I recently started reading Marginal Revolution. This recent post, called "Illegal Immigrants Didn't Break the Housing Market; Bad Policy Did," covers many of the things that we talk about on this blog:

If “fixing” housing scarcity means blaming whichever group is politically convenient, you end up cycling through targets: illegal immigrants first, then legal immigrants (as Canada has done), then the children of immigrants, then wealthy buyers, then racial or religious minorities. Indeed, one wonders if the blame is the goal.

If you actually want to solve the problem of housing scarcity, stop the scapegoating and start supporting the disliked people who are actually working to reduce scarcity: the developers. Loosen zoning and cut the rules that choke what can be built. Redirect political energy away from trying to demolish imagined enemies and instead build, baby, build.

As a developer, I naturally chose the most self-serving excerpt to quote, but that doesn't mean that what Alex Tabarrok wrote is incorrect. Blame is, of course, the goal. Such is the reality of politics. Here's another excerpt, this one from one of Howard Mark's investing memos:

I've always gotten a kick out of oxymorons — phrases that are internally contradictory — such as "jumbo shrimp" and "common sense." I'll add "political reality" to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need to be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world, politicians seem to feel free to ignore them.

This is why immigrants are blamed, foreign buyers are banned, rent freezes are proposed (counterproductive), and we continue to do very little to actually fix traffic congestion in our cities, among an endless list of other things. The real solutions are simply too politically inconvenient; it's more advantageous to blame scapegoats.

Meanwhile, our problems persist.

I woke up this morning to an email from one of our partners with a link to this article talking about a three-storey, 10-unit housing project (plus garden suite) that was just refused by the Committee of Adjustment here in Toronto. It's five minutes from a major subway station. Why?

Because it's always easier to blame someone else.

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Yesterday morning, my dad sent me the above chart from Apollo and said, "frightening, do you have one for Canada?" In 2010, the median age (not mean) of all US homebuyers was 39 years old. Today, it is 59 years old. And it has jumped significantly since the start of the pandemic.

The obvious explanation, and long-term trend line, is that housing continues to become more expensive relative to incomes, so it is taking longer for people to save up and afford to buy.

But "first-time buyers waiting longer" can't be the only reason, because homeownership is typically a life-cycle behavior. If you're in your 60s and you still haven't made the decision to buy a home, the probability is low that you will then become a first-time buyer.

As of this month, the share of first-time homebuyers in the US dropped to a record low of 21% and the median age was 40. What this suggests is that the above chart must also be the result of a compositional change in buyers.

Wealthy older people must be buying vacation homes, retirement homes, and/or relocating (maybe for better weather and maybe for lower taxes). Combine this with fewer first-time buyers (and I'm sure some other factors), and you get the above chart.

So what about Canada?

I couldn't find an exact equivalent chart, but I did find this Bank of Canada note from 2022.

As of 2021, first-time buyers still accounted for roughly half of all home purchases in Canada. The rest were repeat buyers, and the smallest percentage were investors, which includes people buying a property as an investment or buying a property to live in while at the same time converting an existing residence into an investment property.

The median age for a first-time buyer was 36 years and the average age for all other buyers was 50 years. If we assume that this split is roughly 50/50, based on the above chart, then we get to an average homebuyer age somewhere around 43 years old. Intuitively, this seems at least directionally right.

(Note, this data is from 2021, which misses most of the pandemic period.)

Canada has a much higher percentage of first-time buyers driving the market. Canada does not have the same wealth inequality as the US. The 55+ age group in the US owns somewhere around 71% of all housing wealth and 69% of all stocks/equity funds.

And, Canadians tend to be less mobile than the US population within the country. Canada doesn't have warm, low-tax provinces attracting older rich people (though I would support us having one or two somehow).

In summary: You're right, dad, it is a frightening trend line.

Cover photo by Valeriia Neganova on Unsplash

Benjamin Couillard is a PhD candidate at the University of Toronto whose research looks at things like residential choice and housing supply. And in this recently published paper, he studies the causal effects of rising housing costs on fertility. Here's what he found when examining US Census Bureau data:

...rising [housing] costs since 1990 are responsible for 11% fewer children, 51% of the total fertility rate decline between the 2000s and 2010s, and 7 percentage points fewer young families in the 2010s. Policy counterfactuals indicate that a supply shift for large units generates 2.3 times more births than an equal-cost shift for small units. This analysis concludes that the supply of housing suitable for families can meaningfully contribute to demographic sustainability.

Intuitively, it makes sense that rational adults might consider where they would put a child if they had one, or had one more, and consider the cost of this incremental space. Housing is expensive in major urban centers. Perhaps it's no surprise that Canada, which is known for its broadly unaffordable housing, has fallen into the "ultra-low fertility" category.

But I think this fertility-housing relationship is an important one to call out when considering appropriate public policies. Housing is often viewed through the lens of what bad things will happen if we build it. That's why we do shadow studies, force stepbacks, charge development charges (impact fees), and the list goes on.

What is harder to grasp is what happens when we don't build new housing. Most — or at least many — seem to agree that not building enough housing hurts overall affordability. But what this study also demonstrates is that not building enough family-sized housing is bad for making babies!

This has all sorts of socio-economic repercussions, one of which is that a country now has to rely more heavily on immigration in order to offset a shrinking population base. It becomes a larger economic problem. When framed this way, it makes me wonder: why do we tax new family-sized homes the way we do?

An alternative approach to encourage more infill family housing might be to eliminate development charges, building permit fees, parkland fees, and as many other government fees as possible on all three-bedroom or larger homes. And the reason you would do this is because the economic and demographic cost of not building is even greater.

Based on the work of Couillard, we know at least one of the outcomes: more babies.

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