Those of you who read Catch-22 will no doubt like me have fond memories of the book. There are two aspects of the book that seem relevant to Vancouver's current rental housing crisis.

The first is how the squadron's Mess Officer, Milo Minderbinder, managed to buy eggs for seven cents, sell them to the mess halls for five cents, and still make a profit. As I recall, he claimed he made money on volume!

The other was Yosarrian who tried to get out of flying more missions. To get out of flying missions he had to prove he was mad. But that didn't work since anyone who wanted to stop flying missions couldn't be mad. Or something like that.

So why is Vancouver's rental market like this. Well, in order to bring down rents, we need to increase the supply of rental housing. But if rents do indeed come down, as they are, in part due to increased supply, then new projects will no longer be financially feasible. So eventually, rents will go back up. Are you following me?

Russil WVong's post reporting on Cressey's numbers.

I thought about this today when I received an email from Russil Wvong. It offered several important observations. The first is that larger suites, which are most needed, are not financially viable. The cost is greater than the rent that can be charged. So they have to be subsidized by smaller suites that we don't really need.

While Cressey's numbers are overly simplified (a small suite is usually more expensive to build on a cost per sq.ft. than a larger suite, etc.) the point being made is absolutely valid.

The other point is that the more we build, the more rents come down, and as a result, we will not be able to build more, until rents rise again. That's why I thought of Catch-22. Read on!

The conclusion is right. We don't need to just reduce rents. We need to reduce costs. And one way to do that is reduce municipal fees. Fortunately, I think municipal politicians and officials are now getting the message. But if they don't, they just need to wait until a few more developments go into foreclosure. It won't take much longer.

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Vancouver needs more housing

2BR and 3BR apartments need cross-subsidy

Data from Hani Lammam of Cressey

Russil Wvong

Feb 27

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A chart with a rundown of the costs, income, and returns, by unit size. — Economics for market rental. Cressey

Inside The Cost-Profit Analysis Of Three-Bedroom Units In Metro Vancouver. Howard Chai, Storeys, October 2024.

The city of Vancouver requires that market rental projects have a minimum of 35% apartments with two or more bedrooms. Strata projects must have a minimum of 25% apartments with two bedrooms, and a minimum of 10% apartments with three bedrooms. Family Room Policy.

The problem is, the 3BR and even 2BR apartments end up being cross-subsidized by the studio and 1BR apartments. This raises the floor for rents on studio and 1BR apartments.

"The real problem, though, is not that we don't make money off of the three-bedroom units, it's that we have to drive the revenue [higher] on the one-bedroom units in order to subsidize the three-bedroom units," Hani Lammam explains. "It's not good enough not to make money on it. In order for me to be able to finance the project, I have to average out a return across all of it, so what really happens is the one-beds are subsidizing the three-beds. That's really what happens."

Why don’t market rents for 3BR and 2BR apartments reflect the cost to build them?

Yes, $4,000 a month for an apartment in Vancouver may be an achievable price, but that becomes less true if families have options to rent a townhouse in Surrey or Langley for around the same price.
"Once you get to a certain rent or purchase price, as a buyer, I have options," said Lammam. "The one-bedroom or even two-bedroom apartment appeals to that young, upstart new family, but the moment that family grows, it's hard to stay in an apartment, and I don't think it's the ideal. I don't think a family wishes they can live in an apartment, I think they wish they can live in a house."

As asking rents decline, fewer rental projects are viable

Of course the other headwind here is that asking rents are declining. The February 2025 report from rentals.ca says that the asking monthly rent for a 1BR in the city of Vancouver is $2522. For a 2BR, it’s $3433.