If you follow the housing debates in Toronto and Vancouver, you’ll have undoubtedly heard the claim that the affordability challenges facing both cities are the result of supply problems. Common complaints include a lack of new housing, burdensome regulation and flawed zoning.
This “supply narrative” has been endlessly repeated. There’s only one problem: there’s no good evidence for it.
Consider the following pieces of inconvenient evidence. First, there have been no major changes to the regulatory framework around supply in either city since the early 2010s. Yet benchmark house prices in both cities have risen between 75 per cent (Vancouver) and 115 per cent (Toronto) since 2010. If there has been no significant regulatory change on the supply side, then this suggests that price appreciation reflects changes on the demand side of the equation.
Second, rates of housing construction have remained very strong for several years. In fact, in Vancouver there were more housing completions from 2015 to 2020, in the midst of the housing crisis, than there were in any five-year period before that. In Toronto, the rate of housing completions in the same recent period was second only, for recent decades, to the pace set between 2000 and 2004.
This broad pattern applies to rental construction too. For example, Vancouver saw more rental completions in the five years from 2015 to 2020 than in the previous 15 years before that combined; Toronto, meanwhile, saw the fastest pace of rental construction since the early 1990s.
Rather than weak supply, then, the issue has been intense demand pressures, including cheap credit, foreign ownership, speculation and high rental demand emanating from a previously strong labour market.
Third, sharp increases in housing prices have happened in many cities surrounding Toronto and Vancouver, even though there are far fewer regulatory and geographic supply constraints in those areas. This suggests that housing prices can rise sharply in the face of strong demand pressures, regardless of the regulations in place.
Fourth is the question of zoning. A common claim by so-called YIMBY (“yes in my back yard”) activists is that single-detached zoning is a central cause of housing unaffordability, since it constrains the land that can be developed and thereby drives up land and housing prices. However, there is no clear relationship between the prevalence of single-detached zoning in Canada and the level of affordability in a city. If anything, Canadian cities with the highest share of single-detached houses have the least intense affordability challenges – the opposite of the hypothesized relationship. Indeed, Vancouver has the lowest share of single-detached housing among urban areas in Canada, while Toronto is fourth-lowest.
Of course, that pattern exists not because single-detached zoning causes improved affordability. Rather, it’s because strong demand pressures tend to cause both denser housing patterns and higher prices.
Housing form is basically irrelevant to the affordability challenges in an urban area. That’s why Hong Kong and Manhattan are highly unaffordable, even with no single detached houses in sight. Similarly, paragons of “missing middle” housing, such as London and Stockholm, are also highly unaffordable.
The commonality between these expensive cities is very strong demand pressure, not housing form or zoning – and that’s the best indication of what’s driving prices up.
There are several peer-reviewed articles that document the connection between demand-side factors and housing prices in Toronto and Vancouver, particularly the role of foreign ownership and speculation. Yet that peer-reviewed research is dismissed or ignored by advocates of the supply narrative. In fact, the case for the supply narrative is so weak that, after several years of research in this field, I have yet to encounter a single academic peer-reviewed article which documents a substantial causal link between supply-side factors and housing unaffordability in Canada.
So why is the debate so evidence-averse? Because the narrative is useful to powerful people.
The supply narrative does two things. It helps stymie action on the demand-side, which might actually bring prices and rents down, while giving cover to governments who want to pretend to care about affordability for the middle class. And it is a useful weapon for developers seeking to gain various policy concessions, including rezonings from municipal governments, which deliver windfall land appreciation.
The vested interests behind the narrative are relentless, since there are billions in profit to be had. Why let pesky facts get in the way? Such interests, and their noisy Twitter allies, are trying to win the debate through sheer repetition.
However, housing affordability will suffer to the extent that policy makers either buy into the misdirection, or use the narrative to deflect public pressure to take substantive action. Sometimes, then, it’s helpful to point out that the emperor has no clothes.
https://www.theglobeandmail.com/opinion/article-the-supply-crisis-in-canadas-housing-market-isnt-backed-up-by-the/
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