SSHHAAPPIINNGG FFUUTTUURREESS PRESSURED METROPOLITAN

HOUSING MARKETS DuncanMaclennan

UniversityofGlasgowUNSW

Shaping Housing Futures Symposium University of Toronto

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OUTLINE

1.  MetropolitanEconomicGrowth,andHousingDemands2.  MetropolitanHousingSupply(systemproducDvity,Albuoy)3.  Market-SystemAdjustments4.  Policy

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1. The Metropolitan Future

ViewsonCiDesMovedfrom‘Decay-Decline-Disadvantage’to‘Growth/CongesDon’,thoughdecliningplacesandconcentrateddisadvantagedremain,reform

•  Globalscale50pcurban:metrosouthmainspaDalchangeto2050;OECD,360plusmetropolitanareas•  Canada'spopula,onincreasedby3.5millionpeople2006-2016,97%ofthisincreaseoccurredin

CMAs•  75%ofCanada's3.5millionincreaseoccurredin9CMAs:Toronto,Montreal,Vancouver,Calgary,

Edmonton,O^awa-GaDneau,QuebecCity,Winnipeg,Kitchener-Cambridge-Waterloo•  55%oftheincreaseoccurredin4CMAs:Toronto,Montreal,Vancouver,Calgary.•  23%oftheincreaseinTorontoCMA(6pcinCityofToronto)•  10%oftheincreaseinVancouverCMA(2pcinthecityofToronto)r

WHY

BUTWHY

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Shaping Housing Futures Symposium University of Toronto

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….REFLECTS A NEW SENSE OF ‘TRIUMPH’.

NOW

1.STRONGARGUMENTTHATCITIESSHAPEMAJOROUTCOMESANDMATTERNATIONALLY

2.NEWADVOCACYOFLOCALISM;DEVOLUTIONORDUMPING:NEWPOLITICS.

3.CHANGEDECONOMICROLES

•  IMPORTANCEOFAGGLOMERATIONECONOMIES•  Labourmarkets•  InnovaDonSystems

•  GLOBALCONNECTION

4.MODRNECONOMIESARE‘METROPOLITANLOVING’,HIGHESTPRODUCTIVITYLOCATIONFORTRADEABLES

EUROPEANDNATIONS,BRICSANDOTHERSSEECITIESASVITAL.THISISTHESTARTOFAPROCESSTHATWILLCHANGECITIESANDGOVERNANCEPERMANENTLYANDWENEEDTORETHINKHOWWEANALYSE,

RESEARCH,DEFINE(POLITICALLY),MANAGEANDGOVERNCITIIESANDTHEIRHOUSING.

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2. FUNDAMENTAL:INELASTIC SUPPLY

InelasDchousingSupplyisafundamentalofcitygrowth•  Evidenceconsistentacrossmetropolitanareas,butparametersvary•  Supplylagsdemand(cfChina)•  InelasDc

•  LanduseregulaDons/planning•  Infrastructure•  Laboursupply,materials•  Industry/firmstrategies

•  Sopricerisesinevitable,concernistheextentofreinforcingprocesses•  AlbuoyevidenceondifferentMetropolitansystemproducDviDesHOWDOHOUSINGSYSTEMSADJUSTTOELASTICDEMANDSANDINELASTIC

SUPPLIES:ECONOMICS101NOTENOUGH

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Record Housing Starts – But Not the Right Kind of Housing

Figure3:AnnualHousingStartsinCityofVancouver(2007-2016)

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Rental Eastside Condo Eastside Townhouse

40% 60% 70%

FromOctober2007-October2016,wesawthefollowingpriceincreasesEastsidecondobenchmarkprice:$452,800to$771,000.Eastsidecondobenchmarkprice:$282,600to$450,000.City-wideaveragerentsacrossallbedroomtypes:$945to$1,324.

Source:CMHCRentalMarketReport,MLSHomePriceIndex

Escalating Housing Prices Are Creating New Pressure

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3. Adjustments in Metro Markets

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DIVERSEDEMANDS

investor USER-OWNER

EXTERNAL DOMESTIC

MULTIPLEMETROPOLITANMARKETS

SLUGGISHSUPPLYMOSAIC

PRICECHANGE

OUTPUT JOBSBUILDING

SALES

ATTRIBUTES;SPACE,

LOCATIONN’HOOD

INCOME,EMPLOYMENT

PRODUCTIVITYRISINGINCOMES

NEEDS,HOMELESSNESS

RISE

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3. Complex Chain of Impacts of Pressures

•  HousePrice/RentIncreases•  Risinghousingcosts,largelydrivenbyhousepriceincreasesabove

naDonalaverages.Theymay,dependingonpolicystructuresgeneratemulDple,overlappingresponses.•  Risinghouseprices,andrents,immediatelydiverthouseholdspending

fromother(higherproducDvityinproducDon):increasesemploymentinthehousingsectorbutemploymentandproducDvitygrowtharea^enuatedinothersectors.•  HousingpricesrisenmostinlocaDonsaccessibletomajoremployment

locaDons,displacingpoorerhouseholdstolowerqualityhomesandtothemetropolitanedge.GrowingseparaDonofincomegroups.•  Socialhousingqueuesrise,homelessnessrises

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A Second Round of Effects: Wealth for older, renWng for younger •  AspricesrisehousingwealthrisesforexisDngowners,becomeslargest(half)elementofhouseholdwealth•  65pcwealthisheldbyownersagedover65,proporDonacquiredbyrealmortgagerepaymentsaround

25pc;unearned,andomenuntaxed,housingcapitalgainshaveturnedhousingownershipfromasavingsvehicletoaspeculaDveventure.

•  Risinghousepricesmakehome-ownership,despitelowinterestratespost,lessaffordableandmorerisky.Loantovalue/priceraDosandloantoincomeraDoshavealsorisensignificantly.

•  Youngerhouseholdswhoaspiretohome-ownership(9outof10householdsaspiretoeventualownership)runintorisinghouseprices,depositsrequired,haveincreasinglyenteredrentalhousing

•  formerownersdivorcingalsoconsDtuteagrowingstreamofolderrentersandolderhouseholdswiththeshareofownerswithacDvemortgagesbeyondtheageof65risingsignificantly(thishasanover65laboursupplyeffect).

•  Largersharesofunder35’snowentermarketrentalandstayinthetenurelonger(anddon’tenjoybenfitsoflowerinterestrates

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…so BUY-To-Let extends the difficulty •  Oncehousepricesseenasasafebet,morehouseholdswithreDrementplansbuyahousetolet;notefficientlyfinanced/managed•  CompeDDonforsmallrentalproperDeswithtypicalfirst-Dmehomebuyers,reinforcespricechangesagainstthela^er.Withthis

mechanismmetropolitanhousingmarketsacquireanewdynamic,asignificantincreaseinthedemandfor‘investment’properDes.

•  IntheUKwithsluggishmarkethousebuildingandreducedaffordablehousingoutputisBTLsectorhas,ineffect,allthenetaddiDontoUKhouseholdnumberssince2000.BTLexamplesarepresentedintheslidepack.

•  Housingwealthownedbyolderhouseholdsmaythendrivemarketpricesagainstyounghome-buyers.Butnowtransferchunksofequitytochildren/grandchildren.InUK,some80pcoffirstDmebuyershaveasubstanDaltrancheofequityprovidedbyparents

•  Butwhataboutlargefamilies?Whataboutthedaughtersandsonsofrentalsectorparents.Socialmobilitymustfall.ThereisevidencethattheseprocessesarenowwellentrenchedinCanadaandAustralia

•  Oncehousepricesaerising,expectaDonsoffuturepriceincreasesmayincreaseratherthanreduce(equilibrate)ownershipdemandinsubsequent(mediumterm)periods.BTLbiddingfurtherraisesprices.

•  Thiscreatesanewpricedynamic,butitisreinforcedbyexternalinvestordemands•  Then,thelargestmetropolitanareas,maythenbeseenassafehavens,forshelterandmoney,forhouseholdslivinginless

economicallyandpoliDcallystablecountries.Theempiricalevidenceonthistopicisquitemixed.ThenumbersinvolvedseemtoconsDtutealateaddiDonallayerofspeculaDvedemandinalreadypressuredmarkets.ButthefundamentalmarketdriversmainlyrelatetodomesDcdemandsofdifferentkinds.

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•  Thefirst‘stylised’factis:metropolitangrowthisdrivenbyreal,velyhighproduc,vitybutthatdoesnotmeanproduc,vityrelated

wageincreasesforallandthatpoorerworkersandyoungerpeoplearefallingbehinggrowthinaverageearnings.•  Thesecondstylisedfactis:metropolitanhousingmarketshaveslow,par,alhousingsystemresponsesandthismeansthatsupply

isinelas,c(andasymetricallysoinhousingboomsandbusts).Thereareavarietyofpoten,alcausesoflowelas,ci,es.Inelas,csupplyforagoodforwhichdemandisincomeelas,candpriceinelas,cmeansthatmarketystemswilltendtorisinghousepricesandquitesustainedperiodsofmarketdisequilibrium

•  Thethirdstylisedfactisthatrisinghousepricesinmetropolitanareascanveryquicklyintraandinter-genera,onalinequali,esofwealthandincomesandthatinequali,esfuel‘investor’investmentinhousing.

•  ThefourthstylisedfactisthatashomeownershiphasgrownandbecomearepositoryofunearnedgainstherecyclingorleveragingofthesegainsininvestorpurchasesmayprolongpriceupswingsinwaysthataWractotherspeculatorinvestorflows.HousingpoliceswithforesightmightbebeWerwayoftacklingthisthanadhoc,andexpost,policies

•  ThefiZhstylisedfact,isthatinadequatepolicystrategiestopromotemoreeffec,vemarketoutcomesandthatstabiliseemergingpricebooms,haveproducedprice,rentandotherhousingoutcomesthatarenowreducingmetropolitanproduc,vity.Takentogetherwiththethirdstylisedfactthisobserva,onplaceshousingmarketsinmetropolitanareasasacri,calinfluenceoninequalityoutcomesandinshapingthenatureofdifferentkindsofeconomicprogress(ren,erversusentrepreneurialinstyle)andhowfirmsmightrelocatetolowerproduc,vityloca,ons.Mesometropolitansdrivekeyna,onal‘macro’outcomes,housingoutcomesbluntcompe,,veedge.

•  ThesixthstylisedfactisthatacrossthecountriesweareexaminingmetropolitanareasneitherhavemostofthepowerstobeWershapelong-termhousing-economyinterac,onsnorthegrowthinducedfiscalresourcestodealwiththem.Atna,onalscales,arguablyweareneithermodellingnormanagingthespa,aldimensionsofeconomicdevelopmentinaveryeffec,vefashion.

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4.KEY STYLISED FACTS •  Thefirst‘stylised’factis:metropolitangrowthisdrivenbyreal,velyhighproduc,vitybutthatdoesnotmean

produc,vityrelatedwageincreasesforallandthatpoorerworkersandyoungerpeoplearefallingbehinggrowthinaverageearnings.

•  Thesecondstylisedfactis:metropolitanhousingmarketshaveslow,par,alhousingsystemresponsesandthismeansthatsupplyisinelas,c(andasymetricallysoinhousingboomsandbusts).Thereareavarietyofpoten,alcausesoflowelas,ci,es.Inelas,csupplyforagoodforwhichdemandisincomeelas,candpriceinelas,cmeansthatmarketystemswilltendtorisinghousepricesandquitesustainedperiodsofmarketdisequilibrium

•  Thethirdstylisedfactisthatrisinghousepricesinmetropolitanareascanveryquicklyintraandinter-genera,onalinequali,esofwealthandincomesandthatinequali,esfuel‘investor’investmentinhousing.

•  ThefourthstylisedfactisthatashomeownershiphasgrownandbecomearepositoryofunearnedgainstherecyclingorleveragingofthesegainsininvestorpurchasesmayprolongpriceupswingsinwaysthataWractotherspeculatorinvestorflows.HousingpoliceswithforesightmightbebeWerwayoftacklingthisthanadhoc,andexpost,policies

•  ThefiZhstylisedfact,isthatinadequatepolicystrategiestopromotemoreeffec,vemarketoutcomesandthatstabiliseemergingpricebooms,haveproducedprice,rentandotherhousingoutcomesthatarenowreducingmetropolitanproduc,vity.Takentogetherwiththethirdstylisedfactthisobserva,onplaceshousingmarketsinmetropolitanareasasacri,calinfluenceoninequalityoutcomesandinshapingthenatureofdifferentkindsofeconomicprogress(ren,erversusentrepreneurialinstyle)andhowfirmsmightrelocatetolowerproduc,vityloca,ons.Mesometropolitansdrivekeyna,onal‘macro’outcomes,housingoutcomesbluntcompe,,veedge.

•  ThesixthstylisedfactisthatacrossthecountriesweareexaminingmetropolitanareasneitherhavemostofthepowerstobeWershapelong-termhousing-economyinterac,onsnorthegrowthinducedfiscalresourcestodealwiththem.Atna,onalscales,arguablyweareneithermodellingnormanagingthespa,aldimensionsofeconomicdevelopmentinaveryeffec,vefashion.

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SUMMARY POLICY POINTS

1.  MetropolitanGovernanceofHousingNeeded!2.  ResourcesandVerDcalFiscalImbalance.3.  ImportanceofMulD-orderInvestment/PolicyStrategy:locallead4.  TaxbeforeorAmer•  ProducDvitycaseforinclusionaryzoning

5.RentRegulaDon6.GainsrolesforReformed(localagency)non-profits

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