rental operations (2017)
▪ Reduce minimum parking requirements by up to 50 percent in
hi-transit multifamily zones
▪ Rezone for density around HALA goals (TBD)
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31McKinsey & CompanySOURCE: McKinsey Global Institute
Housing will only be solved at the local level
Define the local problem and its root
causes
Create a housing delivery unit
Identify local solutions and
map “housing hot spots”
Align stakeholders behind a local
strategy and vision
Execute strategy
and measure performance
Step 1
Step 2
Step 3
Step 4
Step 5
and we
provide a
blueprint for
government,
business, and
citizens to
work together
to close
the gap
WORKING DRAFT
Last Modified 2/21/2019 11:59 AM Pacific Standard Time
Printed
Housing for All:
Global Practices for Vancouver
URBAN DEVELOPMENT INSTITUTE
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Presentation | February 21, 2019