shaping futures pressured metropolitan housing...

SSHHAAPPIINNGG FFUUTTUURREESS PRESSURED METROPOLITAN

HOUSING MARKETS DuncanMaclennan

UniversityofGlasgowUNSW

Shaping Housing Futures Symposium University of Toronto

Neighbourhood Change Research Partnership of 19 May 2017

OUTLINE

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



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



….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.



2. FUNDAMENTAL:INELASTIC SUPPLY

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

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

•  Sopricerisesinevitable,concernistheextentofreinforcingprocesses•  AlbuoyevidenceondifferentMetropolitansystemproducDviDesHOWDOHOUSINGSYSTEMSADJUSTTOELASTICDEMANDSANDINELASTIC

SUPPLIES:ECONOMICS101NOTENOUGH



Record Housing Starts – But Not the Right Kind of Housing

Figure3:AnnualHousingStartsinCityofVancouver(2007-2016)



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



3. Adjustments in Metro Markets



DIVERSEDEMANDS

investor USER-OWNER

EXTERNAL DOMESTIC

MULTIPLEMETROPOLITANMARKETS

SLUGGISHSUPPLYMOSAIC

PRICECHANGE

OUTPUT JOBSBUILDING

SALES

ATTRIBUTES;SPACE,

LOCATIONN’HOOD

INCOME,EMPLOYMENT

PRODUCTIVITYRISINGINCOMES

NEEDS,HOMELESSNESS

RISE



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



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



…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.



•  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.



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.



SUMMARY POLICY POINTS

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

5.RentRegulaDon6.GainsrolesforReformed(localagency)non-profits



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