There are lots of valid debates when it comes to housing affordability, like the role or
design of rent control and how to balance heritage preservation and new construction.
But at the same time, there are some pervasive ideas out there that just don’t reflect reality,
which ultimately lower the quality of the debate and end up stopping any change from happening.
The first bad idea is that new housing must be “affordable” to help affordability.
Many people think that a new housing development that’s mainly accessible to the higher end of the
income spectrum doesn’t help, or maybe even hurts, overall affordability. The problem is
that new housing is usually more expensive than older housing, all else equal. But you still need
to build new housing now to have older housing later. On top of this, blocking new housing for
higher-income households doesn’t necessarily make these people disappear or move away. It does set
them up to compete with middle- and lower-income households over the existing housing stock though.
This doesn't just apply to housing. If you want a budget laptop, one of the best options is a
used ThinkPad. Companies buy them in large numbers for business purposes and then sell
them off after 3 to 4 years when they upgrade, leaving the used market flush with supply. The
result is that you can buy an older but very reliable business-quality laptop for $200–400.
Imagine if we banned or restricted the sale of new ThinkPads or Macbooks under the idea
that “we need supply, yes, but the right kind of supply, not luxury laptops”. This would
immediately increase demand for older models and gradually decrease supply of them, a recipe for
making them less affordable. We actually saw this in the pandemic when supply chain disruptions led
to a shortage in new cars and bikes, which inflated the market for used models too.
“Leighanne Thompson owns Fort Myers Auto Mall.
She says the computer chips that run our cars aren't being made fast enough. There
are less new car options, which is creating a hot market for used ones.”
This is sometimes derided as “trickle-down economics” but it’s backed up by evidence.
A recent study from Finland followed moving data and found that “new market-rate construction
loosens the housing market in middle- and low-income areas even in the short run”.
Of course, while we shouldn’t block new housing just for being expensive,
we can and should implement policies to encourage more new housing at lower price points too,
like supporting non-profit developers with land or money and broadly eliminating rules
like parking mandates that drive up the cost of budget housing.
The second myth is that housing doesn’t actually follow supply and demand.
Sometimes people say that market-rate housing can’t be affordable
because developers or landlords have no incentive to let it become affordable.
But this doesn’t explain why some cities are much more affordable than others.
Developers, landlords, and home sellers always want to charge as much as they can. They’d all
love to charge Vancouver or San Francisco prices. What constrains them is local market conditions
in their city — how many people want to live there, and what other housing options exist.
One American study found that U.S. housing markets fall into three main clusters.
First, cities like Detroit have low demand, low construction, and low housing prices. Second,
cities like San Francisco have high demand, low construction, and high housing prices. Finally,
cities like Atlanta have high demand, but this time they respond with high construction,
and as a result they have relatively affordable housing.
For more fine-grained evidence that supply and demand applies to housing,
a housing market analysis from the U.S. found that periods with low inventory available for sale
see bigger price increases. An analysis of apartments in Canada
finds the exact same thing; low vacancy corresponds to higher rent increases.
The Smart Prosperity Institute has linked the explosion in home prices in Southern Ontario
to a specific government failure to predict and plan for population growth in Greater Toronto,
which led to an exodus of people, especially families with children, to surrounding cities.
It’s understandable that people in very unaffordable cities feel hopeless about
housing costs but if you take a step back it should be clear
that the level of unaffordability that they’re experiencing is not inevitable.
The third bad idea about housing is that homeownership is everything.
Tons of people identify the source of the affordability problem as “property hoarders”
owning multiple properties. They propose bans on corporate ownership of housing and on individuals
owning too many properties. This actually sounds appealing at first, but the problem is that this
is where rentals come from. Lots of people are laser-focused on owning as the singular legitimate
way to occupy housing but eliminating the rental market or inflating its prices would actually
be pretty awful. Renting gives you access to housing without needing to qualify for a mortgage
or commit to a down-payment. Even if you have the money, tying your finances to one illiquid asset
in one housing market is in fact not always a good idea. Owning also makes it harder to
move for job opportunities. Renting obviously has downsides too, but that doesn’t justify a policy
of suppressing rentals. That’s what wealthy municipalities often do to exclude people.
Sometimes people arguing against “property hoarders” will respond that renting should
happen through a government or non-profit. Building more social and co-op housing to
increase options for renters is a great idea, but banning private rentals in order to switch
housing stock over to the buying market is fundamentally a policy prioritizing
buyers without giving much thought to the significant portion of the population that rents.
We’re not saying there’s no room for policy tweaks here. Maybe it should be
harder to borrow against one property to buy another. But so often when people make grand
proposals to restrict property hoarding, they’re thinking entirely of the buyers while forgetting
that it’s not realistic or probably even desirable for everyone to buy.
The fourth bad idea is that new housing won’t help because it’ll just get scooped up by investors.
This shows a weird discrepancy in how we think about new versus old housing. Investors are in
fact entirely capable of buying homes that were built 5, 10, or 20 years ago, but no one would
suggest that we ban existing homeowners from selling their homes because “there’s no point,
it’ll just get snapped up by investors”. That’s because it doesn’t make sense. Investors don’t
buy anywhere near 100% of housing, new or old. The numbers that scare people are headlines like
40% of Toronto condos not being owner-occupied, but that still leaves a majority of units lived
in by their owner. Additionally, do you know who lives in units that aren’t owner occupied?
Renters! The idea that new housing “doesn’t count” because of investors is wrong on so many levels.
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