Werner’s Blog: The population density deficit of Canadian cities

On September 15, 2023, Vancouver City Council voted to change its low-density zoning laws, in an effort to “open up neighbourhoods across the city to allow for the development of multiplexes that will create homes for families and help more people to build a future in Vancouver.” But will it be enough to address the current housing crisis? And what about other Canadian cities facing similar issues? In an excerpt from his latest blog post, UBC Sauder Associate Professor Werner Antweiler discusses how many Canadian cities have a “density problem,” and how Canada can learn from countries like Germany and Austria when it comes to addressing this issue.

Canadian cities have a density problem. Low population density is contributing to increasingly unaffordable rents and home ownership. Canadian cities need to increase housing supply by increasing housing density, both to provide more housing availability to a rising population, and to dampen further housing cost increases. But do not expect miracles. Densification will be a very slow process, and ultimately it may simply dampen further price increases rather than improve affordability. To address affordability, additional measures are needed as well.

The picture above shows a neighbourhood in the German city of Düsseldorf at the river Rhein. The picture shows how density is accomplished. Streets are lined with buildings that typically rise to four, five, or six stories. Density of this type makes housing more accessible and can greatly contribute to making housing also more affordable. Ground floors of many buildings provide space for small-scale commercial operations—neighbourhood grocers, hair stylists, cafes and restaurants, pharmacies, medical offices, and so forth. Commercial activities and residential housing blend in harmoniously. Increasingly, this type of construction is also found in new developments in cities like Vancouver. Buildings of this type are often referred to as the "missing middle" of density, between single-family detached homes on one side and downtown cores with high-rises on the other.

Based on Canadian Census Metropolitan Areas (CMAs) for 2021, looking at cities with a population in excess of 200,000 people, the population density of Canadian cities range from 54.1 people per square kilometer (Saskatoon) to 1,050.7 (Toronto). Metro Vancouver has a bulk density of just 918 people per square kilometer. Of course, the downtown core is denser. Statistics Canada reports population densities in proximity to downtown cores, and Metro Vancouver's population density ranges from 18,800 in the downtown core to 4,884 in the urban fringe (within 10 minutes from downtown) and all the way down to 478 in distant suburbs (30 minutes or more from downtown).

When we compare Canada to Germany, a country of similar wealth and development level as Canada, every city with over 200,000 people has a bulk population density of more than 2,000 people. The densest cities—Berlin, Munich, Frankfurt, and Stuttgart—all have population densities in excess of 3,000 people. By comparison, the densest metropolitan area in Canada—Toronto—barely exceeds 1,000.

So what exactly is the link between population density and affordability?

Statistically, denser cities often appear to be more expensive than less dense cities. There is in fact a positive correlation, but correlation is not causality. Densification does not cause cities to become less affordable. The correlation characterizes the housing market's supply-demand equilibrium that emerges and mostly reflects that people prefer to live in denser cities because such cities provide better job opportunities and amenities. And at an intra-urban scale, rents and home prices form an equilibrium as people are more mobile within a city than between cities, which limits price variation within a city for similar types of homes. That means that increasing supply in one area does not drastically lower prices there. Measuring the effect of increasing density on improving affordability is therefore quite challenging.

Increasing supply will certainly improve availability of housing, but it may not necessarily improve affordability. That is because homes are not sold or rented at cost, but at market value. On the cost side, building homes with higher density reduces cost. There are economies of scale in constructing floor space in mid-rise and high-rise buildings because the land cost divides over more floor space and there are efficiencies in terms of infrastructure, both within the building and in providing service infrastructure (water, sewage, electricity, communication, roads, public transit, etc.) to denser neighbourhoods. Increased supply can also draw in more people ready to move there from further out, and prices may not budge. Furthermore, land prices may rise to reflect the higher value (income opportunities) of denser built-up land. If not approached carefully, densification may enrich land owners more than it helps improve affordability for occupants of newly-built homes.

It is therefore not surprising to find that not everyone agrees that densification is the solution to making housing more affordable. Emeritus professor David Ley cautions against massive densification as a panacea for improving affordability. He is right that densification can mean rather different things, with different consequences on affordability. Today's balance between owned homes and rented homes is arguably geared towards treating homes as investment objects rather than living spaces. Successful densification does not mean tower next to tower, but mid-rise buildings that can achieve a medium level of densification (similar to many cities in Germany) while providing "whole neighbourhoods" with amenities in walking distance and the potential of developing lively communities.

Upzoning, the term that is used to describe policies that increase the density in a particular neighbourhood or municipality, remains controversial. Upzoning alone will certainly succeed in improving housing availability. Upzoning that only promotes clusters of new high-rises is also problematic. We need much more of the "missing middle" in population density across the city.

But what can be done about improving affordability? There is no simple solution here that will help everyone. Policymakers therefore need to focus on where help is needed the most, by focusing on renters rather than home owners. We also know what not to do. Economists widely agree that intervening in the market through rent control is not very effective. Controlling rent increases protects current renters, but not those moving home. Landlords have also found ways to get around limitations; "renovictions" are used to eject tenants and reset rents at a higher level.

Improving affordability can go hand-in-hand with densification by rezoning or upzoning areas in such a way that it promotes renting over ownership. Governments can provide financing for constructing purpose-built rental housing, and through not-for-profit housing corporations, governments can also develop a pool of affordable rental space. Vienna, the capital of Austria, is a prime example of such a model for social housing and has been widely studied. More than half of Viennese live in rental housing. In North America, social housing is often seen as a last resort, as accommodation for the poorest households, rather than a viable option for many. If improving affordability is the goal, cities in Canada should pay heed to the lessons from Vienna. Vienna has also experienced much less pressure on housing prices as a result of its social housing policies. The Economist magazine provides a Global cities house-price index. Compared to the first quarter of 2000, house prices (in real terms) have risen 200% in Vancouver, but only 65% in Vienna.

UBC has purpose-built rental housing of its own. Through Village Gate Homes, UBC rents 950 apartments and townhomes to full-time faculty and staff, and more is under construction and in planning. Rents are not subsidized; however, by owning the housing stock, UBC can keep rents closer to cost, with surplus going into new construction for more housing. And there is no "social housing" stigma. Accommodations can even push architectural frontiers. One of the latest UBC rental buildings, Evolve, is an energy-efficient passive house.

There is no panacea for solving the affordability crisis in Canadian housing, and there are certainly no quick fixes. It will take a generation to implement policies that improve availability and affordability at the same time. What is clear, though, is that governments (in particular municipalities) need to take a much more active role in developing and managing rental housing stock. Our cities need policy mechanisms and financing assistance through which they can take on this expanded role and responsibility. But it all begins with fixing the population density deficit of Canadian cities.