Building more isn't enough to lower home prices
Building more isn't enough to lower home prices
Incentivizing more supply will be one part of the solution, but ultimately, we need a comprehensive, multitargeted approach
The guy who runs Generation Squeeze says building more homes isn't enough to lower prices, because most people buying houses are already property owners. Property owners can either sell their current house to get a load of cash, or borrow against it to get a load of cash. Either way, they can pay a lot for their next property.
As evidence, he mentions that Alberta has less supply per capita than the rest of the country, but house prices are half those of Ontario and BC.
Here are the good bits:
While building more supply is absolutely important, setting ambitious targets does little good if property values continue to rise. Unless they are deeply subsidized by tax dollars, new market units will price in today’s high land values – which have soared well beyond what most can afford with local earnings whether the new homes are intended for renters or owners.
Plus all the focus on “Build! Build! Build” ignores that lack of supply isn’t the only, or even primary, factor influencing the price of rent and ownership. You could be forgiven for thinking otherwise, since undersupply has become the dominant narrative shared by Canada Mortgage and Housing Corp. and a variety of financial institutions.
The Bank of Nova Scotia, for instance, published reports lamenting that Canada has a smaller number of private dwellings per capita than the G7 average, blaming this ranking for much of our unaffordability problem. This leap in logic begs questions, since the same Scotiabank data also show that Alberta has lower levels of housing supply per capita than most other provinces, yet home prices in Alberta are about half as expensive as those in Ontario and B.C.
...
Mr. Pomeroy [who published a study about this stuff] encourages us all to widen our focus to include the vicious cycle by which rising home prices drive rising home prices.
First-time homebuyers are a minority of purchasers. They compete with many Canadian buyers who have already owned in the market. Bolstered by the equity they’ve gained from surging home values, existing homeowners bid up the price of housing to levels that are disconnected from earnings paid by local jobs. This was especially true prior to recent interest-rate hikes, because historically low interest rates made it cheap for homeowners to liquefy wealth windfalls created by skyrocketing home values.
Some homeowners bid up the price of housing simply to relocate. Others do so to purchase an investment property in search of additional wealth windfalls.
The latter are among the one in six Canadian homeowners who own multiple properties. Most are over the age of 55. To pay the mortgages on their investment properties, they increasingly collect rent from younger residents with dashed dreams that a good home should be in reach for what hard work can earn.
This reveals that the vicious cycle by which those enriched by high home values bid housing costs ever higher isn’t just ruining the market for aspiring owners. It is also breaking the rental market, as confirmed by the record-high rents reported this summer.
To disrupt this vicious cycle, political leaders must help break Canada’s cultural addiction to rising home prices by endorsing the plan that governments will use all available policy tools to stall home prices for the foreseeable future.
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While I understand the views of this article, I don't believe it. It's true that if we build 100k homes in each province, it'll do little to dent housing prices. We don't need 100k new homes, we need like a million in each major city. People keep talking about how big of a deal building a few thousand homes are, but they're literally a drop in the bucket at this point when we should be increasing the supply not by 1-2%, but a good 20-40%.
And while I agree that not everybody would be looking to get their own personal house, increasing housing would vastly let up the pressure on rentals as well. And making rentals cheap enough that you could get one while working part time as a student would also mean that the moment you get a full-time job, you'd have the free time to do everything you could want to improve your life. The fertility crisis we're having wouldn't be such a big deal either, not to mention all the stress the young are dealing with since they know that moving out of home before 30 is a pipe dream for most of them.
People keep talking about how big of a deal building a few thousand homes are, but they're literally a drop in the bucket at this point when we should be increasing the supply not by 1-2%, but a good 20-40%.
I think that's the gist of the op-ed - we're unwilling to build enough houses to flood the market and lower prices. So we need to deflate prices in other ways.
No I think the op-ed is trying to say that no matter how many homes we build, it won't matter because those who already have homes can just leverage those homes to take on loans to buy more homes, preventing those who don't have them from actually buying homes since they're always at a deficit compared to those who are effectively already rich.
What I'm saying is that if the supply of homes increase by something like 40% across the board, it won't matter if many of these people buy a second or third home, as it's not like every person with a house is going to buy more. And even if they do, they'll resort to renting them out because a home they're not actively using is nothing but a cost that has a high chance of costing more than anything they can sell it for in a few decades due to property taxes. If they do rent them out, they'll be competing with a massively increased rental market, lowering prices or else dealing with property that is costing money rather than making money.
A net win even if everything this person says comes true. And if it doesn't, we have a massive influx of homes that'll push down prices. The only issue is that we'll be dealing with a new and long term recession as the retirement plans of millions go out the window. It's a risk but taking this risk is the only way to prevent this problem from increasing perpetually, or else the housing prices crashing due to the bubble popping anyways.
Why do people always act like can only be one thing done to resolve the housing issue.
We could build our way out of this like a screw can be driven in with a hammer. It would probably just damage the screw, the wood and do a poor job binding the materials. We could attempt to build our way out of this while seeing how much investors skim off the top.
An extra few hundred thousand houses is going to take years if not decades to get built but we could have new taxes in the span of months and the houses would still be built. However none of these are even the real issue.
@SamuelRJankis @Dearche I do agree that building our way out of this is not really feasible. What we need is a combination of building, permit reform, increased wages, immigration management, and a focus on growth of smaller cities into larger ones. Take some of the focus off Vancouver, Toronto, Edmonton, etc. They shouldn't matter as much as they do.
Frankly speaking, some of those proposals won't work I think, and others are little more than bandage solutions.
Increasing the size of cities won't work, as if you look at satellite photos, you can see that Toronto (as an example) is entirely urbanized about 40km from the lakeshore north, the entire coast westward to Niagra, and eastwards for almost 100km. The urban areas attached to Toronto is basically massive enough that you could spend 4+ hours on the highway just to get from your home to downtown Toronto, and that's not taking into consideration that in Toronto, it's actually faster to walk than drive in certain parts during rush hour due to all the traffic already in downtown.
No, what we need is to be allowed to grow upwards, not outwards. We don't need more houses that are 3+ hours away from work and daily necessities, but places that are in walking distance from at least one of them, and no more than 30 minutes from the other. This can either be done by building 30 floor office buildings out in the suburbs, with a few square kilometers of parking dedicated to those buildings, or we can build up the major cities and tear down the single and two story detached houses. If you make it easy to build low and mid-rise buildings along with other high density mixed-use housing, home prices will naturally fall, making other big changes unnecessary.
@Dearche Please read what I said closer. "a focus on growth of smaller cities into larger ones" - we've concentrated and are having the greatest housing crisis in Vancouver, Toronto, etc. There is room to grow and it's totally reasonable to do so in places like Kamloops, Grande Prairie, etc. (my experience being western Canada).
Larger centers DO need to grow upwards. Those are permitting issues primarily, and I agree that needs to be fixed, also as stated.
I saw that bit, but the reason why I didn't really mention it is because people tend to chose to live where the money is at, and that's the big cities. I know how just saying that is a bit condescending towards small cities, but the fact of the matter is that it's the big cities that are having the biggest housing problems (though I admit they're not the only ones). Small cities have little issue doing the same mistake that big cities have been making the last hundred years as they haven't reached a critical mass yet, and you can argue that it's the small city charm of being more spread out, even if it gives them a massive economic disadvantage.
But the problem for big cities is that by spreading out, they swallow up and destroy small cities. That wouldn't be much of a problem if development didn't cause people who work in the big cities to start living in those small cities just to have a place of their own. I knew people who worked in Toronto, yet lived in Barrie, and from what I can tell, a significant percentage of people in Barrie do the same. The same goes for those who live in closer cities around Toronto, but I point out Barrie specifically because it's over 100km away from Toronto, yet still suffers from this problem.
It's the big cities that need to fix up their act when it comes to housing, not the small cities, as the small cities need to concentrate more on improving their economic activities. I do admit that they can do both at the same time, but creating a hearty downtown core should be the priority for them, or else they'll forever just be the backyard of bigger cities that offload their housing crisis onto the small cities.
It would help a lot if the governments would actually lead or if people would actually vote for people who would lead.
99% politicians will only reactively look into solving any problems 10 years after they should. Imagine if we started building inter province transit systems and walkable cities 20 years ago.
It'd be amazing if we could build that number of homes. We should try to build as many as possible. However, it seems unlikely that we'll get anywhere near even the modest targets the various levels of government have set for themselves.
In the meantime, we should explore other avenues to lower the cost of housing. The housing crisis has many causes, so it makes sense that it'd have many solutions.
So we need to deflate prices in other ways.
You can't redistribute your way out of a shortage.
In Canada there are 15m private dwellings and 38m people.
That's one house for every 2.53 people.
I have 5 people in my house (wife, 3 kids)
I think there is plenty to go around and it's not a shortage thing.
The average Canadian household is less than 3 people due to high rates of single child households and high divorce rates. That leaves quite a few families of 3-4 occupying 2 different residences. Not to mention all the single people who have their own place but are looking, then all the younger people who are past 30 yet still haven't moved out of their parents places because they have no hope of affording their own home within 100km of where they already live.
You are an exception amongst exceptions. Not only are you still attached, but you have more than 2 children. And while divorce rates aren't nearly as bad as some would perceive, the rates of families with more than one child, and especially more than two, are so dismally low that the official fertility rate of Canadians is currently at 1.484, with a ton of that being bolstered thanks to immigrants.
The op-ed's point about Alberta suggests we aren't in a shortage, so much as house prices are overinflated.
increasing housing would vastly let up the pressure on rentals as well.
The elephant in the room is that the housing market crashed in 2022. Rent is high right now because nobody wants to buy into a crashed market. If you have somewhere to rent, why would you buy right now? The dead cat bounce we're watching might trick a few people, but on the whole? Houses will almost certainly be a lot cheaper in another year. It took around three years to find the bottom when the US housing market crashed and it is likely we'll see something similar.
So, by the same token, what incentive is there for someone to build new units right now? Once the housing market finally does find the bottom those renters are going to start thinking about buying again. The rental boost is only temporary and likely to be gone by the time you get around to building something new – something that cannot happen overnight.
I was looking at the numbers, and while I agree to a certain point (if prices are going down, it's better to rent and hope that prices will continue going down so you can buy at the best price possible) but prices have shot back up since the last year and are almost at the 2021 prices in the span of a single year. We had a temporary dip in prices, not any form of a drop.
And as for incentive, there's a massive amount. With prices as high as they are, it's entirely a seller's market, and if you can make more homes, you basically have as much cash to take as you have homes to sell. The issue is that builders aren't able to build new homes due to legislation, zoning regulations, and plenty of other hurdles placed. I keep seeing so many properties that have "we are planning to build this skyscraper condo here once we have our permit" and the old building just sits there for 3-5 years before they get their approval.
but prices have shot back up since the last year
They did shoot up, but then started to fall again. A class, textbook perfect, dead cat bounce. The surest sign of all that the market has crashed.
With prices as high as they are, it’s entirely a seller’s market
It's not. Because people are reluctant to buy into a crashed market, there aren't many to sell to. High prices does not mean a seller's market, that just means that sellers want a high price. Housing is notoriously sticky. People can sit on properties for years at a time in hopes of getting a high price. Generally speaking, people buy houses for the long term, so they don't need to sell them any time soon.
That might change as more and more mortgages start to get renewed. If you can't afford a property anymore, that becomes a good reason to get a deal done as fast as possible. But a lot of people are still enjoying low interest mortgages, and the rest were stress tested into a mortgage they can still afford even with high rates. Again, there isn't much pressure to sell for a low price right now. One can just keep the house on the market indefinitely to see what happens. If nobody buys, oh well?
Eventually a reckoning will occur when people start to realize the high price they want isn't going to happen, and will eventually start to settle for low offers, but that can take years to play out.
The issue is that builders aren’t able to build new homes due to legislation, zoning regulations, and plenty of other hurdles placed.
An even bigger problem was that there weren't enough builders. Anyone building houses was booked up for years at a time. Even if there were no hurdles, there wasn't the people to get the job done. Higher wages would have been needed to get more people interested in construction work, but that would mean an even higher cost of housing.
That isn't the case anymore, though. Many home builders are now looking for work. New home starts have cratered. Nobody wants to get involved in a crashed market – hence why rent has skyrocketed.
Hmm...looking closer at the stats, I suppose you have a point. The number of sales are definitely down, even if only marginally. Though the prices of property is going up, it's not by as much as the drop in total sales.
While I refute that this is definite proof that the bubble is deflating (hopefully not bursting) I'll admit that it is evidence pointing towards that as long as the trend holds in the grander scheme of things.
I'll refrain from saying more until we see how the numbers move once interest rates drop back down, as I believe this is one of the biggest causes for the drop in home sales at the moment. Home prices were out of control back when interest was only 0.5%, so it's a given that the market would cool off when it's ten times that.
Honestly, I hope you're right and this'll mean that housing will cool off and slowly reach a decent level, but I doubt we'll get it that easy and we'll be dealing with a crash with the economic fallout going with it while still having a massive housing shortage a decade from now.