The dubious belief that there is no housing supply crisis
During a chat this morning I was told that a local politician thinks there is no housing supply crisis in Montreal. According to them, there is no hurry to approve large housing developments such as the Hippodrome (or any other housing development that does not conform to the City of Montreal’s exacting wishes).
After my chat, I looked into this curious argument. I came across a series of newspaper articles suggesting (at least in their headlines) that there is no housing supply crisis in Canada. For example: the Walrus article “There is no housing crisis”, CMP’s “Canada’s housing crisis: Why it’s more than just supply and demand’“, CBC’s “Quebec’s housing crisis goes beyond supply and demand, says new report“, and the recent opinion piece in Journal de Montréal “Il n’existe pas de pénurie de logements à Montréal“.
These articles and opinions emphasize that affordability, financialization and rent increases are key contributors to the housing crisis – but none claim that supply is not also an issue. If the local politician had read beyond the headlines, they would have learned that housing supply is indeed an issue.
The politician’s misapprehension may stem from listening to some engaged academics: indeed, ‘supply skepticism’ has developed in academia, which means “questioning [..] the premise that increasing the supply of market-rate housing will result in housing that is more affordable”.
Anyway, it is very unfortunate that the take-home message for some housing advocates and local politicians is that there is no housing supply issue.
This is a dubious premise, as a few minutes of research show.
Of households and housing completions
Below is a figure illustrating the cumulative evolution of households and of housing completions across Canada, from 2001 to 2022.
First, it is necessary to fully understand what the data show, and what their limits are. Sources and definitions are important:
Housing completions: CMHC, Table: 34-10-0126-01 (formerly CANSIM 027-0009)
Households: https://www.ibisworld.com/ca/bed/number-of-households/124465/. Data is sourced from Statistics Canada as part of the National Gross Domestic Product by Income and by Expenditure Accounts survey and statistical program.
I cannot find the exact definition of households used by Statistics Canada for GDP calculations. However, “households” are defined in the Census dictionary, as “a person or a group of persons who occupy the same dwelling and do not have a usual place of residence elsewhere in Canada.“
Note that “the Census of Population […] consists of: Canadian citizens (by birth or by naturalization); landed immigrants (permanent residents); and (since 1991) non-permanent residents. (Non-permanent residents are persons who have claimed refugee status [asylum claimants], or persons who hold a work or study permit and their family members living with them). All such persons are included in the population provided they have a usual place of residence in Canada“.
Thus, the population – and associated households and housing needs – does not cover anyone without a usual place of residence in Canada, notably tourists and temporary workers.
What does all this tell us about the housing crisis?
1- The number of new housing units is similar to the number of new households
This provides superficial support for the idea that there is no housing supply crisis.
2- Discouraged household formation
An assumption that underpins the “no supply crisis” idea is that, because housing units closely track household formation, all households can find a home.
That argument is mistaken, because households can only form if housing is available.
The numbers are compatible with the possibility that many people (particularly younger people and those with lower incomes) would like to form households but can’t.
As the Vanier institute reports: “Young adults have become more likely to live with parents over the last 30 years. Census data show that, in 2021, nearly half (45.8%) of those aged 20 to 29 lived with at least one parent. Living with parents into young adulthood is done out of neccessity, out of preference, or both. In 1991, 32.1% of those in their twenties lived with parents. This includes both young adults who never left and those who returned home after living elsewhere.”
Suppressed demand may partly explain why extra supply will not solve the affordability issue in the short-term: extra units will simply allow new households (those with money for housing) to form, without addressing affordability issues (those without enough money will not be able to access new units).
3- Across Canada, over the last 21 years, 300 000 ‘extra’ units have been built
This seems to suggest that enough units have been built, and seems to invalidate the suppressed demand argument. However, demolitions, cottages and second homes should be subtracted from this 300 000, which is an overestimate of new units actually available to households.
4- In 2023, there were 226 200 units permanently devoted to short-term rentals
A further 226 000 units – the AirBnB effect – should be subtracted from the ‘extra’ 300 000 units that have accumulated (mainly since 2017 or so). Indeed, if we combine AirBnB, demolitions, and second homes we can easily account for the apparent surplus of 300 000 units.
There are strong reasons to regulate AirBnB, but it will not disappear: new uses for housing need to be planned for, and cannot be wished away.
5- The numbers do not account for geographic differences
Even if, overall, there were sufficient supply, only detailed analysis would reveal if supply were being built in the right places and at the right times. There can be local supply crises (at the neighbourhood, city or provincial scales) even if, at a higher scale, things seem OK.
Crisis of effective demand: the housing crisis is about rising income inequality
Housing has become unaffordable to more and more people as income and wealth inequalities stabilize at high levels.
Because more people are living off very low incomes, fewer are able to afford housing, whatever the cost : their incomes would not even cover construction costs, which can easily be $200 000 for a 1000 ft2 home, to which land, soft costs and normal profit must be added.
Thus, many people do not have enough income to register as effective demand, even though they badly need housing: effective demand comes from households with money.
Whilst social housing (i.e. funded and subsidised by public bodies) is a partial solution, the only long-term solution is to reestabish a more equitable distribution of the income and wealth created by Canadians.
To conclude: there is a housing supply crisis (exacerbated by, and reflecting, other processes)
The housing crisis is not solely one of supply: non-resident households, AirBnB, geography – not to mention the financialisation of housing – are serious issues that partly cause, partly exacerbate, the crisis. Rising income and wealth inequality is a key issue, which is reflected in – not caused by – housing issues.
However, housing supply is a key issue. The numbers show that, even without taking AirBnB into account, housing supply is tight. Comparing household formation with new housing units overlooks how people adapt to a housing crisis: they continue to live at home, or crowd into inadequate housing.
It is concerning that the message reaching some politicians and activists is that there is no housing supply problem.
There is a supply problem, but supply is only part of the housing crisis solution.
Richard Shearmur 