Will cities have to subsidize the middle class?

The new economy is squeezing out the middle class from many cities. Two such cities are taking steps to bring them back.

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Downtown Toronto, mixing cultures old and new

The new economy is squeezing out the middle class from many cities. Two such cities are taking steps to bring them back.

'Tis the season to remember the needy, so here's a new group requiring your charitable ministrations: the middle class. Cities such as Toronto and San Francisco are waking up to the fact that the decade of bubbles has created a housing  and affordability squeeze on the middle class. We have ghettos of the rich alongside ghettos of the poor. The middle class have to pack up their Cuisinarts, like modern-day Joads, and head for Parkland.

Toronto, a city of wonderfully varied and livable neighborhoods, as Anthony Robinson has reported in these pages, now is looking at an initiative to woo back the middle class. Among the programs that could happen (according to a satirist): requiring those who buy expensive condo penthouses to pay a tax to subsidize the ordinary folks on lower floors; providing middle-class food stamps; making those who build mansions also build a modest home elsewhere in the city; and running a Middle Class Wish Foundation that swoops in and transforms ordinary kitchens. Just joking, of course!

The San Francisco version of this is a new law requiring city contractors and subcontractors working on city-financed projects to hire workers who live in the city. That requirement, for jobs over $400,000, will start at 20 percent locals and rise to 50 percent in 2017. The suburbs are not happy.

Spoofs aside, Toronto recently graduated into the "severely unaffordable" category for home prices, joining Victoria and other Canadian cities. Vancouver is way off these charts, recently ranked the least affordable housing market of 272 metropolitan markets worldwide, and the worst in Canada. That's called "severely unaffordable." One measure is the median sale price of homes ($540,900 in 2009) versus the median household income ($58,200). Affordability is generally defined as housing prices equivalent to three years' income. 

According to the Frontier Centre for Public Policy, which did the study, Vancouver's housing prices reflect the geography, hemming in the city with mountains and water and creating a shortage of land. Plus smart growth and densification policies. The report's authors, Wendell Cox and Hugh Pavletich, are quoted in the Vancouver Sun article this way: "Prescriptive land use regulation policies have virtually destroyed housing affordability in many markets." The report noted that the Fraser Valley has plenty of land to develop, but prices in the city remain high because of tight restrictions on development in the agricultural valley.

Another factor: Canadian banks resisted the sub-prime mortgage disaster, so housing prices in Canada have held steady or recovered faster than in many other cities that blew big real estate bubbles that popped.

Regardless, these stories make clear a very tough decision for cities that both want to hold onto their middle class and follow smart-growth strategies in the outlying neighborhoods. You can resolve this conflict by subsidizing the middle class, but good luck finding money to do that.


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