Of all the housing affordability arguments, none is as heated as what I call the supply-side debate. On one side are the supply-side advocates who believe the housing affordability crisis can be solved by flooding the market with more housing.
The theory goes that new housing built in low-income neighbourhoods will be snapped up by wealthier people currently living in older rental stock, thereby freeing up the number of older affordable suites for those who truly need them.
On the other side are those who assert new buildings fuel gentrification by attracting greater numbers of wealthy people to a neighbourhood. Once a neighbourhood starts to gentrify, developers put up more new buildings and ultimately, lower-income people are pushed out.
The argument between the NIMBY’s and YIMBY’s (the “yes in my backyard,” pro-development crowd) plays out noisily on Twitter between people whose opinions are often backed by little evidence. There is a reason for this. There are myriad variables at play when neighbourhoods change and drilling down to gauge the impact of new development is not simple.
Nonetheless, a few economists have recently begun to try, and preliminary American studies suggest the supply-siders may be right. But so far, no one has done any comprehensive research here.
Jens von Bergmann, a Vancouver data analytics expert, has his eye on a new study by the Upjohn Institute, a Michigan-based, non-profit research organization that examined the impact of new market rental buildings in low-income neighbourhoods in 11 American cities. The study found new rentals did not drive up neighbourhood rents; in fact, rents were lower up to three years out than they were in comparable neighbourhoods where no development occurred. It also found increases in low-income residents migrating to neighbourhoods where new buildings had been added, belying the notion they would be driven out.
The study’s author, economist Evan Mast, was drawn to the topic because of his own experience struggling to find affordable accommodation while he was in graduate school at Stanford, near San Francisco. He wanted to know whether new rental construction might help alleviate the housing crunch and now, based on his study and one or two others, cautiously concludes yes.
Vancouver academics who question a pure economic analysis of gentrification and doubt the ability of market housing to ease affordability found the Upjohn study interesting, but weren’t sure it would translate to Vancouver, where land values have risen so high.
Patrick Condon, a professor at the University of British Columbia, said building new housing does nothing to address the chasm between high housing prices and rents, and local wages, which have not kept up. And Andy Yan, director of Simon Fraser University’s city program, says one only need look to Burnaby to see how unfettered new construction can result in massive dislocation of low-income people.
Mr. Mast can’t say for sure his findings would hold everywhere in the Metro Vancouver area, where land speculators have pushed up property values, sparking building booms and evictions. But he says that people who want to block housing will always come up with a story about why their city or neighbourhood is different. He assumes cities are similar, unless proven otherwise and notes his study included San Francisco and Brooklyn where land values, as in Vancouver, have soared.
Vancouver council currently offers developers density incentives to build larger rental buildings with a percentage of units rented at below-market rates. But some councillors consistently vote against these proposals, claiming they fear the effects of gentrification. Mr. von Bergmann conducted a vastly simplified version of the Upjohn study, and it indicated the Upjohn study results tend to hold true here; he found low-income residents were not pushed from neighbourhoods when new housing is built.
If Mr. von Bergmann is correct, council’s push for more rental housing combined with stronger protections for displaced renters appears to be on the right track. He and others are keen to dig deeper with a more comprehensive study into the Vancouver-area market. Let’s hope they do. If it shows Vancouver’s rental policy is aiding housing affordability, then council can proceed full steam ahead with the validation of research. If results indicate otherwise, the city will know it’s time to regroup and move in another direction.
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