Toronto Area Housing Market Rigged Against Millennials

In a Globe and Mail column, Margaret Wente accurately describes Toronto’s housing affordability crisis and its principal cause. The Toronto area’s house prices have escalated strongly relative to incomes since the province enacted its “Places to Grow” urban planning regime. The resulting destruction of the competitive market for new residential has driven prices up, just as oil prices rise when OPEC implements strong supply restrictions.

Wente concluded her article:

“The solution to the affordability crisis isn’t high-density housing and mass transit in the burbs. It’s to give people what they want – by getting the ideologues out of the way and restoring a sensible balance between supply and demand. Can we do that and be environmentally responsible too? Central planners who think we can’t should be required to raise their families in an apartment block in Oshawa and take the bus to work. They’d find a better way soon enough.”

It’s no wonder that international researchers are increasingly pointing to house price escalation as a leading driver of rising inequality. Nor should it be surprising that a new Canada Mortgage and Housing Corporation report will issue its first “red warning” on Canada’s housing market, principally due to out of control house price escalation in the Vancouver and Toronto metropolitan areas.

Zoning and Urban Containment: The Need for Clarity

It is a terrible mistake to be confusing ALL zoning rules with the single true determinant of inequity in housing and economic mobility.

That is, can rural land at rural land prices, be converted to urban use?

This suppresses the price of all urban land to the extent that it is such a small input into “housing costs” relative to the cost of structures, it is very hard to push “house prices” up into unaffordable territory.

There is absolutely no city in the UK that does not have “house prices” at least double the price of the affordable, median-multiple-3 cities of the USA, in spite of the UK cities being 4 to 10 times denser than the US examples.

As long as you have urban planning or proxies for it, that rations the overall land supply, site values are highly elastic to allowed density, so much so that density correlates the wrong way with “affordability”.

This is a very important lesson that needs to be understood, fast, or there will be years or even decades of wrong policy made.


California’s Attack on Rule of Law

Morris Brown, founder of Derail (a citizen group opposed to California’s high speed rail project) writes over at Fox and Hounds Daily that newly enacted California Assembly Bill 1889 is unconstitutional.

Brown could not be more on the mark. In 2008, the California legislature had placed a number of protections in a Proposition authorizing bonds for California’s high speed rail line. These were intended as enticements to voters to approve the proposition. The legislature and Governor promised. The people approved. And, now the legislature and Governor have gone back on their promise.

In short, the legislature and Governor have revised the conditions of the proposition, something that requires a vote of the people. With respect to high speed rail (and perhaps other propositions) California has replaced rule of law with rule of men (and women). That this should have occurred with respect to a voter approved proposition is particularly egregious, since such measures (such as initiative and referendum) were Progressive Era reforms, under Governor Hiram Johnson in 1911, intended to permit the people to take legislative authority from the legislature and governor when they felt it appropriate.

Meanwhile, the California high speed rail project has become a legendary “white elephant,” with costs going through the roof and little hope for achieving the promised travel time between San Francisco and Los Angeles.

Brown’s analysis can be accessed here….

Why Intensification Will Not Solve the Housing Affordability Crisis

Analyst Phil Hayward of Wellington, New Zealand provides a provocative perspective on why urban intensification (densification in the urban cores) is incapable of compensating for the huge house price increases attributable to urban containment boundaries. Writing on Making New Zealand for Urban Planning that Works, he notes that “planners and advocates and politicians and even economists, are making an assumption that urban intensification is a potential route to housing affordability.”

The assumption involves changing zoning so that “X number of housing units” can be constructed in existing urban locations “instead of X number of housing units” on pristine ex-urban land. The latter is assumed to be an evil to be avoided, and that the former is a perfect substitute in terms of “sufficient housing supply to enable affordability.

Hayward continues:

Common sense tells us that there are quite a few potential problems with this assumption. For example, NIMBYs will obstruct the intensification and reduce the rate of housing supply so the policy will fail. Therefore, what we need is the removal of NIMBY rights of protest and appeal, and the policy will then work.

Hayward’s analysis suggests that:

And generally, the data runs in that direction - not only does intensification within a regulatory boundary "not restore affordability", it seems that the more density you “allow”, the higher your average housing unit price gets. The correlation runs the opposite way to the assumption.

Indeed, “Paul Cheshire and his colleagues at the London School of Economics believe this is due to the ‘bidding war’ at the margins of each income-level cohort of society, for ‘slightly more space,’" according to Hayward. “But when a market is allowing people to consume "as much space as they want", which has only really occurred in the automobile era, the “bidding war” effect is absent.”

Boston and Atlanta provide powerful examples.

…(The) difference is that Boston has de facto growth boundaries / green belts while Atlanta does not. The ironic implication is that fringe growth containment pushes median multiples up less, when there are severe restrictions against density – otherwise Boston should be the most expensive city in the data, not Hong Kong. The evidence suggests that this is because there is a total absence of “bidding war for slightly more space” - everyone has "more than they want" already. The median multiple of 6 rather than 3, represents the effect of demand for "living in Boston", period, and they simply don't provide enough houses to keep the median multiple down like Atlanta does (in the face of staggering population growth in Atlanta, by the way).

Perhaps the most important conclusion is that “there is no evidence that any city anywhere in the world has ‘freed up intensification processes’ enough to result in floor space being built faster than site values inflate.

The bottom line is a mistaken impression that high density housing “will remain available as a substitutable option to suburban family housing even if the latter is forced up in price deliberately by central planner's policies. The lesson that needs to be learned urgently, is that this is impossible; the two things are inter-related.”    

But when a market is allowing people to consume "as much space as they want", which has only really occurred in the automobile era, the “bidding war” effect is absent. The evidence supports this, with most median-multiple-3 cities being from 600 to 2500 people per square km. Another interesting case study would be Liverpool; it lost approximately 50% of its population from the 1950's to the 2000's (similar to Detroit) - yet its median multiple is over 7. And its density is still 4,400 per square km (presumably it would have been double this, or more, in 1950). This is prima facie evidence that 4,400 people per square km within a growth boundary, are still going to be dissatisfied with their living space, to the extent that they will be engaging in an unwitting bidding war against each other for a little more of it. Of course under these conditions, the lowest socio-economic cohort is denied all options other than crowding tighter and tighter in rented accommodation or even illegal “living space”. In UK cities, rental advertisements include options like a ¼ share in 2 rooms, with communal access to kitchen and bathroom shared by even more tenants in further rooms. In median-multiple-3 housing cities, the same real rent would apply to a whole house of reasonable size and standard. 

There might be other policy mixes by which housing supply within a growth boundary could be made the means of keeping housing affordable, but publicly and politically, the debate is nowhere near tackling the complexities involved.

Center for Opportunity Urbanism: America’s Housing Crisis

This video from Center for Opportunity Urbanism (COU) explores America’s housing crisis --- focusing on the new generation. COU is a non-profit dedicated to preserving the American dream and promoting upward mobility for all Americans. Check out the video and let us know what you think.

Resurrecting the New York Subway

The subway is crucial to mobility in the city of New York. Over the last 10 years, ridership increases on the subway have been more than that of all other transit services in the United States combined. It was not always this way.

In  New York Post article entitled "How Bratton's NYPD Saved the Subway System,"the Manhattan Institute's Nicole Gelinas describes the depths of the problem in 1990, when there were 26 homicides on the subway. Of course, there is nothing more important to civil society than order, and the threat to life and limb on the subway led to a significant ridership loss after 1980.

Gelinas notes that the murder of a Utah youth that year "would help propel Rudy Giuliani into the mayor’s office three years later, as Democratic voters turned to a Republican prosecutor to get a seemingly ungovernable city under control." Gelinas tells the story of how new transit police chief William Bratton brought the subway under control and helped to make possible the highest ridership levels since World War II. Gelninas notes that " Policing played a huge role in making Gotham’s subways safe, as it did in reducing crime throughout the city. In fact, the New York crime turnaround began in the subways, and what the police discovered about violence underground would prove essential to the broader battle for the city’s streets."

Bratton played an important role in this city-wide progress, after he was appointed as New York City's police commissioner by Mayor Rudy Giuliani. His success and is widely considered to have been influencial in the more effective policing strategies that have been, at least in part, credited with much lower urban crime rates in the last century. Indeed, the urban core (downtown) residential renaissance evident in many cities would not have been possible otherwise.

Portland Columnist Calls for Abandonment of the WES Commuter Rail Line

Portland Tribune columnist (see "My View: WES is a Mess: Time to Pull the Plug") Bill MacKenzie took the occasion of a Tri-Met (transit agency for the Oregon side of the Portland, OR-WA metropolitan area) approval to purchase two used Budd Rail Diesel Cars (RDC) for the Wilsonville to Beaverton commuter rail line to call for its abandonment.Fconcl In addition to the $1.5 million purchase cost, $550,000 will be required for refurbishment. When then are ready for service, they will surely older than most Tri-Met employees, since the last Budd RDC's were built in the early 1960s.

He mocks the agency's general manager, Neil MacFarlane, who justified the purchase as necessary to accomodate future passenger growth: "Oh sure, plan for massive ridership growth,"MacKenzie scoffs. He continues, In early 2009, TriMet predicted WES would have 2,400 daily riders its first year of operations and 3,000 by 2020." In 2015, the line carried fewer than 1,900 riders each weekday, and its cost per boarding was more than four times that of buses (not counting capital costs).

He concluded that: "Even if WES reaches 3,000 average daily boardings, operating costs per boarding ride will remain much higher than for buses and MAX. The fact is, WES is a train wreck. It’s time to shut it down."

Expo Line Expansion Fails to Stem L.A. Transit Loss

The long awaited and highly touted Santa Monica extension brought an approximately 50 percent increase in ridership of the Los Angeles Expo light rail line between June 2016 and June 2015. The extension opened in mid May 2016. In its first full month of operation, June 2016, the line carried approximately 45,900 weekday boardings (Note), up from 30,600 in June 2015, according to Los Angeles Metropolitan Transportation Authority (MTA) ridership statistics.

However MTA ridership continued to decline, with a 51,900 loss overall. Bus and rail services other than the Expo line experienced a reduction of 67,300 boardings (Figure).

Between June 2015 and June 2016, rail boardings rose 30,500, while bus boardings declined 82,400. In other words there was a loss of 2.7 bus riders for every new rail rider over the past year. Los Angeles transit riders have considerably lower median earnings than in the cities with higher ridership, and lower than the major metropolitan average (see the analysis by former Southern California Rapid Transit District Chief Financial Officer Tom Rubin and "Just How Much has Los Angeles Transit Ridership Fallen?" and ) here and here).

Note: A passenger is counted as a boarding each time a transit vehicle is entered. Thus, if more than one transit vehicle is required to make a trip, there can be multiple boardings between the trip origin and destination. Because the addition of rail services, as in Los Angeles, can result in forcing bus riders to transfer because their services can be truncated at rail stations, the use of boardings as an indicator of ridership can result in exaggeration, as the number of boardings per passenger trip is increased. This may have produced a decline of as much as 30 percent in actual passenger trips since 1985, as a number of rail lines have been opened in Los Angeles. 

How Demographics Explain the World

Demographics may not be destiny, but they do play a huge role in driving the fortunes of society and the economy. Sami Karam of Populyst joined me for a podcast on demographic trends around the world. The conversation ranged from the rise of China to the fall of Japan – and even why Occupy Wall Street failed to achieve lift-off.

Topics include:

  • 0:00 Introduction and overview of Sami Karam’s work
  • 2:20 Why Occupy Wall Street didn’t take off
  • 3:15 Demographics on the problems of the Japanese economy
  • 3:50 What does demographics tell us about the rise of China?
  • 7:49 What is the demographic future of Africa?
  • 12:45 How will declining European and booming African population interact?
  • 17:30 An overview of the Populyst Index
  • 21:32 Is the demographic dividend a Faustian bargain?

If the embed doesn’t display for you, click over to listen on Soundcloud.

Subscribe to podcast via iTunes | Soundcloud.

Compactness and Canadians

The May, 2016 New Geography feature, Are Compact Cities More Affordable? questioned whether the Vancouver region supplies evidence that Housing-Plus-Transportation (H+T) creates affordable living climates. Todd Litman responded with a critique; here's a partial response to Todd Litman’s comments, which are rich in assertions and advice but poor on science. Our full response can be viewed in the attached pdf. The central issue of whether there is evidence that the Vancouver Region as a whole offers the advantage of H+T affordability to its residents is bypassed. Hence, there is no research news.

Litman’s criticism centers on issues that undermine his thesis or on speculative data that would prove a point, if available, for example, bias in our data. Almost certainly, the data is “managed,” incomplete, erroneous and biased — but at the source: the Metro Vancouver report that advocates H+T affordability. A missed observation? The absence of figures on compactness makes it impossible to draw the sought-after correlation between affordability and density, the indispensable evidence for H+T. Yet the critique ventures to do exactly that.

Attempts to “prove” an association rest entirely on incidental observations of certain sub-regional districts based on personal “knowledge” of them without including density numbers, and by dismissing some as outliers or “special cases,” an unproductive attempt at science.

A track to demonstrate how alternative data could show that homeowners are not as well off as they seem leads to the unusual idea of limiting the sample to an improbable and undefinable set. Curiously, the source data is arbitrarily curtailed in a similar manner. Another missed observation?

Litman has previously cited as evidence the subject correlation for US metro-regions produced by scholars, a clear, scientific result. The sub-regional level correlation remains an open research task; incidental observations cannot fill that gap. New research windows open in our full response, which can be viewed in the attached pdf

The-Kind-of-Problem-Affordability-Is-Fanis-Grammanos.pdf643 KB