In the fourth quarter of last year, the average house price to earnings ratio in the UK was about 8.4x. Apparently this is about as high as it has been in the past 120 years. But interestingly enough, if you go back to the 19th century, this ratio was even higher. It was over 12x back in 1845, but then went on a steady decline until about the 1920s. What changed, according to some researchers, is three things: homes got smaller (making them more affordable), incomes rose, and supply increased.
So what's going on today? The obvious answer is perhaps that interest rates are low. But in this recent FT article by Martin Wolf, he argues that that's not really the primary driver. Part of his logic is that low interest rates are a global phenomenon. And so how is it that real home prices in the UK rose 93% between 2000 and 2020, but only 29% in Germany? There must be some other structural force(s) at work. (Germany has a lower homeownership rate for whatever that's worth.)
Wolf argues that it's a problem of housing supply. Very little housing was built during WW2, for obvious reasons, but housing delivery did really spike in the post-war period in the UK. Local authorities also played a major role. If completions from 2000 to 2019 had averaged the same rate seen between 1950 and 1970, the country would have 2.9 million more homes today, representing a 13% increase to total dwelling count.
This, Wolf argues, would be having an impact on house price dynamics.
Chart: Financial Times
Whenever I read studies that cite census data, I’m often left feeling like the data is out-of-date.
Five years – which is how often Canada conducts its national census – is a long time. Somebody could move to this country for school, complete a 4-year degree, and then leave, and we wouldn’t even pick it up in our data.
Thankfully, we’ve at least reinstated the long-form census for next year. Here are the questions, if you’re curious.
But all of this is a digression.
This morning I read through a housing report that the City of Toronto published in October of this year. It’s about housing trends. And I wanted to share the below chart that covers housing completions for the period of 1996 to 2014. Keep in mind that this is for the City of Toronto, and not the Greater Toronto Area.
Earlier this month, the Royal Bank of Canada and the Pembina Institute co-published a report on Toronto’s housing market called "Priced Out". The overarching argument is that homebuyers in the Greater Toronto Area (GTA) are being “priced out” of the areas in which they really want to live, which happen to be walkable and transit-oriented neighborhoods.
In fact, according to their research, 80% of residents in the GTA would be willing to sacrifice space (size of house and yard) if it meant they could live in a more walkable and urban neighborhood. But at the same time, more than 70% of GTA residents say that they live where they do because of affordability reasons, not because of actual preference. This, of course, isn’t new. It’s the whole “drive to affordability” notion—just keep driving until you can afford the housing.
Overall though, the report does reinforce a macro tend that I’ve discussed many times here at Architect This City. People are returning to cities in droves (or would at least like to, if they can afford it).
If you’re interested, the report also has some good data on Toronto and Canada’s housing markets.
Here’s how average home prices in Canada trended between 1980 and 2012. Vancouver became a total outlier starting in the early 90s (thanks Hong Kong).
And here’s a look at housing completions (so new construction) by product type in the Greater Toronto Area. Note how apartments/condos surpassed single-detached houses in and around 2008.
In the fourth quarter of last year, the average house price to earnings ratio in the UK was about 8.4x. Apparently this is about as high as it has been in the past 120 years. But interestingly enough, if you go back to the 19th century, this ratio was even higher. It was over 12x back in 1845, but then went on a steady decline until about the 1920s. What changed, according to some researchers, is three things: homes got smaller (making them more affordable), incomes rose, and supply increased.
So what's going on today? The obvious answer is perhaps that interest rates are low. But in this recent FT article by Martin Wolf, he argues that that's not really the primary driver. Part of his logic is that low interest rates are a global phenomenon. And so how is it that real home prices in the UK rose 93% between 2000 and 2020, but only 29% in Germany? There must be some other structural force(s) at work. (Germany has a lower homeownership rate for whatever that's worth.)
Wolf argues that it's a problem of housing supply. Very little housing was built during WW2, for obvious reasons, but housing delivery did really spike in the post-war period in the UK. Local authorities also played a major role. If completions from 2000 to 2019 had averaged the same rate seen between 1950 and 1970, the country would have 2.9 million more homes today, representing a 13% increase to total dwelling count.
This, Wolf argues, would be having an impact on house price dynamics.
Chart: Financial Times
Whenever I read studies that cite census data, I’m often left feeling like the data is out-of-date.
Five years – which is how often Canada conducts its national census – is a long time. Somebody could move to this country for school, complete a 4-year degree, and then leave, and we wouldn’t even pick it up in our data.
Thankfully, we’ve at least reinstated the long-form census for next year. Here are the questions, if you’re curious.
But all of this is a digression.
This morning I read through a housing report that the City of Toronto published in October of this year. It’s about housing trends. And I wanted to share the below chart that covers housing completions for the period of 1996 to 2014. Keep in mind that this is for the City of Toronto, and not the Greater Toronto Area.
Earlier this month, the Royal Bank of Canada and the Pembina Institute co-published a report on Toronto’s housing market called "Priced Out". The overarching argument is that homebuyers in the Greater Toronto Area (GTA) are being “priced out” of the areas in which they really want to live, which happen to be walkable and transit-oriented neighborhoods.
In fact, according to their research, 80% of residents in the GTA would be willing to sacrifice space (size of house and yard) if it meant they could live in a more walkable and urban neighborhood. But at the same time, more than 70% of GTA residents say that they live where they do because of affordability reasons, not because of actual preference. This, of course, isn’t new. It’s the whole “drive to affordability” notion—just keep driving until you can afford the housing.
Overall though, the report does reinforce a macro tend that I’ve discussed many times here at Architect This City. People are returning to cities in droves (or would at least like to, if they can afford it).
If you’re interested, the report also has some good data on Toronto and Canada’s housing markets.
Here’s how average home prices in Canada trended between 1980 and 2012. Vancouver became a total outlier starting in the early 90s (thanks Hong Kong).
And here’s a look at housing completions (so new construction) by product type in the Greater Toronto Area. Note how apartments/condos surpassed single-detached houses in and around 2008.
What it shows is that over this 18 year period, 78% of all housing completions in this city have been either low-rise or high-rise condominiums/apartments. The remaining 22% is a mix of detached and semi-detached houses and townhouses.
However, this 22% is an average.
Detached and semi-detached housing completions declined from 22% in the 1996-2001 period to 10% a decade later. And row and townhouses declined from 16% to 6% during this same period.
At the same time, “many” of the housing units in this 22% were actually replacing existing and older housing stock. That is, according to the report, many were “knock-downs” and rebuilds. In these cases, it means that the completions actually do not represent net new housing units. So in reality, the supply of new single-family housing is even lower than it appears in the chart above.
When you look at all of this, it should come as no surprise to you that our current combination of low interest rates and low supply has been leading to huge price increases on the single-family side of the market.
And it’s for this reason that I believe Toronto will eventually start to look towards allowing more low-rise intensification. Laneway housing, as one example, would represent virtually 100% new ground-related housing in already built up areas. Where else are we going to find that kind of housing opportunity?
So in my view, it is a question of when, not if, this will happen.
What it shows is that over this 18 year period, 78% of all housing completions in this city have been either low-rise or high-rise condominiums/apartments. The remaining 22% is a mix of detached and semi-detached houses and townhouses.
However, this 22% is an average.
Detached and semi-detached housing completions declined from 22% in the 1996-2001 period to 10% a decade later. And row and townhouses declined from 16% to 6% during this same period.
At the same time, “many” of the housing units in this 22% were actually replacing existing and older housing stock. That is, according to the report, many were “knock-downs” and rebuilds. In these cases, it means that the completions actually do not represent net new housing units. So in reality, the supply of new single-family housing is even lower than it appears in the chart above.
When you look at all of this, it should come as no surprise to you that our current combination of low interest rates and low supply has been leading to huge price increases on the single-family side of the market.
And it’s for this reason that I believe Toronto will eventually start to look towards allowing more low-rise intensification. Laneway housing, as one example, would represent virtually 100% new ground-related housing in already built up areas. Where else are we going to find that kind of housing opportunity?
So in my view, it is a question of when, not if, this will happen.
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