s

War on the Suburbs: California & Elsewhere: Implications for the GHTA

Institute for New Suburbanism

Toronto Wendell Cox 12 July 2017

PERSPECTIVE Issue is not suburbs It is standard of living

and poverty Los Angeles

Core: Toronto Centre &

Spadina-Fort York FEDs

12%

Balance: City of Toronto

7%

Suburbs 64%

Exurbs 17%

Toronto Growth in Suburbs: 2011-2016 DOMINATED BY SUBURBS

Derived from Statistics Canada data

OUTLINE

Background: Middle Income Housing Affordability

Middle Income Housing Affordability in the GHTA

Urban Containment (Greenbelt) Policy

Protecting Land or People: A Question of Values

The Future & Economy: GGH & Canada

Brisbane

FIRST PRINCIPLES G20 COMMUNIQUE: 2014 Better standard of living

Less poverty

Background: Middle-Income

Housing Affordability

Housing the Largest Household Expense BENEFITS OF HOME AFFORDABILITY

Foundation of the middle-class More to spend on other goods & services Neighborhood stability

13th ANNUAL 9 Nations

92 Major Markets 406 Total Markets

MEDIAN MULTIPLE Median house price

divided by Median household income

Rating Median MultipleSeverely Unaffordable 5.1 & OverSeriously Unaffordable 4.1 to 5.0Moderately Unaffordable 3.1 to 4.0Affordable 3.0 & Under

Table 1

Housing Affordability Rating Categories

International Housing Affordability THE DEMOGRAPHIA SURVEY

Middle-Income Housing Affordability MINIMUM REQUIREMENTS

AT THE HOUSING MARKET LEVEL (Metropolitan Areas)

(1) Comparison to Incomes

(2) Comparison to history

(3) Comparison to other areas

0

1

2

3

4

5

6

7

8

9

10

1950 1960 1970 1980 1985 1990 1995 2000 2005 2010 2015

Med

ian

Mul

tiple

Less Restrictive Markets More Restrictive Markets: Outside California California (All More Restricted Markets)

Illustrates the Contrast: California & US LIBERAL V. URBAN CONTAINMENT POLICY: 1950-2016

Derived from Census Bureau, Harvard University and Demographia.

MEDIAN MULTIPLE Median house price

divided by Median household income

1,281,000

-1,056,000

-1,500,000

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

Median Multiple 3.5 or Less Median Multiple > 3.5

Net

Dom

estic

Mig

ratio

n US: People Move Away from High Prices

53 US MAJOR METROPOLITAN AREAS: 2010-2016

Derived from Census Bureau

Harvard study: Affordability drives

migration

Middle-Income Housing

Affordability in the GHTA

Focus: Toronto CMA

4.3 3.9

7.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1971 2004 2016

Med

ian

Mul

tiple

Unprecedented House Cost Increases

TORONTO CMA: 1970 – 2004 – 2016

Derived from Statistics Canada and Demographia

MEDIAN MULTIPLE Median house price

divided by Median household income

0

1

2

3

4

5

6

7

8

9

2004 2006 2008 2010 2012 2014 2016

Med

ian

Mul

tiple

Figure 13

Middle-Income Housing Affordability TORONTO CMA: 2004-2016

MEDIAN MULTIPLE Median house price

divided by Median household income

72.0%

38.6%

85.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Consumer Price Index Condos Detached

Chan

ge

RBC: Share of Income Needed 2017 Q1: MEDIAN INCOME % FOR AVERAGE HOUSE

Source: RBC Economics Research Figure 14

#1 Reason House Prices are Rising ONTARIO’S “PLACES TO GROW” PROGRAM

Benjamin Tal, Deputy Chief Economist, CIBC World Markets, Inc.

“Affordability and Places to Grow cannot co-exist”

Land supply restrictions resulting from the plan called, Places to Grow, is "the number one reason GTA house prices are rising,”

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

Jun 2016

Sep 2016

Dec 2016

Mar 2016

June 2017

Med

ian

Hous

e Pr

ice

Recent Price Plateau Still Very High TREB: TORONTO AREA

ACTUAL

AT 2000 RATIO

-124,700

6,600 5,600

-15,900

-140,000

-120,000

-100,000

-80,000

-60,000

-40,000

-20,000

0

20,000

City of Toronto Suburbs

Net

Mig

ratio

n

Elsewhere in Ontario Inter-Provincial

Toronto: Moving Away from High Prices TORONTO CMA NET DOMESTIC MIGRATION: 2010-2016

Derived from Statistics Canada

Urban Containment (Greenbelt) Policy

Hong Kong Median Multiple:

18.1

$5,620

$11,990

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Median Family Income Levittown House

The Legacy of Low Cost Suburban Housing AFFLUENCE IN CANADA AND THE U.S.

Derived from US Census Bureau, Levittown ad

Median Multiples Were 3.0 or Less DATA FROM 1987

Adapted from Reserve Bank of Australia, Courtesy Frontier Centre for Public Policy

Urban Containment Policy GREENBELTS & URBAN GROWTH BOUNDARIES

Intensification requirements

(infill)

https://commons.wikimedia.org/wiki/File:Oil_Prices_Since_1861.svg

Supply Limits Result in Much Higher Prices EMBARGO & IRAN SUPPLY LIMITATIONS 1973-1980

1

3

5

Price

of L

and

Distance from City Center

Urban Containment: Higher Land Prices URBAN GROWTH BOUNDARY (& RELATED STRATEGIES)

Adapted from Lincoln Institute of Land Use Policy

City Center Exurbs

The “killer app” of urban planning

Impact of Urban Growth Boundary DESTROYS COMPETITIVE MARKET FOR LAND

Portland 2010

United Kingdom differences up to 400 times (Permitted v.

not permitted)

0

3

6

9

12

1970 2004-2005 2016

Med

ian

Mul

tiple

Toronto Montreal Vancouver Ottawa Calgary Edmonton

Figure 26

Huge Spike in House Prices: Canada CANADA: MAJOR HOUSING MARKETS: 1970-2016

0

3

6

9

12

15

1981 1986 1991 1996 2001 2006 2011 2016

Med

ian

Mul

tiple

Sydney Melbourne Brisbane Adelaide Perth Hobart Canberra

Figure 27

Huge Price Increases: Australia MAJOR MARKETS: 1981-2016

3.9

7.7

5.1

8.5 9.2 9.3

10.0

11.7 12.2

18.1

0

2

4

6

8

10

12

14

16

18

20

Toronto: 2000

Toronto Liverpool London (GLA)

San Francisco

Los Angeles

Auckland Vancouver Sydney Hong Kong

Med

ian

Mul

tiple

(Hig

her:

Lee

s Affo

rdab

le)

Housing Affordability Examples: 2016 URBAN CONTAINMENT METROPOLITAN AREAS

Median Multiple: Median House Price/

Median Household Income

Demographia International Housing Affordability Survey, 2017

Housing Affordability’s Killer App GREENBELT (URBAN GROWTH BOUNDARY)

Severe unaffordability (Over 5.0 median multiple Only where there is urban containment policy

or severe land rationing

• “Number of years supply” allocations are ineffective and inaccurate.

• Only reasonable indication of sufficient supply is the price of land: Finished land should be about 25% of final house and land cost.

Principle of A Competitive Land Supply ANTHONY DOWNS (BROOKINGS INSTITUTION)

Speculation Fuels House Price Increases BANK OF CANADA GOVERNOR

Stephen S. Poloz, Governor, Bank of Canada

There’s no fundamental story that we could tell to justify that kind of inflation rate in housing prices … Demand is being driven more by speculative demand, or investor demand, as opposed to just folks that are buying a house

Speculation Caused by Urban Containment SUFFICIENT LAND SUPPLY NEEDED TO AVOID

Shlomo Angel, New York University

Speculation leading to high land prices on the urban fringe can only be avoided if limits on urban expansion are generous enough and credible enough to ensure that land will be in plentiful supply for years to come, and that hoarding it will not be profitable in the long run

Not Enough Land Supply Allowed INTERVIEW WITH PETER GILGIN, CEO, MATTAMY HOMES

TO GOVERNMENT: Consider what you are doing to a whole generation of people by basically turning off the taps.

NOTES: We own lots of land We can’t get anything approved We have little to sell. Smoke & mirrors on land availability Bring us land, we’ll have checkbook out

Paul Cheshire London School of Economics

TORONTO STAR: Paul Cheshire thinks Ontario’s anti-sprawl Smart Growth policies might just be one of the dumbest ideas that Britain ever exported. “you try and force people to live in houses they don’t want to live in, in places they don’t want to live and they end up bidding up the prices of those houses that they do want to live in.”

Adding to the Problem NOT ALLOWING HOUSING PEOPLE WANT

HOUSING PREFERENCE ISSUE IGNORED ”... the only viable solution to dealing with deteriorating longer-term affordability – significantly increasing the number of new ground-related housing units built."

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

Winnipeg Ottawa Toronto Vancouver

Average Construction Cost Latest Average House Price

Difference is Not Construction Costs DETACHED HOUSE CONSTRUCTION COST & PRICE

Sources: Altus Construction Guide and Real Estate Board reports Figure 36

Land Rationing is the Issue DESTROYS HOUSING AFFORDABILITY

Donald Brash, Governor, Reserve Bank of New Zealand

1988-2002 Introduction to

4th Annual Demographia International Housing Affordability Survey

... the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land.

VIEW OF MARKHAM, FROM https://upload.wikimedia.org/wikipedia/commons/8/8a/Markham-suburbs_aerial-edit2.jpg

Protecting Land or People:

A Question of Values

39 39

Densest World City: Dhaka, Bangladesh REFERRED TO AS SPRAWLING

15x as dense As Toronto Population

Centre

0

500

1,000

1,500

2,000

2,500

3,000

USA Los Angeles Canada Germany Toronto

Popu

latio

n pe

r Squ

are

KM

Population Centre (Urban) Densities: 2017 SELECTED WORLD AREAS OVER 500,000

Source: Demographia World Urban Areas, 2017.

2.1%

97.9%

Extent of Urbanization: Canada 2016 CENSUS & PEAK AGRICULTURAL LAND

Agricultural

Urban Development

Derived from Statistics Canada

http://diymaps.net/userimages/569308.gif

Agricultural Land Taken Out of Production FROM PEAK TO 2016: EQUAL TO MARITIMES LAND AREA

Farmland reduction:

9x urban land 2016

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Consolidated (Greenbelt) Business As Usual (No Greenbelt)

Urb

anize

d Ar

ea: S

quar

e KM

2031 Additional Without Smart Growth 2031 Added with Smart Growth 1999

Greenbelt & No Greenbelt Compared GREATER GOLDEN HORSESHOE

Derived from Neptis 2003.

"Suburbs rarely cease growing of their own accord.

The only reliable way to stop them … is to stop them forcefully. But the consequences of

doing that are severe."

Cheshire, Nathan & Overman URBAN ECONOMICS AND URBAN POLICY

… the ultimate objective of

urban policy is to improve

outcomes for people rather

than places

The Future & Economy of the GGH &

Canada

Virtually all increased inequality

is in higher housing values

Much due to

Housing regulation

-Rognlie, MIT

All Lost Equality in Housing? THE “DISAPPEARING” MIDDLE CLASS

$14.4

$16.4

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

With Stringent Land Use Regulation Without

GDP

(Tril

lions

of U

SD)

$2 Trillion GDP Loss in the US LARGELY DUE TO STRINGENT HOUSING REGULATION

More than $16,000 per household

Source: Hseih and Moretti, 2014.

Bank of Canada: Ottawa

Fears of a Housing Bubble BANK OF CANADA, OECD & OTHERS

PROSPECTS FOR THE GREATER GOLDEN HORSESHOE

https://commons.wikimedia.org/wiki/File:A_tea_pot.jpg

LIKELY TO WORSEN

ALREADY SPREADING TO THE REST OF THE

GREATER GOLDEN HORSESHOE

STRONGER

INTENSIFICATION REQUIREMENTS

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

Jun 2016

Sep 2016

Dec 2016

Mar 2016

June 2017

Med

ian

Hous

e Pr

ice

The Need to Restore Affordability FOR THE NEXT GENERATION AND THE ECONOMY

ACTUAL

AT 2000 RATIO

Restoring Housing Affordability: Strategies AND SERVING THE NATION & ECONOMY

• Establish housing affordability reporting

• Policy: Glide path to affordability – Auckland

• Event triggered greenfield land expansion

– New Zealand Productivity Commission – Issue is land price, not planning allocation – Not a call for deregulation.

• Municipal utility districts

– Texas