Beyond Vancouver’s Eternal Housing Crisis
I feel like Vancouver has had a housing crisis as long as I’ve lived. An article from 2007 calls Vancouver the “world’s sixth most overpriced real estate market.” Since then, there have been seemingly infinite political promises, proposed solutions, and attempts to “solve the housing crisis.” None of them have worked. Is it time to move on?
The Realities of Geography
I don’t know if you guys are geography buffs, but Vancouver doesn’t exactly have a lot of land. We have the sea to our west, mountains to our north, and the US to our south. The only place to go is east, which is happening. Surrey has nearly double the growth rate of Vancouver. Vancouverites are hard-pressed to call Surrey and beyond “Vancouver” though. It’s also not golden plains as far as the eye can see, you run into mountains relatively quickly.
The lack of land crosses out the easiest way to build cheaper housing: spread. As you can see on the graph below, low density can house high populations like in the case of Dallas or Las Vegas. Places with cheaper housing are generally less dense.
Density is the option we are stuck with, but no matter how much density we build, it doesn’t actually seem to lower housing prices. Density isn’t bad, it’s just not a solution. People like living close to each other, activities, and work. Density is appealing, and while it remains so, demand stays.
Scott Alexander in “Change My Mind: Density Increases Local But Decreases Global Prices” argues that building a higher density of housing probably won’t lower prices. The densest cities in the US have the highest prices, how does it make sense that creating more density won’t lead to an increase in prices too?
Add the high regulation that comes from developing density to the small amount of land we have, and the benefits of density, and you get something that looks like permanently high housing prices.
The Canadian Economy as Ponzi Scheme
You might say “well, this can’t go on forever.” This is true, but the end of high housing prices is interlinked with the end of the Canadian economy as a whole.
The Canadian economy is kind of like a Ponzi scheme. Canada is one of the best places to live in the world. Accepting of everyone, relatively productive, massive amounts of natural resources, highly-educated, stunning natural beauty, and overall a high standard of living. For basically the entire world, living here is an upgrade.
They come here, bringing their smarts, talents, and capital, but there are only a few good places to live and Vancouver is one of them. This drives demand for housing constantly upwards. To buy a house, you need to go into massive amounts of debt. Canadians have the highest household debt amount in the G7, but this is all good because everyone else is doing it and demand will always go up (like any good Ponzi scheme).
Because there is much more demand to move to Canada because it is such a nice place, this ideally remains the case. If this changes, housing prices will go down, but it will probably mean that the entire Canadian economy which is reliant on inflows of people and capital has collapsed as well.
Ponzi schemes are great as long as you’re not the last one out.
Beyond the Housing Crisis
A lot of energy goes into trying to “solve” the housing crisis that could be used somewhere else. If we acknowledged that Vancouver is an extremely nice place to live, and housing costs will remain high, we can spend our energy elsewhere. There is no reasonable amount of political energy that can “solve” the realities of geography, human nature, and the Canadian economy.
One suggestion I had for what we can do with this newfound energy is attracting and retaining smart young people which is key to securing the future of BC. There is a chance that the generation of smart young people we develop now will diversify the Canadian economy away from housing. They have the ability to drive economic growth faster than housing prices and make housing “affordable” while doing it. This seems to me like a better way out than collapse.