Sunday, May 4, 2014

How to make urban housing more affordable part 1: right-sizing, adequate supply and demand

This is the first of a series of articles of my reflections on how we can help reduce housing costs in cities. Again, this is just me thinking out loud as writing on the internet can be anyway.

The first thing I will point out is what I call "right-sizing". The point of it is to offer housing units that are just the right size and price for people.

The size of households vs the number of bedrooms

I'm in Canada, so I'll take Canadian figures. The first thing that determines how big an housing unit must be is how many people will inhabit it, and the most important point of this is the number of bedrooms in the unit. How does it look like in Canada, according to the census in terms of how many people there are by household versus how many bedrooms per dwelling unit? Here is the data for all of Canada:

Canada - comparison of number of bedrooms vs number of people per household
If we suppose that the "right size" of a dwelling unit is one bedroom per person, then we can see that the housing stock in Canada is currently oversized. There are around 3,3 million households made up of a single person, but just 1,6 million dwelling units with 1 bedroom, 1,8 millions if you include dwelling units with no separate bedroom. Households of one or two people lack housing that is the right size for them, while households with more than 2 people have a lot of choice.

But the reality is more complicated. Couples without children do not need 2 bedrooms, just 1. Fortunately, the census differentiates between couples with children, lone parents with children, and singles. It's not perfect, but if we suppose that each couple needs only 1 bedroom for themselves plus 1 bedroom per child, then we get the following graph showcasing the demand for bedrooms versus the supply of bedrooms.

Canada - demand vs supply of bedrooms per dwelling unit
In words, it means that fully half of Canadian households could make do with but one bedroom, yet only 15% of dwelling units provide this. This means that there are a lot of dwelling units with empty bedrooms in Canada right now, at least inasmuch as no one sleeps there. Nature abhors vacuum and so do homeowners, they'll find ways to fill these rooms, often with stuff.

So this goes for Canada, but what about cities?

Let's look at Montréal, because, well, represent!

Montréal - comparison of number of bedrooms vs number of people per household

Montréal - demand vs supply of bedrooms per dwelling unit
So it's still quite unbalanced. Even in Montréal, there is a lot more bedrooms than needed.

So we have more bedrooms than people, what's the problem?

I know. At first glance, that's not really a problem, is it? I mean, you have more space than you absolutely require, that seems like a good thing, right? Surely there are young couples who want empty bedrooms because they hope to fill them up soon, where it makes sense to have additional rooms.

However, the big problem here is that many, many people who are singles or retired couples with kids long gone that may desire smaller living arrangements, but can't find them. So what do they do then? Well, if they can't find housing that is just the right size for them, they will look for bigger housing than they need or, sometimes, even want. By doing that, they increase competition for bigger housing and make it harder for larger households to actually find housing they need.

So small households will buy housing that:
  • Is bigger than they need
  • Is more expensive than they would prefer
  • Occupies more land than they would otherwise
This reduces density and forces bigger households out of desirable areas. This aggravates land shortages and thus pushes prices up for everyone. Even the bigger households who want large dwelling units end up paying for the lack of small studio and 1-bedroom apartments.

A special case, the older suburbs

One of the special cases of this dynamic is older suburbs. Often, suburbs built in a few years in the 60s or 70s used to be full of children as almost all the people who moved in were young families. But what happens when these families grow older? The housing stock in these suburbs is geared towards big families with one car per adult. So as the kids become teenagers and young adults, they are often placed in front of a dilemma:
  • Keep living in your parents' basement to stay in your community
  • Strike out on your own... which means living far away from your parents and old social network because there are few if any small apartments for young bachelors anywhere near them
This also create a dilemma for parents whose kids have gone away. Their big houses are now mostly empty, but they've lived a few decades in the area, have made friends and sometimes involved themselves in the community. And there are often little or no smaller housing opportunities around where they could move to while remaining in that community. The "wise planners" forgot to zone for it, oops. So a lot of retirees remain in huge houses, which also means that young families are kept out of these suburbs, prevented from bringing fresh blood there, since all the family-friendly houses are occupied by retired couples without children.

Here is an example of it, the suburb of my youth: Boucherville. A suburb of Montréal. Here are the graphs o housing supply and demand as I did previously for Canada and Montréal.

Boucherville - comparison of number of bedrooms vs number of people per household
Boucherville - demand vs supply of bedrooms per dwelling unit
So more than half of households are singles or couples with no child living with them, yet only 2% of dwelling units have just one bedroom, and 19% have 2. There is no equilibrium between supply and demand.

The result is that young families are forced to settle farther and farther to get affordable housing big enough for them, while there are tens if not hundreds of thousands of them in inner suburbs that are occupied by retired couples who stay there in large part because there is no smaller housing arrangement available to them in their community. There are some attempts at build such housing in Boucherville that I know of, but it runs against much opposition still. I know, my mother is involved in an attempt to build some.

Not just size, but prices too

A few articles past, I described how much of zoning is about socio-economic segregation, by imposing certain housing types in certain neighborhoods for uniformity, and these housing types have certain price tags attached to them. I gave this hypothetic city split in three zones:

Example of zoning and the prices of the housing they allow
Now imagine what happens to people who want housing worth between 150 000$ and 300 000$, people who are not quite rich, nor quite poor. They fall between the cracks of zoning, there is no housing in the area that corresponds to their purchasing power. These people are either forced to buy cheaper housing than they would like, which may mean renting actually... or to buy more expensive housing than they'd like. This is another problem that reduces housing affordability, the lack of a variety of housing at various price levels can often force people to buy housing that they would normally consider unaffordable.

Meanwhile, in Japan...

Japan is always interesting has a country that allows a lot of variations in residential supply through very lax zoning regulations. I found a website with a lot of real estate listings in Japan, and I've been exploring this. It is extremely interesting.

First, we often hear about how Tokyo is expensive, and it is. But at the same time, the number of small, affordable studio apartments for young people who are students or are still pretty poor is insane. Just in Tokyo, as in downtown and the 23 wards, there are 2 400 studios (one-room as they say) or 1-bedroom apartments vacant, all for less than 40 000 yen per month, so 400$ a month. Some as low as 150$. This is in the city itself, not even the suburbs. If I increase the criteria to 600$ a month, then I find 35 000 apartments.

If I look at Sapporo, which has the advantage of being the size of Montréal, there are 27 000 studios and 1-bedroom apartments for rent in a city of around 1,9 million people, 6 000 of which are available for less than 300$ a month (Japanese renting is a bit weird with non-refundable bonuses and "key money" for many apartments that increases the rent by 15-20% overall, but it doesn't change things much).  These are just the vacant apartments on this one site. Meanwhile, Montréal has 47 000 studio apartments overall, meaning vacant and occupied units altogether.

Still, it shows that the relaxed laws of Japan has led residential developers to provide housing for everyone, all the way down to poor students. Meanwhile, in North America and Europe, students frequently stubbornly stay with their parents while they study (guilty as charged), often resulting in huge commutes, or having to live with roommates to be able to afford the apartments too big for their means.


So if you care about affordability, it is important to make sure that small housing units can be built, whether as new housing or through subdividing existing housing (single-family to duplex for example) and that the housing stock is varied, appealing to all income levels. If you don't, you push people into buying bigger housing than they actually need, paying more than they would prefer to and taking more land than they would do otherwise, which makes all housing more expensive as you aggravate land shortages.

1 comment:

  1. Even though couples would probably sleep in the same bedroom most of the time, many people like a den or home office for personal space or telecommuting. (I know this from personal experience.) So assuming couples will have fewer bedrooms than people may be tenuous, as secondary bedrooms may be used for other things. (More bedrooms than people and separate formal and informal living spaces are still slightly ridiculous in this day and age.)

    At the same time, perhaps Japan's employment market differs such that Japanese people are more likely to spend more hours at work and less likely to work from home. And I know New York City has a reputation for people spending their leisure time out and about rather than sitting at home in a tiny apartment.