The answer to housing affordability is not regulation, it’s access to the market.

Julien Jacques
Jul 19, 2018 · 3 min read

I personally believe, that the solution to the real estate affordability crisis, is not lowering prices. It’s access to the market.

Although lowering prices would solve the affordability issue, the problem with the idea that prices will decrease to affordable levels, to let’s say pre-2009 (i.e. 20%-50% for a Vancouver single detached home), is unrealistic. Market forces, like construction costs, which have doubled in recent years, would mean that building a home, not including the price of land, would cost a few hundred thousand dollars to build a home ($357/sqft on a 2,500 home would cost $892,000).

More importantly, nobody, except non-homeowners are incentivized to have lower prices, which I’d argue is the most powerful market force. Local governments, provincial governments and federal governments all capture more taxes when property values go up. Home owners never want to sell their home for less than what they’ve paid for it. Developers, construction companies, and banks are all dependent on prices increasing to pay for staff, business expenses and to make a profit. Every player in the game of real estate are all alligned with the same incentive for higher and higher prices.

Oddly enough, not even purchasers are truly incentivized for lower prices, especially in the long run. A purchaser only benefits from buying a home for less than its past value, if they are confident it will rise again. Like all securities, you do not want to be the sucker who buys as prices are trending down, and left with an investment worth less than when purchased. One only buys in a down market when they are betting that they’ve purchased near the price floor.

Ultimately, every player wants to be in a real estate market that is trending upwards.

And becauce all players are incentivized for the same outcome, none of them will take bold measures that canabalize their source of wealth. In other wors, misaligned incentives results in poor execution. A good example of this is government intervention. Despite, governments attempt to help with real estate affordability, their approach is designed in a way to only help curb price increases, not make them affordable.

In British Columbia for example, their recently inacted housing policies have had marginal effects on single family detached home prices. Every home in Vancouver is still out of reach for even upper middle class families, let alone middle and lower income families. Moreover, industry professionals would argue that their one sided and singularly focused approach on single family detached homes, stoked an even greater fire in the condominium market. By only applying foreign speculation taxes on single family detached homes, it moved speculators interest to the condo market, making condominiums less affordable to the average person.

I can’t help but wonder “How could they not have seen that coming?” Lack of foresight maybe. Someone in the room when they decided this must have brought this up. It’s probably misaligned incentives. But I digress.

The only thing to lower prices are true macroeconomic market forces. A bubble bursting. A crash. A war. Emigration.

But if market forces are too strong and government policies are too weak, then the only way to realistically provide non-homeowners the ability to get their share of the real estate pie, is to provide more opportunities to invest in real estate, and by reducing the barriers to entry to increase access to the market.

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