Colleen Hardwick's theory of home prices is wrong

Prices reflect scarcity.

Direct link to Colleen Hardwick berating a speaker (video posted to her YouTube channel)

Colleen Hardwick, the TEAM mayoral candidate, is often criticized for being opposed to new housing (including by the former president of TEAM).

She rejects the argument that scarcity is what’s driving up home prices, making us all poorer and worse off. (How this works: If there’s only 100 homes for sale, the market-clearing price is what the 100th highest-income person looking for a home is willing to pay. It’s even harder to buy a home if there’s only 50 homes for sale, easier if there’s 500 or 1000. When there’s few homes for sale, only rich people can afford to buy them.)

Her argument is that rezoning a site for more housing increases the price of the land, and that high land prices are what’s driving up home prices. What’s wrong with her argument? (I’d describe it as a fallacy, an argument that sounds right but is actually false.)

• She’s assuming that a builder buys land, pays for construction, and adds profit, and then that’s the price that they sell new homes for.

• This is a misunderstanding. The key thing is that a builder is a price taker. They have to take the selling price that they can get. A builder can’t just raise their price because they have higher costs. If they raise their selling price above the market-clearing price, they’ll end up with unsold homes. (Conversely, if their costs happen to be lower, they’re not going to lower their price!)

• The selling price that a builder can get determines how much they're willing to pay for land, not the other way around. Land price = selling price of final product minus cost of construction and profit. Rezoning increases the price of the land because it increases the amount of housing you can build on it. (If you rezone land where demand for housing is low, say on the outskirts of Saskatoon, nothing happens to the land price.)

Besides her opposition to more housing, another potential issue is that in public hearings, Colleen Hardwick is often intemperate and hostile. This may make it difficult for her to be an effective mayor, especially in dealing with city staff.

• Video of Colleen Hardwick berating Michael Mortensen at the public hearing on the Streamlining Rental Plan

• Full video of Michael Mortensen’s presentation to council and subsequent questions

Of course housing isn’t the only question. As more people move to a neighbourhood, we also need to build up public services like child care, schools, community centres, and transit.

It looks like another close race between Kennedy Stewart and Ken Sim (although of course the polls are always changing). The latest poll has Kennedy Stewart at 36%, Ken Sim at 34%, Colleen Hardwick at 14%.

Kennedy Stewart is on the centre-left (he’s a former NDP MP) and Ken Sim is on the centre-right (he ran as the NPA’s mayoral candidate in 2018). Setting aside the housing question, as a federal Liberal who believes public services are important, I prefer Kennedy Stewart to Ken Sim’s “less public services, lower taxes” approach.

Colleen Hardwick is saying that she’s centre-left, and she’s a federal Liberal. If it’s clear she’s not going to win the mayoral race, some of her supporters - those who are progressive, but skeptical of new housing - may also decide that they prefer Kennedy Stewart to rolling the dice on Ken Sim.

• Colleen Hardwick interview with Vancouver Magazine, September 2021

• Interview with Coastal Front, July 2022

• Interview with Mike Howell, September 2022

• Profile by Justin McElroy

[Disclaimer: I’m running for city council with Kennedy Stewart’s slate, Forward Together - we need more housing - but I’ve tried to understand Colleen Hardwick’s arguments and rebut them fairly. The video is from her YouTube channel.]