We need to increase housing starts per capita
Downward pressure on asking rents isn't easy to see
A practical question for politicians: if you’re trying to fix a housing shortage, and you want to demonstrate that you’re making progress, should you focus on the amount of housing being built, or on prices?
After Auckland upzoned in 2016, there was a clear and immediate impact on housing starts.
This also put downward pressure on asking rents and prices - but you need to do some careful analysis to see the effect. A skeptic could easily say, look, we made all these drastic changes, and prices in Auckland are still higher than elsewhere.
Similarly for rents:
To make good decisions, you need this kind of data as well. But if you’re trying to demonstrate that you’re making progress, it’s probably better to focus on housing starts, and in particular, housing starts per capita. As the population grows, we need to build more housing.
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Housing is a ladder - it’s all connected. When we’re not building enough new housing, we get trickle-down evictions, and housing further down the ladder becomes scarce, just like when there’s a shortage of new cars, used cars also become scarce and expensive. Conversely, building new housing frees up older housing.
Demand elasticity. CMHC estimates that in BC, prices have to rise about 2% in order to reduce demand by 1%. Equivalently, with 1% more housing, prices and rents would fall about 2%, everything else being equal. But in the short term, prices and rents will go up and down depending on what’s happening with interest rates and with changes in demand. (Right now, rents are down because of Trump’s trade war and the weakening economic outlook.)
A large gap between construction costs and prices in Metro Vancouver. If we can loosen the approval and cost bottlenecks, what’s a reasonable target for prices in Metro Vancouver? CMHC found that in 2018, there was a huge gap between the cost of adding one more floor to an apartment building and the expected selling price. Building enough housing in Vancouver to close that gap (as in Montreal) would bring down prices and rents down by roughly 1/3 to 1/2.
To reassure older homeowners: there's a distinction between homes and land. Building a lot more apartments will make them cheaper (because there's more of them), but in places like Vancouver and Toronto where land is limited, the land should keep its value (or go up, since it can be redeveloped for greater density). So if you're an older homeowner with a detached house, you should be fine - most of the value is in the land anyway. For some actual data, see Auckland's 2016 upzoning.
The big advantage of market housing is that it scales. On top of that, we should build as much non-market housing as possible.