Induced traffic is a phenomenon in which new or expanded roads and highways that are promoted
as an answer to traffic congestion fill up quickly because they encourage more driving
to happen. With the new road space, people take more trips, switch trips from other modes
to driving, and become less careful about avoiding rush hour. They also might be encouraged
to move further away from their job and accept a commute with more driving. Exactly how fast
the new road space fills up depends on lots of factors; very congested roads, when widened,
fill up especially fast. Induced traffic is why road congestion is a constant problem
that cities, especially growing ones, never seem able to beat. For more detail, check
out the excellent paper from the Victoria Transport Policy Institute linked in the description
or our video on the topic which we’ll link here.
In the comments to that video some people asked whether the same concept can apply to
housing. If building new road space doesn’t necessarily help congestion, maybe building
more housing doesn’t necessarily help affordability either. This is an interesting idea and it’s
good to see people thinking more deeply about induced traffic. There are actually some intuitive
reasons why someone might think this. Easily the two most expensive cities in Canada, Toronto
and Vancouver, are known for the pace at which they’re building new residential high-rise
towers. Vancouver gives its name to Vancouverism, an urban planning philosophy built around
dense urban living, and Toronto at one point had more cranes in the air than any other
city in North America. It’s easy to see all the housing supply dominating the skylines
in these cities and wonder whether all of this building really leaves the city better
off. Does increased housing supply actually help with affordability?
Spoiler alert: it actually really does help. Building more housing brings more people to
live in a city but it also seems to have a real moderating effect on housing prices.
We mentioned that Toronto and Vancouver have a lot of housing construction but that’s
only partly true. These cities have a lot of really visible high-rise tower clusters
that stand out in the skyline, but that doesn’t mean they’re building enough or as much
as they could. Both cities have large swaths of land where most housing development is
prohibited, not just towers but also mid-rise apartments and even low-rise multiplexes like
you have in Montreal. With the goal of creating “stable neighbourhoods” and other cute
euphemisms, Toronto limits almost two-thirds of residential land to detached or semi-detached
homes, and Vancouver has similar policies. It’s not even just that we’re failing
to house more people—many older neighbourhoods of Toronto and Vancouver actually saw depopulation
as households became smaller and not enough new housing units were constructed to maintain
the previous population. The area west of the University of Toronto, where we’ve lived,
lost around 30% of its population between 1971 and 2016, and it’s not because there’s
any shortage of people wanting to live there.
Canada’s federal housing authority released a big study in 2018 on why Toronto and Vancouver
are so expensive. Among other factors, they found that the supply of housing in those
two cities is less elastic (or responsive to demand) than in the three other cities
they looked at: Montreal, Calgary, and Edmonton. Normally when prices rise you expect builders
to respond by building more, but when this doesn’t happen like in Toronto and Vancouver,
prices keep rising. What’s worse, rising prices make more people jump into the market
to buy, both investors looking for an asset that’s going to keep going up in price and
regular people with major FOMO who might not need to buy right now but who don’t want
to be priced out later. The result, as anyone who lives in Toronto and Vancouver can tell
you, is that prices spiral out of control. To be clear, zoning and community opposition
aren’t the only restrictions on supply in these cities. They also have a limited supply
of land because of water and, in the case of Vancouver, mountains. But having a limited
supply of land makes it even more important to allow more dense housing configurations.
There’s actually a lot of evidence that zoning and other government supply restrictions
make housing less affordable, especially in places with high demand that would otherwise
have high levels of housing construction. “When housing supply is highly regulated
in a certain metropolitan area, housing prices are higher and population growth is smaller.”
An influential 2003 paper in urban economics introduced a neat analysis of construction
costs and sale prices to find that the price to buy an apartment in Manhattan more than
doubles because of supply restrictions like height limits, difficulty getting permits,
and community opposition. More recently, researchers did a similar analysis in Australia and found
that zoning raised the price of detached homes by 73% and apartments by 85% in Sydney, with
smaller but still important effects in Melbourne, Brisbane, and Perth. The “zoning effect”
here is in purple. Very similar results have also been found in New Zealand, with regulation
doubling the price of a house in Auckland and having a smaller effect elsewhere.
Those findings were all at the large scale, usually the metropolitan area level. Many
people are also concerned with the local level where they worry that new housing supply doesn’t
help or even makes affordability worse in the surrounding neighbourhood. They worry
about gentrification, that new market-rate housing in less affluent neighbourhoods might
bring an influx of middle-to-higher income households, the people usually targeted by
new housing, and they’re followed by new restaurants and shops and other amenities,
which further attracts more middle-to-high income people, and the original lower income
residents get priced out. Before we get into that, it’s important to keep in mind that
making housing easier to build does not just allow development in lower income neighbourhoods.
It also allows development in higher income neighbourhoods, maybe even more so, because
those are usually the ones with the strictest zoning and the most ability to stop development
with political influence. Allowing more varied housing in wealthier neighbourhoods makes
them more accessible to a wider range of incomes and it’s easy to see how that’s good for
affordability and social cohesion.
But let’s focus on the lower income neighbourhoods. Does new housing there have this local gentrification
effect? A research review from UCLA shows that five of six recent studies suggest no.
New housing does to some extent attract more people in these neighbourhoods and increase
amenities, which might on its own raise rents, but that effect is more than cancelled out
by the positive effect of adding new supply. New housing, even if it’s targeted at middle-to-high
incomes, takes pressure off older and lower-end housing, freeing units up for lower income
people. And it’s important to point out when thinking about gentrification that banning
new housing doesn’t necessarily stop higher income people from coming into a neighbourhood
— but it does make them compete with existing residents for the same older houses. One of
the studies also finds that new market-rate housing in San Francisco reduced the chance
of nearby renters in rent-controlled apartments getting evicted. When rents rise fast because
new units aren't getting built, landlords have more incentive to evict people who are
protected by rent-control. The research review concludes that new “market-rate housing
improves affordability at both the metro area and neighborhood level.”
So why does housing supply matter for housing affordability? When you think about it, that’s
not weird, that’s what you expect. Whether something is abundant or scarce usually matters
a lot for its affordability, whether we’re talking about housing or food or most other
things. From this perspective the weird case is roads, because congestion seems to be surprisingly
unaffected by how much road space is built. So what’s so special about roads? As we
explained in our other video on induced traffic, the challenge isn't roads so much as cars.
Public transit and cycling don't have the same seemingly constant problem with congestion,
at least when given a comparable amount of space, because they take up so much less space
per person. A two-lane road mainly used by cars is a low-capacity corridor prone to congestion,
while the same space dedicated to bikes, buses, or trains can have free-flowing traffic at
much higher capacities. The lesson we should learn from induced traffic and car congestion
is not that it's impossible for the supply of roads to keep up with demand but rather
that it's really hard to accommodate cars specifically, especially in large or growing
cities, and especially when we make road access free. Free things are a lot more prone to
running out of supply. We could actually manage induced traffic and avoid congested roads
with congestion pricing. The same applies to parking—the book The High Cost of Free
Parking goes into detail, oh my god so much detail, on how parking being free can make
it much harder to find a spot.
There are lots of differences between driving and housing, which people will surely talk
about in the comments, but one big reason it’s easier for the supply of housing to
keep up with demand is that it’s much more practical to build up for housing. A ten storey
residence is practical and economical to build, but a ten level road is an absurd idea for
about a dozen different reasons, so we’re left with one or occasionally two-storey roads
that get congested easily, at least when they’re mainly used by cars. If you look at Toronto,
for example, there just isn’t room to substantially increase the supply of roads, but there is
plenty of room to substantially increase the supply of housing. Some people have the perception
that “Toronto is full” but the city could almost double its population if the suburban
boroughs like Scarborough and Etobicoke even had the population density of Old Toronto,
and Old Toronto isn’t even consistently that dense. With the population density of
Brooklyn, the city could triple its current population. Toronto has reached its capacity
for cars but not for people.
To recap the video so far, it’s easy to look at really expensive real estate markets
like Toronto or Vancouver, see all the housing dominating their skylines, and wonder whether
housing construction really helps affordability, but these cities aren’t actually doing a
very good job of building housing beyond the super visible towers in certain locations
that you can see from far away. Toronto and Vancouver have housing markets that are overall
more regulated and less responsive to demand than other Canadian cities, and there’s
a bunch of research, including from the U.S., Australia, and New Zealand, that supply restrictions—from
zoning to community opposition to uncertain approval timelines and other related obstacles—meaningfully
and even drastically harm housing affordability. As for whether induced demand applies to housing
like it applies to car traffic, it does apply in the sense that building more housing can
draw people into a neighbourhood or city, but it’s a lot easier for the supply of
housing to keep up with demand than for the supply of roads to keep up with demand, at
least if we assume the road will be used by cars rather than other more efficient modes.
Among other reasons, this is because housing can be built more densely when needed, whether
that’s a five-storey mid-rise or a 20 storey high-rise, and because roads being free to
use inflates demand for road usage.
We’re not saying in this video that it’s wrong to have rules about housing for aesthetic,
historic, or environmental reasons. We are saying that we need to pay attention to whether
these rules are restrictive enough that less housing gets built, because housing supply
really does matter. Limiting housing supply has real consequences for people. At the extreme
end this means more homelessness, which has been linked to low supply and high prices,
but the effects of a housing crisis go so much deeper than that. A housing crisis means
enduring long commutes, living in overcrowded or inadequate housing, not being able to move
out of your parents’ house, getting priced out of the city you grew up in, or making
it harder to start a family. Building enough housing does not solve all social problems,
but having a housing shortage makes a lot of problems worse.
Throughout this video we've assumed that new housing supply would be privately-built and
market-rate, because realistically speaking that’s how most housing gets built. That’s
obviously not the only type of housing possible — there’s also public or social housing
and housing co-ops. We actually spent part of our time in Toronto living in a co-op built
in the 1980s with federal funding that offered subsidized rent to some low-income tenants
and non-subsidized but still below market rent to the rest. It was a good experience
and we think cities would be better off if more people had the option for this kind of
housing. Importantly though, many of the same roadblocks to market-rate housing, like zoning
and community opposition, also affect public and co-op housing. From where we stand, there’s
just no way out of the housing affordability crisis that doesn’t involve making it easier
to build more housing.
Thanks for watching through to the end of the video. Don’t forget to liberalize housing
regulations and subscribe.