Housing regulations often limit people to Tesla-level homes or nothing
I’m an economist, so I’m not flattered by those who say you could teach a parrot to be an economist. The bird would need to know only two words, the joke goes: supply and demand.
When the supply of any good or service increases, its price goes down. If the supply decreases or is less than the demand for that good or service, the price increases.
More potential consumers relative to supply means higher prices. Since what consumers want and need – demand – is hard to change, the easiest way to control price increases is to increase the supply. Reduced demand would also result in lower prices.
Let’s apply these basic Economics 101 ideas to the housing market in Vancouver and other major North American cities. Many people want to live in these cities. However, the stock of available housing is limited, often resulting in bidding wars among potential purchasers and ever-escalating home prices.
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Affordability becomes an issue. Grown children can’t afford to live near their parents. All but the very highest-paid workers can’t afford to live anywhere near their work. Firms can’t attract or keep talent and may take their businesses elsewhere.
Our well-trained parrot would have a simple solution to this problem: increase the supply of housing, especially the supply of affordable housing.
Political leaders recognize the situation but do little to increase the housing supply. Taxing vacant residences doesn’t do much since most housing isn’t empty.
Limiting foreign access to the housing market reduces demand to some degree. However, foreign demand tends to be at the top end of the housing market. Prices for multimillion-dollar dwellings will soften but this does nothing to increase the supply of lower-priced homes in which most of us live.
There are barriers to adding to the supply of urban homes. Geography is one. There’s only so much land on which to build close to a city centre.
But the constraints imposed by geography are nothing compared to the limits municipalities impose on themselves.
Zoning regulations about types of dwelling, height, lot sizes, etc., limit whole areas to a few very costly houses. A much greater supply of less expensive homes could be provided if zoning restrictions were relaxed.
Changing zoning isn’t easy. People who live in large homes on big lots in good locations don’t want changes to their quiet neighbourhoods. These are the NIMBYs. They see the need for more housing – but not in my backyard. Since such people vote and are influential, it’s hard for local governments to ignore them.
Many Californian cities have a classic housing affordability problem.
However, zoning changes were made across California to make housing more available and affordable. The state put forward legislation that would make zoning for single-family housing illegal.
This means multifamily dwellings could be built anywhere. Densities would increase, the number of housing units would rise and prices would fall. Basic supply and demand works again.
But there’s already major pushback from local governments in California, as well as NIMBY residents. We don’t know what the outcome will be, but the idea is worth considering.
Removing single-family zoning doesn’t mean that every neighbourhood turns into a forest of high rises. I live in a high rise but it’s one of few in my area. The quiet, tree-lined streets with attractive, individually designed mid-sized homes offer the feel of a single-family zone. But look more closely and you notice that almost all the buildings have been cleverly subdivided or built to contain more than one unit, side by side, front and back and on different levels.
Removing single-family zoning doesn’t mean you could never have a single-family house again. It just means there are more options about what kind of housing can exist in any area.
Other building and zoning regulations will need to be changed to generate enough affordable homes. For example, beautiful, low-cost houses have been prefabricated or built with shipping containers, but most cities wouldn’t allow such options.
In transportation, people have choices. You can drive a Tesla or, if you can’t afford a car, you can get an electric bike. In housing, our regulations often limit people to Tesla-level homes or nothing. We need to change rules and mindsets to allow for more homes equivalent to the electric bike.
Roslyn Kunin is a consulting economist and speaker.
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