Housing Supply Issues?
I just spent the past week it the Bay Area, and it’s hard not to come away with an acute sense that there’s something wrong with the way that housing is working in the new economy
19 August 2021 · Issue #913 · View online
What happens if building more housing doesn’t work?
Does building more urban housing actually help affordability?
In the 21st century economy, with its heavy emphasis on creative, professional, digital and financial work, much of our economic bounty gets concentrated in a select number of superstar cities: Both obvious ones like New York, SF and LA, and also smaller trendy ones like Denver, Austin, pick your favourite.
To put it in Richard Florida Creative Class terms, any of these careers where your job is the creation of new forms of something – art, business, law, design, whatever – will benefit disproportionately from being around other people who are going similar things.
Understandably, there’s great demand to live in these cities: there are good jobs there, and they’re where you can find a certain kind of “good life” we’ll pay a premium for. In select superstar cities, you increasingly need a six-figure annual salary in order to make market rate rent, which most people don’t earn.
So, many people are priced out of ever being able to afford a place to live unless they make some real sacrifice that they wouldn’t have to elsewhere: either living somewhere very small or with multiple roommates, or living very far away and enduring a multi-hour commute every day.
If there’s so much demand to live in these places, shouldn’t the answer be increasing supply?
The argument is pretty straightforward: if you build more housing, prices will come down. Makes sense!
Anyone who’s spent any time in San Francisco will have heard this argument a whole lot: the answer to Bay Area unaffordability is to build more housing, and the biggest driver of local inequality and stagnating inequality are the local planning and zoning regulations that make it really hard to build more units anywhere.
The logic to this line of thinking is attractive, because not only does it make sense on paper, it also provides a convenient scapegoat for the source of all our problems: the NIMBYs.
The “Not In My Backyard” set, as the acronym has popularized, has become a placeholder name for the general phenomenon of existing landowners who, whatever their motivations may be, move to protect their windfall gains in the housing market by obstructing new development that could lower housing prices.
However, the story gets a little murkier when you look at cities that have handled the NIMBYs, yet find that it doesn’t seem to make a difference.Where I live, in Toronto, is a pretty good example.
Toronto is big and growing fast; it’s not quite New York level global megastar city but it’s one rung down, as North America’s fourth biggest city and a major financial centre.
It also builds a lot of the specific kind of housing that has emerged in high demand recently: dense condos and apartments that are centrally located or close to transit, and cater to downtown knowledge workers that earn good salaries as an entry point to the housing market.
They’re stacked vertically, so they don’t take up very much land, which eliminates the fixed supply of urban land as an unyielding constraint. This is the kind of housing that the free market advocates argue for: if this is what the market wants most, let them build it!
Now the question is: does mass-building this kind of housing actually move the needle on affordability? The anecdotal narrative around here certainly suggests otherwise, and recent data agrees.
Condos are getting built in huge numbers; they all get bought immediately, and for the most part, they’re all lived in. But no matter how many units get added, they don’t seem to be driving the price down at all.
It’s almost as if they’re drawing more and more money out of some sort of vast, hidden reservoir, and while it’s easy to blame foreign or investment buyers for this, or even Airbnb, that doesn’t really fit either.
The majority of this newly built housing stock is being used for its intended purpose, which is local people living in it. But it’s not helping affordability, nor is it helping the increasing opportunity gap between creative professionals versus the rest.
The market is supposed to fix this problem, but doesn’t appear to be doing so.
Why, though?
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Photo credit: Steven Wei on Unsplash