This is in response to an article written by Patrick Condon, the original can be found here.
First off, this is an excellent
article at getting at many of the problems we face with urban economics – for any who are not aware of the works of Henry George, I would
highly recommend giving it a read. George was alarmed by the inequity created
by simply gaining wealth by owning land (without any improvement being made),
this kind of situation is known as economic rent and is typically seen as not
ideal. George promoted a land value tax, but unfortunately at the time (as it
is now) many of the neo-wealthy had made their fortunes and continued to make
their fortunes from appreciating land values “while they slept” – thus he was
met with fierce opposition.
I can’t
find it for the life of me now, but a post along a similar argument as the one
being made here by Condon was made about a month ago by a UBC prof. Both
essentially argued the same thing, that as soon as the property is subdivided,
the value of the land increases, erasing any potential savings from
densification.
However, my fear is that many will take this conclusion that density (on its own) may not help affordability, and take this to mean that density does not help.
Before I
get into discussing the why of this, I want to highlight that Condon (the
writer of this article) at the start lays out many of the benefits of
densification, even if prices do not drop – in addition to the benefits Condon
lays out, as we are on the precipice of a climate crisis, and governments are
facing an increasing budget crisis (not to mention the housing crisis, etc.), the greener
nature of dense building (with adequate green space and parks that we don’t see
here in Langford) coupled with the cheaper cost to provide services, is a step
In the right direction for many of the problems we face.
Ok, so then
why – Why is it that when a parcel is subdivided, the values shoot up? The big
explanation (as far as I have been able to tell) is due to restrictive zoning.
Restrictive zoning is only a by-product of the last 100 years or so (less in
some cities) and is by far and large a racist, and colonial response to
planning with many restrictive covenants and zoning bylaws being put into place
to limit the ability for certain undesirables (non-western-European immigrants)
to be able to access a given area – this, sadly enough, is why cities like
Toronto abandoned low rise apartments (the so-called missing middle) in favour
of Single-Family Housing (SFH) almost 100 years ago.
So other
than the overtly racist undertones in the history of zoning – why does it
create this problem?
It creates
the problem because it takes the standard market for housing and then through
regulation and laws, separates it into multiple smaller markets for housing.
Because of this, you get oddities in some areas where the cost of commercial
buildings can run significantly cheaper than the cost of residential buildings,
even if they are side by side (this is not the case here as we also have a lack
of commercial space).
The reason
we see this is because you have very different people competing for real estate for living versus for commercial purposes, the result, the land that is
“ear-marked” for commercial can go for significantly less than if it was
“ear-marked” for residential, simply because there can be less demand for this
space.
The same
occurs within residential zoning – Imagine an entire city zoned for single-family housing (SFH). There are lots of people looking for a house and want to
buy, but as the whole city land is used up for SFH, there is nothing available
for them, so values start to rise as they try to out-bid each other for the few
houses available. Clearly more needs to be built, but (A) there is no more land
within city limits, and (B) zoning only allows for SFH to be built.
Let’s
suppose, that as a trial, the city decides to allow a certain parcel to be
subdivided, or allows the zoning to be changed to allow denser housing to be
built – what happens? All this pent-up demand from people looking for housing
(and unfortunately speculators looking to make a $) all rush in to purchase
this newly made available land, thus further driving up the price. The trial
appears to have been a failure.
The problem
with it is that you just created a momentary market for a single good that a
lot of people wanted – of course, they piled on and bid up the price. As long
as the city continues to sub-divide or allow densification on an ad-hoc, one-off basis, this will continue to happen as each time this becomes available the
pent-up demand will rush in, bidding up the price, until equilibrium is met.
It has thus
been argued that if the city were to significantly relax their zoning
requirements – IE, instead of setting areas as only SFH, they can set them as a “residential” blanket allowing a degree of density, this would eliminate the
gold-rush mentality and help to stabilize land prices – If memory serves,
Vancouver attempted this a few years ago to a limited degree on one street and
still saw prices balloon – why? Because it was still done on a limited scale
with people believing (rightfully so) that this was a one-time, one-off event,
and while on a slightly larger scale, was still a land gold rush.
In my
opinion – to help alleviate this, one needs to adopt a two-pronged approach –
(A) conduct a complete overhaul of zoning laws to make them less restrictive
and allow densification across the board. (B) adopt taxes as first promoted
by George and re-iterated again in this article by Condon.
Such a tax
allows – as proposed by George – much of the gains from this land
appreciation to be recaptured by society, not the few landowners and
developers, and thus can be utilized by the government to provide increased public
infrastructure and services.
Unfortunately.
like in Georges's day, the idea of increased taxation on land will be highly
unpopular as in his day we have a massive class of neo-wealthy who would be
negatively impacted by such a tax, and thus would be more than incentivized to
speak out and disprove the effectiveness of it.
