Much has been made of a recent study purporting to demonstrate that adding to supply has done little to nothing to bring greater affordability to Canada’s most unaffordable cities. Though I’m loathe to keep it in the limelight, I feel some responsibility to respond to the study, both because I was quoted in its initial media roll-out (despite not having had a chance to see the study), and because once the study was finally written and released it cited me – kind of – through an old press release for my book (To the author: thanks for citing me, though I might also recommend actually reading my book!).
Unfortunately, I need to start by noting that the study itself is not high quality, either theoretically or methodologically. The terms supply and demand are not conceptualized in the way the economists who more or less invented them use them (i.e., as terms in the balancing equation that constitutes the market pricing mechanism), but rather in somewhat idiosyncratic fashion. In part as a result, I initially found it a little confusing to respond to the study. I certainly agree that widening inequality makes our general reliance upon market-distribution of housing problematic for insuring equitable outcomes. In other words, the whims of rich people for a second or third home carry way more weight in the market than the shelter needs of poor people. That is a real problem that would be entirely consistent as an interpretation of the study’s findings. But that’s not the same as arguing that supply doesn’t matter, and indeed would even suggest that adding lots of non-market housing (new supply!) would be a direct way of insuring the housing needs of poor people outside of the market.
It would seem to me that the only reason to suggest supply DOESN’T matter is to effectively take off the table many policy options that might help address our current housing affordability issues. It’s kind of like we’re all in a sinking boat. Most of us are saying, “we’ve got to bail out this water and plug that leak in order to stay afloat!” But someone in the boat is picking a fight, arguing, “No! Look, we’ve tried bailing out water. Look at all the water we’ve bailed out! But now we’ve still got water in the boat. We should stop bailing out and just focus on plugging the leak.” That’s an interesting strategy, but I’d rather stick with bailing out and plugging up at the same time. (I’ll leave the economists out there to keep providing other metaphors).
So yes, I’ll continue to argue for more supply – especially by enabling more housing options on all that single-family residential (RS-zoned) land in and around Vancouver currently reserved only for millionaires. But I’ll ALSO continue to suggest we should be doing things to make the housing market work better, including (but not limited to):
- Taxing Vacant Homes (and vacant lots!) like Vancouver’s new Empty Homes Tax
- Raising Property Taxes, esp. in progressive fashion
- Rebalancing tax burdens from income to property, as with the clever BC Housing Affordability Fund proposal
- Cap the currently unlimited tax exemption of capital gains from sale of primary residence
- All of these things would make investment in housing as a commodity less profitable and help remove some incentives currently in place to sit on empty properties, without renting them out, in order to accrue the capital gains by doing nothing as the property appreciates (e.g. speculation). But if we’re truly concerned about housing affordability, let’s not tie one hand behind our backs. Let’s keep bailing out water and plugging the leaks in our housing market at the same time.
What about the methods of the study themselves? They need some work. For instance, the author uses different measures and different data sources to compare affordability across time, with the most recent data (taken from Demographia – not gonna link to them) also the least transparent. The author also only focuses on market purchase price (as opposed to rent and/or cooperative share price), effectively setting aside those for whom affordability is a more life and death matter. I’m not going to do a deep dive here, in part because with respect to purchasing affordability, even had the comparison been carried out more carefully, the same results would obtain. There’s no doubt Vancouver has gotten more expensive in recent years!
But what about that supply issue? Have we been overbuilding as much as the author suggests, adding an eye-popping 1.19 dwellings for every new household created since 2001? I replicated this result based on census data I gathered right after the first media report came out, and it deserves its own blog-post (up next! spoiler: I’m pretty sure we’re not overbuilding). Before I get there let me leave you with recent vacancy rates for rentals in Metro Vancouver. If we’ve got too much supply, it sure hasn’t hit the purpose-built rental market. Latest update just came out. Good news! We’re almost back up to 1%.