Housing Affordability

Why more housing supply won’t solve unaffordability 

Five Reasons Why This Doesn't Work 

https://vancouversun.com/opinion/columnists/douglas-todd-why-more-housing-supply-wont-solve-unaffordability 

Douglas Todd: Why more housing supply won’t solve unaffordability

Opinion: Five reasons this superficial solution to combating house price escalation often doesn't work 

Author of the article: Douglas Todd

Publishing date:Nov 26, 2021

“The city of Vancouver has added more housing units per capita than any city in North America over the last 30 years, yet housing prices have increased faster in Vancouver than any other North American city,” says UBC planner Patrick Condon.

“The city of Vancouver has added more housing units per capita than any city in North America over the last 30 years, yet housing prices have increased faster in Vancouver than any other North American city,” says UBC planner Patrick Condon. PHOTO BY ARLEN REDEKOP /PNG 

Things are so out of control in Canada’s overpriced housing market that some politicians and pundits are pleading for the country to mimic a novel New Zealand policy, with many acting as if it’s The Answer to affordability. 

They’re saying Canada should rapidly join New Zealand in banning single-family zoning and allowing residents, for instance, to build up to three storeys without requiring consent. Real-estate developers claim getting rid of pesky city approvals will allow them to build more housing faster. 

Their argument, admittedly, can seem logical: Construct more housing and prices will go down. 

But there are at least five reasons this superficial solution to combating price escalation doesn’t often work — and hasn’t been effective in Canada, especially in Greater Toronto, Vancouver and other overheated markets. 

Housing prices have always been affected by supply. But vested interests try to ignore they’re also affected by demand (particularly population growth), by mortgage rates and by investors ever-enthusiastic strategies on how to make a killing. 

The case for supply, supply, supply, not surprisingly, is pushed relentlessly by the real-estate industry and its allies. But here are five reasons their mantra often rings hollow: 

1. Canada has normal supply levels overall

The push for greater supply picked up fuel this year after Scotiabank economist Jean-Francois Perrault was widely reported claiming Canada has the lowest number of homes per 1,000 residents of any G7 country. It turns out, however, his analysis is misleading. 

Kwantlen Polytechnic University geographer John Rose said Perrault’s claim “made for a great headline” but weakens on examination. 

While it’s accurate Canada has slightly fewer dwellings per capita than six other advanced economies, including France, Japan and Germany, Rose said Perrault didn’t bother to look at a crucial factor: Is housing less expensive in the nations with more homes? 

More importantly, the Scotiabank economist didn’t take into account that more people on average live in a Canadian household than in most other G7 households. If the bank economist had done so, Rose said, he would have seen Canada is “not last” in housing supply. 

“Canada comes in fourth, which is not a very sexy headline.” 

2. Vancouver is already dense, but still unaffordable

UBC urban planner Patrick Condon, author of Sick City , warns it’s not possible to build one’s way out of an affordability crisis, in which prices are punishingly disconnected from wages. The city of Vancouver already has the most dense population in Canada . 

“The city of Vancouver has added more housing units per capita than any city in North America over the last 30 years, yet housing prices have increased faster in Vancouver than any other North American city,” Condon says. 

Up-zoning, on its own, he says, mostly just spikes land values and brings windfall profits to landowners. 

If politicians choose to zone neighbourhoods for higher density, Condon says they should do so only on condition developers provide affordable housing for people with average incomes. A formula could be reached by which developers still make a profit, he said, albeit a more modest one. 

While Canada’s housing industry goes into overdrive to trumpet New Zealand’s attempts to erase zoning regulations, it’s silent on other, arguably more effective, measures brought in by Prime Minister Jacinda Ardern. 

While Canada’s housing industry goes into overdrive to trumpet New Zealand’s attempts to erase zoning regulations, it’s silent on other, arguably more effective, measures brought in by Prime Minister Jacinda Ardern. PHOTO BY MARTY MELVILLE /AFP via Getty Images 

3. The rewards of New Zealand’s new zoning rules are greatly exaggerated

Developers and their allies constantly complain zoning restrictions are too tough in hot spots like Ontario and B.C. 

But arguments claiming Greater Vancouver and Toronto are dominated by “single-family” zones are facile. People making such claims don’t take into account that so-called detached homes in the city of Vancouver, for instance, can now have at least three separate units, including a suite and a laneway house. 

Even though more supply can be useful, it has to be the right kind. Far too much housing under construction in urban Canada is of the luxury variety, appealing to the domestic and foreign elite. And offering developers bigger profits. That doesn’t help young local wage earners. 

4. Why the abject lack of interest in New Zealand’s other affordability policies?

While Canada’s housing industry goes into overdrive to trumpet New Zealand’s attempts to erase zoning regulations, it’s silent on other measures brought in by Prime Minister Jacinda Ardern. 

She has gone much further than Justin Trudeau to tighten mortgage rules , which are designed to stop potential buyers — and especially investors — from overstimulating the market by taking on ridiculous debt. 

In 2018, New Zealand also banned most foreign nationals from buying residential property . Meanwhile, Trudeau fails to fulfil promises he began making in 2019 to restrict or ban housing purchases by “non-resident, non-Canadians. ” 

Unlike Canada, New Zealand also announced this year it’s cutting back on new immigrants and guest workers . 

Canadian business leaders and pundits, for unexplained reasons, rarely discuss how large-scale immigration is the main source of population growth and therefore of much housing demand for cities like Vancouver, Toronto, Calgary and Montreal. 

Their silence prevails even while groups such as B.C.’s Urban Development Institute quietly confirm the arrival of more than 100,000 new immigrants, foreign guest workers and international students into Metro Vancouver each typical year is the key reason supply needs to be cranked up. 

Even as Statistics Canada’s studies show new immigrants spend significantly more on housing than the domestic-born , Trudeau goes the opposite direction of popular Ardern — he’s raised in-migration numbers to record levels . 

If the ScotiaBank economist had looked more closely at the data, says Kwantlen’s John Rose, he would have seen Canada is “not last” in housing supply in the G7. “Canada comes in fourth, which is not a very sexy headline.” 

If the ScotiaBank economist had looked more closely at the data, says Kwantlen’s John Rose, he would have seen Canada is “not last” in housing supply in the G7. “Canada comes in fourth, which is not a very sexy headline.” PHOTO BY HANDOUT BY SUBJECT /jpg 

5. A frenzy of investors is superheating housing

Investors and speculators are on a crazed streak in Canada. People who already own more than one dwelling, for instance, have suddenly become the largest buying cohort in Ontario. 

Such investors are convinced prices will keep going up, as they have for decades in Canada. Their speculation on housing as a commodity, rather than as shelter, has led to mass hoarding. 

Canada now has 1.3 million empty homes , which means one tenth of its supply is not even being used. That’s the fifth highest of the 26 advanced economies of the OECD. China, which has also seen speculation mania, now has 65 million empty homes. But its authoritarian leaders are cracking down. 

This army of housing investors in certain parts of the globe is running on confidence. But that’s also the thrilling feeling speculators had in Spain, Ireland and parts of the U.S. before 2008 — when the bubble burst. 

Many of the cities and suburbs that had loosened their zoning rules back then to make possible massive construction booms ended up looking like ghost towns. 

dtodd@postmedia.com 

Twitter.com/@douglastodd

  

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Douglas Todd: Developers build housing to maximize profits, not to help affordability

Analysis: Properties that could be developed for housing are often withheld from the market in anticipation of greater future gains, says professor. That's regardless of softened zoning.

Author of the article: Douglas Todd

Publishing date:Feb 23, 2022

Housing developers try to make sure they don’t sacrifice future financial returns by flooding the market with housing during just one period, says housing professor Cameron Murray.

Housing developers try to make sure they don’t sacrifice future financial returns by flooding the market with housing during just one period, says housing professor Cameron Murray. PHOTO BY MARK VAN MANEN /PNG

A retired developer says the goal of the property industry is to complete new housing supply when it can maximize profits.

 “The real-estate development business is very much about market timing,” said Arny Wise, who spent his career planning and developing scores of housing projects in Toronto and Vancouver.

“They want to time it so their development goes to market when the market is good. They don’t want to sell into a crappy market,” said Wise, who does not condemn developers’ practice of aiming to sell houses when prices are riding an inflationary wave. Like other businesses, he said, developers are out to earn profits.

But since politicians in B.C. and Ontario are maintaining that building a massive amount of new housing supply is the solution to lowering astronomical prices, Vancouver-based Wise said they need to recognize reality — “There is no reason to expect developers to accomplish a social good unless (politicians) force them to.”

B.C. NDP Housing Minister David Eby and Ontario’s Conservative premier, Doug Ford, have recently said loosening zoning rules and building far more housing quicker is crucial to solving the housing crisis. The average Canadian house rose in January to $812,000 — a rise of 43 per cent from late 2019 and a jump of 97 per cent from 2015. Prices are much higher than that in Toronto and Metro Vancouver.

But Wise said it is not possible to build housing fast enough to end the unaffordability crisis, unless politicians also address demand by domestic and foreign housing investors. The only way developers will build affordable housing, he said, is if governments require them to when they issue permits.

A University of Sydney scholar goes further than the former developer in monitoring and questioning the phenomenon of “land-banking,” in which properties that could be developed for housing are often withheld from the market in anticipation of greater future gains.

In a peer-reviewed study called Time is Money: How Landbanking Constrains Housing Supply, professor Cameron Murray found that developers don’t necessarily build more housing faster after politicians soften rules and hike zoning density to encourage them to do so.

“The amount of zoned supply in a region is unrelated to the rate of new housing supply,” Murray writes. “Housing developers routinely delay housing production to capitalize on market cycles.”

 “The city of Vancouver has added more housing units per capita than any city in North America over the last 30 years, yet housing prices have increased faster in Vancouver than any other North American city,” says UBC planner Patrick Condon.

Why more housing supply won't solve unaffordability

The Ontario premier is backing a task-force recommendation to build more than 1.5 million homes in the next decade.

But a Bank of Montreal economist, Robert Kavcic, said the target is impossible and ill-conceived, in part because “most of this supply will come to completion after demand has rolled over and the millennial-led demographic boom has peaked, saturating the market for a long, long time.”

Both Kavcic and Wise believe the overpriced housing bubbles of Toronto and Vancouver are due for a crash.

Since developers construct housing to maximize returns and not to accomplish a social benefit, retired developer Arny Wise believes politicians must sometimes require them to do so.

Since developers construct housing to maximize returns and not to accomplish a social benefit, retired developer Arny Wise believes politicians must sometimes require them to do so. PHOTO BY HANDOUT BY SUBJECT /jpg

In another paper on what is called the housing-supply “absorption rate,” Cameron explains developers’ logic in delaying housing sales, even if they control an enormous pre-zoned land bank of property.

“Basically, if you sell today, you can’t sell tomorrow. And hence you must ensure you don’t sacrifice future returns, due to higher-priced sales next period, by flooding the market this period,” said Cameron. Sometimes, he said, it’s called land-hoarding.

Developers look for the absorption rate, or “optimal” rate, to put housing on the market, Cameron said. Developers’ annual reports, he said, often point to their strategy of slowly rolling out new housing construction over a long period of time.

“It’s the built-in speed limit on housing development. If it pays to delay and sell next year, that’s what they will do.”

Since Wise, the retired planner, agrees most developers construct at a pace designed to maximize returns and not necessarily to provide a social benefit to the public, he believes politicians must sometimes require them to do so.

He cites how Vancouver’s massive Oakridge Centre development, which will eventually include more than 3,300 homes, mostly condos, has won city approval while only being required to make a fraction of units affordable for renters or buyers.

The asking prices for Oakridge Centre condos currently run at the “insane” levels, he said, of more than $2,000 a square foot.

Wise maintains the city should mandate one third of the Oakridge development, the largest single project in the city in more than 12 years, for low-income families, one third for middle-income earners and one third for “high rollers and investors.” 

dtodd@postmedia.com 

@douglastodd