Deeply affordable housing is mostly infeasible to build.
This is why you don't see the market naturally building this kind of housing on its own. It, for the most part, doesn't make any economic sense to do so. So this is also why the US has fabricated things like low-income housing tax credits. They are a way to make up the economic shortfall that exists with low-income rental housing and get the private sector building this kind of housing.
We sometimes try to convince ourselves -- or maybe it is a way of shirking responsibility -- that there can be such a thing as no-cost affordable housing through things like inclusionary zoning. But I think we all know that there's no such thing as a free lunch. Somebody is ultimately going to need to pay. The big question, of course, is who should that be?
By definition, we acknowledge that the people who will ultimately live in these affordable homes cannot afford to pay market rates. So by default, the subsidies will need come from somewhere else. But again, from where and from who? Should it be specific people who pay or should it be mostly everyone who pays?
If we return to the Toronto building industry's favorite topic right now -- development charges -- you'll see that under the current rates, every new 2 bedroom or larger apartment that is constructed must pay $3,727 toward affordable housing. Under the proposed rates, this will increase to $12,545 for every new large apartment. It's by far the largest proposed percentage increase (237%) and also one of the largest service items.
This raises two interesting philosophical questions.
One, should the buyers of new housing be responsible for contributing to affordable housing in this way? Because what we are in effect saying to these people is, "Hey, you can afford to buy a new market rate home, so we're going to collect some additional money from you -- $12,545 to be exact -- so that we can try and help those that aren't in the same position as you. We're also going to mandate additional affordable homes within your building and we'd like you to subsidize those too." This is one way to redistribute wealth.
But if the goal is to try and create more broad-based affordability, an alternative approach might be, "Hey, you already own a home and it has gone up a lot in value, so we're going to collect some additional money from you over time so that we can try and help those that aren't in the same position as you." This would be the property tax approach. It's probably not perfect, but might it be a more fair and equitable way to redistribute wealth?
The second interesting philosophical question has to do with whether this is consistent with the dogma that growth should pay for growth. The idea behind development charges (also known as impact fees in some parts of the world) is that they should pay for the cost of new development. This makes complete sense. When you build new housing you certainly need some additional stuff -- everything from additional school capacity to emergency services.
But the question here is whether the construction of new housing in and of itself creates a direct need for more affordable housing, and therefore should be charged for it. Asked in the opposite way, if you weren't building this new housing, would you then no longer need this affordable housing, just like you no longer need that additional school capacity?
This is definitely not the case. In fact, I would argue that the opposite is true. If you don't build any new housing in a growing city, you actually exacerbate the problem of affordability. So here's a provocative thought. Rather than a charge, should this affordable housing line item actually be a credit towards each new project given that it benefits affordability?
While it may not make any economic sense to build affordable housing, I think that many of us would agree that it makes a lot of social sense to build affordable housing. We know that our cities are at their best when they are both diverse and inclusive. The problem is that we can't agree on who should pay for it.
Yesterday I wrote about our housing doom loop.
Today, the province of Ontario responded (maybe not to my post) by publishing this Housing Affordability Task Force report. In it, are 55 recommendations to improve overall housing supply across the province, with the end goal of adding 1.5 million homes over the next 10 years.
I'm still making my way through the report, but the recommendations can basically be grouped into these five main buckets (taken verbatim from this press release):
Make changes to planning policies and zoning to allow for greater density and increase the variety of housing.
Reduce and streamline urban design rules to lower costs of development.
Depoliticize the approvals process to address NIMBYism and cut red tape to speed up housing.
Prevent abuse of the appeal process and address the backlog at the Ontario Land Tribunal by prioritizing cases that increase housing.
Align efforts between all levels of government to incentivize more housing.
Reform is badly needed. And I have gone on and on and on and on over the years about a number of the problems associated with how we build new homes and how we expect them to suddenly become more affordable.
Still, I think that most of the general public would be shocked to learn how long things take, how complicated we have decided to make land use approvals, and how a single person with a vested interested in seeing no development can hold up the delivery of thousands of new homes.
Progress is measured in years and decades. Months simply evaporate while you wait for the next PDF document to grant you access to some other labyrinthian planning hurdle. It doesn't need to be this way.
https://open.spotify.com/episode/2uRUg7HPsK8oeLdnhPNCdg?si=b4ab87565f874547
This discussion between Patrick O'Shaughnessy and Marc Andreessen is a great follow-up to my recent post about the productization of housing. Broadly speaking it's about tech, software eating everything, and the future of the world. But if you skip to around the 15 minute mark, Marc talks about the growing divide in our economy between sectors that are changing rapidly and sectors that are changing slowly.
Examples of the former include things like computers, media, retail, cars, and a lot of the other stuff that we regular consume. Examples of the latter include things like healthcare, education, and housing (you know, the pillars of the American Dream).
The noteworthy problem with this divide is that the fast changing sectors are producing things that have been getting more affordable over time. The specific example that he gives is televisions. Think about how much more TV you can get today compared to when they were first introduced.
In contrast to this, things in the slow changing sectors keep getting more expensive. The same university education is exponentially more expensive today than it was a few decades ago, even though it's far more important for people to have an education than to own TVs.
A similar thing can be said about housing. How much has really changed in terms of the way we build new homes?
One of the common threads across these slow change sectors, Marc argues, is strong government intervention. We restrict supply such that we can't meet demand. We then respond to higher prices by trying to subsidize demand, but this only drives prices up even further. Because, at the end of the day, we haven't addressed the underlying issue.
The result is a doom loop.
If you can't see the embedded podcast above, click here.
Deeply affordable housing is mostly infeasible to build.
This is why you don't see the market naturally building this kind of housing on its own. It, for the most part, doesn't make any economic sense to do so. So this is also why the US has fabricated things like low-income housing tax credits. They are a way to make up the economic shortfall that exists with low-income rental housing and get the private sector building this kind of housing.
We sometimes try to convince ourselves -- or maybe it is a way of shirking responsibility -- that there can be such a thing as no-cost affordable housing through things like inclusionary zoning. But I think we all know that there's no such thing as a free lunch. Somebody is ultimately going to need to pay. The big question, of course, is who should that be?
By definition, we acknowledge that the people who will ultimately live in these affordable homes cannot afford to pay market rates. So by default, the subsidies will need come from somewhere else. But again, from where and from who? Should it be specific people who pay or should it be mostly everyone who pays?
If we return to the Toronto building industry's favorite topic right now -- development charges -- you'll see that under the current rates, every new 2 bedroom or larger apartment that is constructed must pay $3,727 toward affordable housing. Under the proposed rates, this will increase to $12,545 for every new large apartment. It's by far the largest proposed percentage increase (237%) and also one of the largest service items.
This raises two interesting philosophical questions.
One, should the buyers of new housing be responsible for contributing to affordable housing in this way? Because what we are in effect saying to these people is, "Hey, you can afford to buy a new market rate home, so we're going to collect some additional money from you -- $12,545 to be exact -- so that we can try and help those that aren't in the same position as you. We're also going to mandate additional affordable homes within your building and we'd like you to subsidize those too." This is one way to redistribute wealth.
But if the goal is to try and create more broad-based affordability, an alternative approach might be, "Hey, you already own a home and it has gone up a lot in value, so we're going to collect some additional money from you over time so that we can try and help those that aren't in the same position as you." This would be the property tax approach. It's probably not perfect, but might it be a more fair and equitable way to redistribute wealth?
The second interesting philosophical question has to do with whether this is consistent with the dogma that growth should pay for growth. The idea behind development charges (also known as impact fees in some parts of the world) is that they should pay for the cost of new development. This makes complete sense. When you build new housing you certainly need some additional stuff -- everything from additional school capacity to emergency services.
But the question here is whether the construction of new housing in and of itself creates a direct need for more affordable housing, and therefore should be charged for it. Asked in the opposite way, if you weren't building this new housing, would you then no longer need this affordable housing, just like you no longer need that additional school capacity?
This is definitely not the case. In fact, I would argue that the opposite is true. If you don't build any new housing in a growing city, you actually exacerbate the problem of affordability. So here's a provocative thought. Rather than a charge, should this affordable housing line item actually be a credit towards each new project given that it benefits affordability?
While it may not make any economic sense to build affordable housing, I think that many of us would agree that it makes a lot of social sense to build affordable housing. We know that our cities are at their best when they are both diverse and inclusive. The problem is that we can't agree on who should pay for it.
Yesterday I wrote about our housing doom loop.
Today, the province of Ontario responded (maybe not to my post) by publishing this Housing Affordability Task Force report. In it, are 55 recommendations to improve overall housing supply across the province, with the end goal of adding 1.5 million homes over the next 10 years.
I'm still making my way through the report, but the recommendations can basically be grouped into these five main buckets (taken verbatim from this press release):
Make changes to planning policies and zoning to allow for greater density and increase the variety of housing.
Reduce and streamline urban design rules to lower costs of development.
Depoliticize the approvals process to address NIMBYism and cut red tape to speed up housing.
Prevent abuse of the appeal process and address the backlog at the Ontario Land Tribunal by prioritizing cases that increase housing.
Align efforts between all levels of government to incentivize more housing.
Reform is badly needed. And I have gone on and on and on and on over the years about a number of the problems associated with how we build new homes and how we expect them to suddenly become more affordable.
Still, I think that most of the general public would be shocked to learn how long things take, how complicated we have decided to make land use approvals, and how a single person with a vested interested in seeing no development can hold up the delivery of thousands of new homes.
Progress is measured in years and decades. Months simply evaporate while you wait for the next PDF document to grant you access to some other labyrinthian planning hurdle. It doesn't need to be this way.
https://open.spotify.com/episode/2uRUg7HPsK8oeLdnhPNCdg?si=b4ab87565f874547
This discussion between Patrick O'Shaughnessy and Marc Andreessen is a great follow-up to my recent post about the productization of housing. Broadly speaking it's about tech, software eating everything, and the future of the world. But if you skip to around the 15 minute mark, Marc talks about the growing divide in our economy between sectors that are changing rapidly and sectors that are changing slowly.
Examples of the former include things like computers, media, retail, cars, and a lot of the other stuff that we regular consume. Examples of the latter include things like healthcare, education, and housing (you know, the pillars of the American Dream).
The noteworthy problem with this divide is that the fast changing sectors are producing things that have been getting more affordable over time. The specific example that he gives is televisions. Think about how much more TV you can get today compared to when they were first introduced.
In contrast to this, things in the slow changing sectors keep getting more expensive. The same university education is exponentially more expensive today than it was a few decades ago, even though it's far more important for people to have an education than to own TVs.
A similar thing can be said about housing. How much has really changed in terms of the way we build new homes?
One of the common threads across these slow change sectors, Marc argues, is strong government intervention. We restrict supply such that we can't meet demand. We then respond to higher prices by trying to subsidize demand, but this only drives prices up even further. Because, at the end of the day, we haven't addressed the underlying issue.
The result is a doom loop.
If you can't see the embedded podcast above, click here.
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