Building Condos is Still Better Than Building Nothing At All
April 17, 2014
A press release arrived in my inbox yesterday, heralding the opening of a new pair of rental towers in Toronto. For the neighbourhood in question, the development is the first new dedicated rental project in 40 years. For the large majority of neighbourhoods in Toronto, the next rental tower will be the first one in 40 years, if not longer—a result of a massive political turn away from encouraging rental construction in the postwar decades.
But anyone hoping the return of rental construction will bring about a return of affordability on its own has a while to wait yet. First of all, the subsidies and policies that existed in the 1970s to keep prices low either don’t exist anymore or are on their way out. (We should all be paying more attention to the expiry of co-op housing funds from Ottawa.) Secondly, the world has changed, and the wealthy aren’t fleeing our cities the way they once did. The hottest real estate markets are in city cores, and the rentals that are being built—like the towers I got that release for—aren’t aiming for the middle of the market.
Which leads a number of perfectly reasonable people to conclude that the problem is that cities are building too much luxury housing and not enough affordable units, like reporters for the New York Times in their look at the worsening affordability for renters in the US, and the gap between renters and owners. (Spoiler: it’s a pretty bleak picture.)
It’s a seductive bumper-sticker explanation for what’s happening across the continent, but there’s at least one problem with it: not every city is New York or Miami, so trying to draw broad conclusions from the most desirable, wealth-dominated cities is likely to steer us wrong. Hell, most of New York isn’t Manhattan, so drawing broad conclusions in even one city is probably wrong, too. (One of the odder stories in New York’s housing market is the success of Orthodox Jews in building middle-class housing without subsidies.)
For most cities—including Toronto—the effect of the highest end of the market is marginal at best. The data we have from sources like the Canadian Mortgage and Housing Corporation suggests that the condo boom in Toronto, until the financial crisis, was in fact keeping rents stable despite the loss of many rental units to demolition or conversion. Many renters almost certainly saw their rents fall, in inflation-adjusted terms. Inconveniently for those who think building is the root of our woes, it was after the slowdown in condo construction during the financial crisis that rents spiked in this city.
If the notion that the massive building boom kept rents stable through most of the last decade is confusing, it’s because it’s hard enough to get urban economists to agree that “filtering” is real. Filtering is basically the inverse of gentrification: instead of wealthy homebuyers crowding the poor out of neighbourhoods, new construction draws their money to something new and shiny. It’s when the poor and rich are put in competition for the same homes that the poor inevitably lose.
More recent scholarship (and experience) suggests, yes, it’s possible to build your way to affordability. The main problem is we basically don’t even try to do so anymore; it’s not a coincidence that most of the least affordable cities in the US are the ones where building is most tightly controlled.
But we don’t need to be dogmatically libertarian about this: it’s possible, or ought to be, to welcome new building generally, and using the revenue that brings to secure the affordable homes needed for the urban poor. London is planning for over 17,000 subsidized units per year, and no less than 25,000 market-rate units per year. In Toronto, affordable housing advocates are demanding the city be allowed to use inclusive zoning, requiring affordable units be included in all new large developments. Simply levying a development fee and spending the money on affordable housing would actually give the city more control, and be more efficient to boot, but either change would require the okay from the city’s provincial overlords.
What’s increasingly clear is that the answer to the affordability crisis in cities across the continent isn’t going to be solved by the people screaming “no” to everything. The only way to raise the kinds of funds needed to renovate existing, and build new affordable housing—in large cities, the number is certainly in the billions of dollars—is to bring in as many new buildings (and the taxpayers that will fill them) as possible.
It’s frustrating that the politics of the last century—which, for the most part, built what affordable housing we have—haven’t carried over to this one. If someone can rebuild that political coalition, more power to them. In the meantime, we have to deal with the world as we find it, and that means that for almost everywhere, building something is better than building nothing.