I have long been interested in the possible relationships between climate and economy. Because my unproven hypothesis is that, given the choice, most city dwellers would probably prefer to hang out on Ipanema beach and drink caipirinhas in the sun than sit in a windowless cube farm toiling away on cover pages for TPS reports.

Well it turns out that there is some science to support this theory. A 2012 study by professors at Harvard and the University of North Carolina did in fact discover that people tend to work a little harder and focus a bit more when the weather is crappy outside and they're not distracted by the promise of glorious sunshine.

This Scientific American article from 2013 also argued that there are physiological reasons for why we're maybe not as sharp in extremely warm weather. The possible science is that excessive heat is more taxing on our body (compared to the cold) and so more energy is required to maintain homeostasis. That leaves less mental capacity for TPS cover pages.

Of course, these sorts of ideas aren't all that novel. For centuries, economists as well as many others have posited that climate could be one of the reasons why geographies like northern Europe have historically had a higher standard of living than the south. It instilled work ethic and an awareness of deadlines. If you didn't plan accordingly, you would starve to death in the winter.

But we also know that climate alone won't do it. There are many examples of tropical cities with advanced economies and high-functioning societies. (The invention of air conditioning surely played a meaningful role.) And on the flipside, there are many examples of cold shitholes. So it's complicated. But all this being said, doesn't a caipirinha on the beach sound nice right about now?

Photo by TAIS HELENA DE CARVALHO on Unsplash

There is a commonly held view that short-term rentals (such as the ones you might find on platforms like Airbnb) are bad for housing affordability because they take long-term rentals out of the market and they help to drive up property values. And there's evidence for this. A study published in Harvard Business Review found that home-sharing alone might be responsible for about 20% of the average annual rent increases across the US.

Findings like these have encouraged municipalities around the world to put restrictions in place for STRs. But like most policy issues, there are nuances. And the thoughtful answers are rarely as obvious as they may initially seem. This has been part of my complaint around inclusionary zoning. It sounds good when politicians say it: let's just get developers to build us free affordable housing. But again, there are nuances to consider.

Short-term rentals are similar. A recent follow-up study that was again published in Harvard Business Review has actually uncovered some interesting longer-term benefits to STRs.

Using residential permit data, Airbnb listings, and STR policies across the US, the team found that when you look over a longer time horizon, Airbnb listings actually tend to increase the supply of residential housing. On average, a 1% increase in Airbnb listings led to a 0.769% increase in permit applications. Supply is of course good for a whole host of reasons, one of which is boosting the local tax base.

Conversely, they found that restricting STRs tended to reduce the supply of new housing and renovations. After new regulations were put in place affecting STRs, Airbnb listings fell on average by about 21% and residential permits fell by 10%.

Restrictions also seem to have a direct impact on the construction of things like accessory dwelling units (laneway and garden suites for us here in Toronto). When analyzing data in and around the borders between jurisdictions in Los Angeles County, the researchers found that areas without STR regulations saw 17% more ADU permit applications compared to the areas that had restrictions.

For the 15 US cities that the team studied, they conservatively estimated that STR restrictions reduced property values by about $2.8 billion and impacted tax revenues by about $40 million per year. Some cities, like Chicago, have also found success using STRs as an economic development strategy in distressed neighborhoods, which would further bolster the tax base.

All of these findings suggest that a more nuanced approach to STR policies is probably merited.

Photo by Andrea Davis on Unsplash

If you're trying to figure out how to make housing more affordable, it should be fairly obvious that it's probably a good idea to actually understand the costs associated with building new housing. That is, more or less, the title of this recent series by Brookings about innovation in design and construction. The four-part series is based on the findings of a report that was written by Hannah Hoyt and published by Harvard's Joint Center of Housing Studies and NeighborWorks America.

Now, costs vary by geography. Each city has its own nuances when it comes to development. And this should not be construed as a silver bullet. But what they are trying to do is identify design and construction savings to help the overall equation. Part of their argument is that building typology matters. Build smaller -- hopefully out of wood -- and you can bring your hard costs down. The problem with this thinking is that the trend lines are moving in the opposite direction.

Here is a chart from the same Brookings article:

In 2000, about 23%, or almost a quarter, of all multifamily units completed in the US were in a building with fewer than 10 units. As of 2018, that number had dropped to somewhere around 5%. At the same time, the number of completed units in buildings with 50 or more units has gone from 14% in 2000 to about 61% in 2018. Things got a little wonky after the global financial crisis, but generally the trend lines are pretty clear.

Some of this likely has to do with our "return to cities." But I think the bigger part of this story is that development cost structures are pushing the market in this direction. For more on this topic, check out: Demystifying the development pro forma.