Read through planning documents across North America and you're bound to find language that refers to low-rise residential neighbourhoods as "physically stable areas" where the "existing neighbourhood character" is paramount. But to be more precise, what this kind of language is actually saying is not that these neighbourhoods need to be broadly stable; it is saying that they just need to look more or less stable.
Here in Toronto, for example, it has been widely documented that many of our low-rise neighbourhoods are losing people. Household sizes are getting smaller, and houses that used to be subdivided are being returned to single-family use. A similar thing is happening in other cities like New York:
Read through planning documents across North America and you're bound to find language that refers to low-rise residential neighbourhoods as "physically stable areas" where the "existing neighbourhood character" is paramount. But to be more precise, what this kind of language is actually saying is not that these neighbourhoods need to be broadly stable; it is saying that they just need to look more or less stable.
Here in Toronto, for example, it has been widely documented that many of our low-rise neighbourhoods are losing people. Household sizes are getting smaller, and houses that used to be subdivided are being returned to single-family use. A similar thing is happening in other cities like New York:
Bloomberg News recently reported that since 2004, at least 9,300 homes have been lost as a result of multi-family buildings getting "rolled up" into single-family homes. More recently, the city has even seen an increase in people combining two or more buildings into large urban mansions.
And while the total number of homes removed is relatively small for New York as a whole, it can be quite impactful to individual neighbourhoods. In the West Village, where there's a high concentration of rowhomes and townhouses, Bloomberg estimates that one out of every six small apartment buildings has been rolled up into a single-family home since 2004!
From a built form standpoint, you could say these are "physically stable" areas that are obediently adhering to their existing neighbourhood character. But under the hood and behind their street walls, they are clearly changing.
It is one of the great ironies of city building. People often fear new development because they worry it might disrupt the character of a neighbourhood. But preventing development does not guarantee stasis. In fact, we know that not building new housing actually increases the pressures felt on a city's existing housing stock, as people compete for a more fixed amount of supply.
The wealthy can always outbid the less wealthy on housing. So if you don't provide any new options, the wealthy will just buy up the existing stuff and turn it into what they want. Alternatively, you can build more housing and create a "moving chain" that frees up more existing housing for people of lower incomes.
Last month, we talked about how even "luxury" housing can improve overall housing affordability in a market. In that post, we spoke about a recent study that looked at the downstream effects of a new condominium tower in Honolulu. Today, let's look at Switzerland.
I stumbled upon this working paper on Twitter. The authors are Lukas Hauck and Frédéric Kluser, both from the University of Bern. In it, they look at the country-wide effects of new residential housing supply in Switzerland and, more specifically, the "moving chain" that new supply produces.
Moving chains work generally as follows:
A household moves into a newly constructed home
Their previous home becomes vacant
Another household moves into this vacant unit, leaving their previous home vacant
And the process continues, until someone breaks the chain (which can happen by way of a new household being formed or someone moving in from out of the market)
The authors found that these moving chains are relatively short in Switzerland. Approximately 75% of them terminate within three migration rounds. But this doesn't mean that these chains aren't critical for the market.
Importantly, they found that every new market-rate unit typically results in 0.75 moves for households with below-median incomes. So, that is 75 moves for every 100 new homes constructed.
The reason why new supply ends up also benefiting lower-income households is because there's a clear income and rent gradient across the moving chain:
New housing (migration round 1) is typically priced at the highest end of the market. This makes sense because we know that development happens on the margin. But by migration rounds 2 and 3, median rents fall off noticeably, creating housing opportunities for other people.
New market-rate housing is sometimes criticized for only serving one segment of the market. But once again, we see evidence that it helps to ease overall housing pressures. There are other indirect benefits that shouldn't be ignored.
One of the big housing stories of this year was that Austin has built a lot of new apartments and it is now causing rents to fall precipitously — by as much as 22%. The market is working.
But as we also talk about on this blog, the benefits of new "luxury" housing don't just apply to those who can afford it. Since real estate development happens on the margin — in other words, it's based on the feasibility of the next unit of housing supply, not an average for the market — new market-rate housing typically needs to cater to the top end of the market. Otherwise, it wouldn't be economically feasible to build it.
However, study after study also shows that the delivery of any new housing in a city broadly tempers rents, including in a city's oldest housing stock. This is true in virtually all cities:
The above chart is from this recent Bloomberg article, talking about how "luxury apartments are bringing rents down." But if you look closely, there is one city on this chart that appears to be an outlier: Miami.
Despite adding a respectable number of homes, rents have not fallen as much as you might expect given the figures for the other cities on this list. The intuitive explanation is likely that Miami is in the midst of experiencing an extraordinary wealth transfer.
For the five-year period through to 2022, it was estimated that some 30,000 New Yorkers with combined annual incomes of $9.2 billion moved to Miami-Dade and Palm Beach counties. It's also an important capital safe haven for Latin America.
I vividly remember looking at condo listings in Miami in 2008 and thinking, "Damn, this is cheap!" I even tried to find a job there after grad school, but at that time, it was no place for a new real estate developer. My best bet would have been something in loan workouts.
Who could have predicted such an incredible transformation? It isn't the third most important global city in the US according to the numbers, but it certainly has a lot of momentum right now. In this instance, new supply does not appear to be more than offsetting demand.
Bloomberg News recently reported that since 2004, at least 9,300 homes have been lost as a result of multi-family buildings getting "rolled up" into single-family homes. More recently, the city has even seen an increase in people combining two or more buildings into large urban mansions.
And while the total number of homes removed is relatively small for New York as a whole, it can be quite impactful to individual neighbourhoods. In the West Village, where there's a high concentration of rowhomes and townhouses, Bloomberg estimates that one out of every six small apartment buildings has been rolled up into a single-family home since 2004!
From a built form standpoint, you could say these are "physically stable" areas that are obediently adhering to their existing neighbourhood character. But under the hood and behind their street walls, they are clearly changing.
It is one of the great ironies of city building. People often fear new development because they worry it might disrupt the character of a neighbourhood. But preventing development does not guarantee stasis. In fact, we know that not building new housing actually increases the pressures felt on a city's existing housing stock, as people compete for a more fixed amount of supply.
The wealthy can always outbid the less wealthy on housing. So if you don't provide any new options, the wealthy will just buy up the existing stuff and turn it into what they want. Alternatively, you can build more housing and create a "moving chain" that frees up more existing housing for people of lower incomes.
Last month, we talked about how even "luxury" housing can improve overall housing affordability in a market. In that post, we spoke about a recent study that looked at the downstream effects of a new condominium tower in Honolulu. Today, let's look at Switzerland.
I stumbled upon this working paper on Twitter. The authors are Lukas Hauck and Frédéric Kluser, both from the University of Bern. In it, they look at the country-wide effects of new residential housing supply in Switzerland and, more specifically, the "moving chain" that new supply produces.
Moving chains work generally as follows:
A household moves into a newly constructed home
Their previous home becomes vacant
Another household moves into this vacant unit, leaving their previous home vacant
And the process continues, until someone breaks the chain (which can happen by way of a new household being formed or someone moving in from out of the market)
The authors found that these moving chains are relatively short in Switzerland. Approximately 75% of them terminate within three migration rounds. But this doesn't mean that these chains aren't critical for the market.
Importantly, they found that every new market-rate unit typically results in 0.75 moves for households with below-median incomes. So, that is 75 moves for every 100 new homes constructed.
The reason why new supply ends up also benefiting lower-income households is because there's a clear income and rent gradient across the moving chain:
New housing (migration round 1) is typically priced at the highest end of the market. This makes sense because we know that development happens on the margin. But by migration rounds 2 and 3, median rents fall off noticeably, creating housing opportunities for other people.
New market-rate housing is sometimes criticized for only serving one segment of the market. But once again, we see evidence that it helps to ease overall housing pressures. There are other indirect benefits that shouldn't be ignored.
One of the big housing stories of this year was that Austin has built a lot of new apartments and it is now causing rents to fall precipitously — by as much as 22%. The market is working.
But as we also talk about on this blog, the benefits of new "luxury" housing don't just apply to those who can afford it. Since real estate development happens on the margin — in other words, it's based on the feasibility of the next unit of housing supply, not an average for the market — new market-rate housing typically needs to cater to the top end of the market. Otherwise, it wouldn't be economically feasible to build it.
However, study after study also shows that the delivery of any new housing in a city broadly tempers rents, including in a city's oldest housing stock. This is true in virtually all cities:
The above chart is from this recent Bloomberg article, talking about how "luxury apartments are bringing rents down." But if you look closely, there is one city on this chart that appears to be an outlier: Miami.
Despite adding a respectable number of homes, rents have not fallen as much as you might expect given the figures for the other cities on this list. The intuitive explanation is likely that Miami is in the midst of experiencing an extraordinary wealth transfer.
For the five-year period through to 2022, it was estimated that some 30,000 New Yorkers with combined annual incomes of $9.2 billion moved to Miami-Dade and Palm Beach counties. It's also an important capital safe haven for Latin America.
I vividly remember looking at condo listings in Miami in 2008 and thinking, "Damn, this is cheap!" I even tried to find a job there after grad school, but at that time, it was no place for a new real estate developer. My best bet would have been something in loan workouts.
Who could have predicted such an incredible transformation? It isn't the third most important global city in the US according to the numbers, but it certainly has a lot of momentum right now. In this instance, new supply does not appear to be more than offsetting demand.
