On Housing – Land (Part 1 of many)
There is a story that the Talmudic sage Rabbi Hillel was confronted by a person who wished to convert to Judaism. Asked how he could go about such a religious transformation, the Rabbi responded, “”What is hateful to you, do not do to your neighbour. That is the whole Torah; the rest is the explanation of this—go and study it!”. Put another way, he said that do unto others what you would have them do unto you, the rest is commentary. In many ways, housing is a fairly similar in both its simplicity and its complexity. I think that the current housing issues can ultimately boil down to “housing prices are supply and demand, everything else is commentary”.
While the reality may indeed be that the housing market determines the housing prices, the truth is that many cities and countries are paying a steep price for exorbitant housing prices that are driven by market failures. In Canada, where this crisis is particularly bad, over 3.3. million families are contributing over 30% of their revenues to housing. Historically low interest rates have allowed many people to get into the housing market and have kept payments under control. However, it is well understood by homeowners, government and policy makers that increased borrowing costs would likely drive many families to the brink. One argument homeowners provide for spending so much money on housing is that their home is an investment. This is patently false. Any home is a physical thing and as such, it degrades. Even with regular maintenance and upkeep, a physical object will always be in worse shape than when it is originally built. Just think of cars – how many cars appreciate in value over time? So, if houses themselves are not appreciating in value – what is? Land. Land in desirable locations with the ability to have a house (physically and legally) is the element of this equation that is continuing to appreciate. Of course, housing without land is not possible so the two are tightly interlinked, but it is ultimately the land that is the constraining factor. We cannot make more land and the right to build has come under increasing regulation which reduces the ability of people, companies and organizations to build cost effectively. There are many solutions to this problem, but the real problem is the collective will power for us to change.
On the surface, it is easy to chalk up high housing prices to a failure to build new homes faster than population growth and the degradation of the housing stock. New construction shortages are well documented (Scotiabank report). These shortages are due to a number of factors – land availability, labour availability, capital availability, construction material and regulatory hurdles. On the question of land restrictions, which are substantial, it should be noted that cities like Toronto, Vancouver, New York, San Francisco, Shanghai, Paris, and others all have physical limitations (oceans for New York, Shanghai, San Francisco, and Vancouver or a big Lake for Toronto) or political limitations (intra-muros for Paris). Cities with less physical limitations – such as Montreal, Phoenix, Dallas, Austin and many others can expand in all directions – which significantly helps facilitate construction and therefore housing prices. When compounded with population growth, these physical limitations are likely a substantial portion of the cause of high housing prices.
If we put aside land restrictions, there are still many other factors that lead to high housing prices – the free-market capitalist ownership model, building costs, increasing size and obsession with homes as central to people’s identity and many other factors. This post cannot address all of these complex and intersecting issues, but suffice to say that the solution to the housing crisis is first and foremost: Build homes faster than population growth. Once we accomplish that, we can begin to talk about alternative ownership models and other factors. I will end this post with a few resources that have shaped my thinking on housing.
How Vienna offers affordable housing (see Singapore too!)
Construction Physics Substack
THE GEOGRAPHIC DETERMINANTS OF HOUSING SUPPLY – ALBERT SAIZ 2010, MIT PressPublished on August 8, 2021