Can Building Luxury Housing Help the Homeless?
Monday October 24, 2016
I had a nice chat with one of the head honchos of Teranet last week, they’ve asked me to speak at an upcoming event on housing trends impacted the market. I told him I would love to get my hands on their land registry data: house prices, property owners, and assessed values for almost every property in Ontario! The one thing I would really want to analyze is mobility, where are people coming from when they buy real estate in the Greater Toronto Area (GTA), and where do they go when they sell. You could cross reference every buyer and seller to determine the distance between the homes they purchased, and the type of home they traded-up, traded-across or traded-down to. What was the price difference between the homes, did they stay in the same municipality? The data could provide so many insights.
You might wonder why I would want to analyze mobility first? When selling a community it is nice to have an idea where your purchasers might come from and what they’d want to spend. You could better program your development, and know where to do a “mail drop” or other targeted advertising. The greater interest for me would be in examining the effects of the Greenbelt, and how it has impacted mobility and house prices. How did the communities grow before and after the implementation? Have the distances that people travel to buy a new home changed over time. Are young folks in condominiums buying a second and larger condominium in the City of Toronto, are they buying a townhouse in the suburbs, or are they buying a single-detached house on the other side of the Greenbelt? How long is the drive to affordability?
The second reason why I would like to see the data relates to my advocacy for adding new housing supply (via construction) to help ease the massive house price growth in the Greater Toronto Area. The common response is, well new homes are expensive, and how could they possibly help affordability? That is where mobility comes in. For some reason people tend to forget that if someone moves into a new home, they have to move out of somewhere else!
If someone buys a luxury new single-detached house for $1.2 million in Vaughan, there is a chance that the buyer is “moving up” from an $800,000 resale home in nearby Brampton. That $800,000 house hits the resale market and perhaps is bought by another move-up buyer, coming from a $575,000 townhouse in Etobicoke. The buyers sells their townhome to a young couple coming from a $400,000 condo in Liberty Village in Toronto. So that $1.2M new home in Vaughan freed up an affordable condominium in Toronto. To take it a step further, a renter from Parkdale could have bought that $400,000 condo, and a guy living in his parent’s basement takes that rental. Lastly, the newly vacant basement suites gets leased very cheaply to a couch-surfer that couldn’t find their own place. This is obviously a very extreme and unlikely example, the chance that building a luxury-single detached in the suburbs would help a homeless person is pretty slim, but mobility is a topic that should be discussed. These type of “musical chair” shelter choices should be included in any discussion of new housing supply. I cringe every time I see someone complain that they can’t find somewhere to live, but also complain that there are “too many condos.”
This concept is called filtering, or diffusion by quality tier, or trickle-down housing – the addition of new homes can free up older, less expensive housing and help affordability (assuming the new housing didn’t displace older housing via demolition or conversion). I discussed the topic in the latest Market Manuscript, but in the opposite direction. Does affluent foreign buying activity impact housing affordability for entry-level buyers? To read that analysis, download #MM6 here
What do you think, can building expensive or even entry-level new housing help overall housing affordability?