Vancouver has become a Mecca for urban dwellers, so much so that it is losing its business tax base.
The source: “Extreme Makeover” by Alan Ehrenhalt, in Governing, July 2006.
Most cities would kill to have Vancouver’s problems. Exquisitely set near both mountains and the sea, the Canadian city is dominated by a glamorous downtown full of residential apartments, bustling with pedestrian traffic, and populated by people with money to spend. Municipalities in the United States consider themselves lucky to entice five percent of their residents to move downtown. In Vancouver, the figure is 20 percent and rising, according to Alan Ehrenhalt, executive editor of Governing. But condo-ization is beginning to generate a backlash. The hundreds of green glass towers that have sprung up on less than five square miles have shut out commercial development. Critics are beginning to use the dreaded “R” word, according to Ehrenhalt. Vancouver, they fear, is in danger of becoming a resort, a Waikiki or Miami Beach, with mild winters—and an inadequate tax base.
The transformation began quietly in the summer of 1991 as recession moved across North America and flattened the market for office space in Vancouver. Without fanfare, the city council enacted a zoning change—just to see if the market would respond—that loosened up limits on apartments in commercial areas. “Overnight, we got these huge condo towers,” says a city council member. Fifteen years later, nearly one in five residents of Canada’s third-largest city lives in one of the slender high-rise towers in the downtown center. And these newcomers include members of that urban endangered species, the family with young children.
The “Living First” program has worked too well, some people in Vancouver are saying. Developers seized the chance, making a return on investment in condominiums that has been five times as high as the return on office space. And though business has not fled central Vancouver, the percentage of metro-area jobs located there keeps shrinking.
The residential boom runs the risk of squeezing hard-pressed cities financially. Commercial properties, which currently account for 40 percent of Vancouver’s tax base, are taxed at a higher rate than residential properties, and require less in city services. As the balance tips toward condos, the burden on business grows, potentially driving commercial uses out of the city. Vancouver’s planners have imposed what amounts to a moratorium on residential construction while they figure out how to attract more office projects.
No American city is close to Vancouver on the downtown-living front, Ehrenhalt writes, but there is a shift in the residential direction. Census figures show that downtown populations in major U.S. cities increased by about 10 percent in the 1990s after decades of decline. Since 2000, Philadelphia’s central-city population has grown even as office space stagnated and the number of office and professional jobs declined. In New York City, where the local government’s primary commitment after the September 11 attacks was to restore the lost commercial and office space, no new office buildings have been started on the World Trade Center site, while nearby commercial space is rapidly going condo. Even in St. Louis, the office vacancy rate is very low because so much office space has gone residential. If it can happen in St. Louis, it can probably happen anywhere. So it is likely that the “Vancouver question”—keeping a balance between commercial and residential uses—could well be a sleeper issue American cities never thought they would have to face.