Never reason from a quantity
I see lots of commenters making an EC101 error. They notice that Canadians are much more likely to live in high rises, and assume that this reflects a difference in preferences. It’s certainly possible that preferences differ in one country from another, but to demonstrate that to be true you’d first have to consider supply factors.
Canada builds almost 20 times as many high rises as California, despite having a similar population. It might be true that Californians don’t like high rises. But if that were the case, then why are high rise condos in California so incredibly expensive? Even a very small condo in San Francisco costs well over a million dollars. The high price of apartments and condos in California is a pretty good indication that there is strong demand for such units.
So why are they not being built? Presumably because it’s too expensive, or perhaps it’s impossible to get permission to build due to zoning regulations. I suspect it’s a bit of both. Construction costs might be a bit higher due to earthquake risk, but by far the most important factor is regulation, which increases the cost to build in all sorts of different ways. (Lots of high rises were profitably built in places like Santa Monica and Marina Del Rey before regulation made it almost impossible to get approval.
People mentioned that Canadian cities have restrictions on suburban development. Well California has extremely restrictive limits on suburban development.
What would low demand for high rise living look like? Check out the market for condos in places like St. Louis, Detroit and Cleveland, where you can find units at very reasonable prices. Those are cities where it makes sense to suggest that low demand explains a dearth of construction. But San Francisco? San Jose? Los Angeles? San Diego? There’s an extreme need for more housing. The same is true in New York and Boston. Lots of high rises have been going up in Jersey City precisely because their regulations are less strict.
No, it’s not a lack of demand—the price of housing here in California is insanely high, and getting higher, and yet very little construction is occurring. Orange County now has the fastest rising house prices in America, and yet (outside Irvine) construction seems to be slowing down. It’s almost all due to zoning and regulation.
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31. July 2024 at 18:49
Scott,
Yes, the demand for housing in So Cal (and No Cal) is very high. I live in Chicago and would love to live in the OC. (Beautiful beaches, mountains, 65 and sunny in January – it’s like paradise) But if housing became more affordable half of the Midwest would try to move there. And CA can’t handle a huge influx. Seems to me that maybe the high price of housing is a deterrent to keep people out. ( or like a hurdle to see who wants it bad enough) And maybe the politicians know this. I doubt if housing prices fell (because of supply increase) in Little Rock or Houston people would move to those cities.
31. July 2024 at 19:09
Why is Irvine growing? Different political economy?
31. July 2024 at 20:37
No city in Canada is populous enough to compare to major US cities. Toronto has a lower population than Dallas, and a similar one to Atlanta. Vancouver has fewer people than St. Louis. The SF Bay Metro has 9 million people. LA has 14 or 18 million people, depending on how you count the inland empire. Point is that Canada actually does have higher demand for high rises than US cities with a comparable level of population.
31. July 2024 at 20:53
” The high price of apartments and condos in California is a pretty good indication that there is strong demand for such units.”
Scott there is strong demand for tents in California. Furthermore it’s hardly appropriate to compare the price of condos in TO w/ SF.
Given firehose of cash being sprayed on the Bay area by the tech industry for nearly four decades, it’s hardly surprising that prices would be ridiculous there even if it had the most permissive regulation in the country. The fact that it doesn’t only makes matters worse. Meantime, despite being worshiped as the Socialist Paradise by the commie coder community, Canada’s tech industry – Nortel – crapped out 20 years ago. I used to bike past the deserted campus.
No doubt, regulation is a problem in CA, but as i’ve pointed out many times at MR, no degreg is going to make SF cheap until the tech industry runs out of steam.
1. August 2024 at 01:02
Yeah, thinking this over further Scott I don’t think you’ve made your case. Los Angeles has long been known for its freeways and the ease of suburban living and car culture – and it has been emulated to varying degrees throughout the US. So I think there *is* very powerful evidence that historically at Los Angeles in particular and the US in general has had a very strong preference for SFH (and the associated freeways).
I think you said you live in SoCAl right? Then you know that despite all the fighting about regulations, there are still massive freeway projects under construction throughout the region. I drove through the area last year and I was surprised by that. So, yes, the LA region is still deeply committed to car culture.
On the other hand, Canadians already had a more central-planning oriented regime, but in recent years they have accepted the purported “need” for urbanization to protect the planet, and that acceptance allows their government even more freedom to direct the development of society.
But more speculatively, my bet is that most Canadians would prefer more SFH, and that being confined to urban living in towers is a significant contributor to Canada’s low birthrate. While, OTOH, the wide availability of SFH in the US and the chance to live “the good life” is a significant factor in the US consistently having higher birthrates than other developed countries.
Scott I think this is a very complex issue with lots of moving parts. My bet is that to some extent you’re right that there is demand in SoCal for more urban housing, but there is also a generally stronger preference in the US for SFH, and a less cooperative attitude with respect to the purported environmental necessity of urban living when it comes into conflict with people’s preferences.
OTOH, I think just the oppposite is true in Canada. Canadian cities are over-regulated. They have successfully incentivized the construction of urban housing, but at the expense of what people actually want – even if Canadians don’t express their preferences directly, but instead express them indirectly through their willingness to have children.
1. August 2024 at 01:10
And, sorry to keep posting, but I think this is irrefutable: Canadian highways SUCK. I’m confident almost any Canadian with experience lving in the US would agree, Canada has **really shitty** roads. For goodness sakes I’ve driven the “TransCanada Highway” too many times to call it that. That dovetails with the fight over SFH vs urban living, because roads are a necessity for single family homes.
1. August 2024 at 05:22
I’m not sure highways sucking is much of an argument? And for what?
As far as I can tell highways in the US suck a lot. You have both very low speed limits, and more importantly you have frequent jams. If you actually want to use you car, like an SFH occupant would, jams are the worst.
Here in Singapore we have the occasional slow down, but jams are pretty much outlawed thanks to effective congestion charging.
But that doesn’t seem to have much of an effect on birth rates either way as far as I can tell.
1. August 2024 at 06:46
1) It’s unlikely that Canada is building more (per person) of any kind of housing than the US. Here’s ’22 data for the value of Construction Starts in US and Canada in local currency:
https://canada.constructconnect.com/canadata/forecaster/economic/2023/02/u-s-and-canadian-2022-construction-overviews
My math says the value of new residential construction starts in 2022 was $643/person for Canada and $1063 for US (2022 USD) Other metric: 1.15% of GDP for Canada and 1.38% of DGP for US
2)It’s unlikely that Canada residential construction favors Hi-Rise vs single family units https://fred.stlouisfed.org/graph/?g=1r5Iy
I say this because the total number of residential construction starts per person in Canada is roughly comparable to the US. If Canada favored large apartment buildings they should have far fewer projects per person over time AND the value of the projects should be higher in Canada because large buildings are more expensive per square foot. (my math in the graph is to make US quarterly data a match to Canada monthly data)
3)Canada housing costs are increasing faster than the US Why? higher demand or lower supply? Probably not because of higher supply.
https://awealthofcommonsense.com/2023/09/the-u-s-housing-market-vs-the-canadian-housing-market/
Maybe US cities have a construction regulation issue limiting residential construction and driving up costs and Canada does not have that issue but that doesn’t jump out from the totality of the data.
1. August 2024 at 07:57
LA county population is down to 2010 levels and the state is down to 2014 levels.
So isn’t it that demand is declining but supply is declining faster?
Side note: California population peaked in 2017 before the Dem super majority passed laws like rent control
1. August 2024 at 08:14
Shelby, You said:
“I doubt if housing prices fell (because of supply increase) in Little Rock or Houston people would move to those cities.”
I’d say Houston is one of our fastest growing cities precisely because of it’s loose regulatory policies, which keep house prices low.
Jared, Yes, it’s a sort of planned city—developed by the Irvine Company.
Lizard, You said:
“Point is that Canada actually does have higher demand for high rises than US cities with a comparable level of population.”
No, point is it has higher quantity per capita, at least based on this evidence. In a free market, the US might well build far more high rises than it currently does. (I’m not saying Canada doesn’t have a higher demand, just that the construction data doesn’t show that.)
Kangaroo, You are completely missing the point. The evidence you present supports my argument, not yours:
“Given firehose of cash being sprayed on the Bay area by the tech industry for nearly four decades, it’s hardly surprising that prices would be ridiculous there even if it had the most permissive regulation in the country.”
That supports my argument. Given the “firehose of cash” we should see hundreds of high rises being built in SF. Why aren’t they?
Most people prefer SFHs? Sure, but that’s also true in Canada.
I think you are attacking a straw man. Suppose that both countries had 100% free markets in housing. And suppose that due to different preferences Canada built twice as many high rise apartments as the US. In that case, I would be correct. If you don’t see that, then you don’t understand my argument. (In the real world, they build 6 times as many.)
Jerry, No idea what you are talking about. Are you actually saying Canada doesn’t build more high rises per capita than the US? They build roughly 6-fold more.
1. August 2024 at 08:17
Btw, Houston is building a lot of high rises now and they are expensive.
High rises just cost a lot of money
1. August 2024 at 10:33
Yes, precisely.
And who owns the inner city machinery, which purposefully creates housing shortages with zoning laws, so their all white enclaves will increase in value at a faster rate — that’s right, the democrats. The marxist losers who want to regulate your speech, gas stoves, and even cow farts.
I thought you were in favor of big regulation, but it appears in this case you are sensible.
1. August 2024 at 10:57
I wonder if some of the difference is attributable to levels of zealotry. Public reviews here in the Bay Area are notoriously swarming with NIMBY zealots. I don’t know if the same is true in Canadian cities.
1. August 2024 at 16:18
“I thought you were in favor of big regulation,”
LOL, Sara you really are an idiot.
2. August 2024 at 08:33
I think zoning / regulation is also a reason why Canada has so many high rises. There is a lot of demand to live in the big Canadian cities, but their restrictive zoning only allows apartment construction on specific corridors that allow buildings of unlimited height. This is true in the US to a large extent as well, but the only city I’ve seen that looks like Toronto is the one in renderings for the Line in Saudi Arabia. The drop off in density is so severe it can really only be the result of government planning rather than the preferences of Canadians.
2. August 2024 at 08:43
Scott, I believe you’re saying:
1) The ratio of high rise construction between Cal and Can proves that there is an unmet demand for high rise construction in Cal.
2) Removing the restrictions to high rise construction in Cal would drive Cal to increase production
3) to the same rate as in Canada.
4) the high price of HR Condo in SF reflects proportionally higher demand than in (adjusted currency) Canada.
I agree partially with (1) and fully with (2). Yes, making only one change in the entire regulatory system – removing regulatory barriers to high rise construction – would increase HR construction in Cal.
I do not however believe it would erase the entire difference or nearly so, nor would it equalize the cost in SF, although it might in other parts of SoCal and the US.
Here’s why:
A) the difference in HR production rates in the two countries reflects dozens of differences in regulations between the two regions, not just California’s restrictions on HR production. Canada’s zoning does more than just *allow* HR. It promotes it in part by blocking SFH development but also with other means.
B) San Franciscan’s have more cash, so the price of any commodity will be higher there. The price difference does not reflect *only* “demand” for HR Condos. It *also* reflects the abundant supply of cash. Try adjusting prices according to the Big Mac index. Or maybe in this case it might be better to create and deploy a “Lambo Index”? (Tech billionaires might not eat too many Big Macs.)
But my view is that if the **entire housing market in both Canada and California** were deregulated (excepting safety like seismic, flood risk etc), you’d see proportional equalization of the ratios with Canadians going for **a lot** more SFH and only a moderate increase in HR construction in California, the rest of the demand shifting to a variety of other types of housing, both SFH and larger “low rise” condos and apts in CA.
Read Reddit. Lately there have been **alot** of posts by Canadians moving south so they can afford SFH.
In the city of Seattle specifically the SFH market is severely contorted by all sorts of nutso regulations. The last one before I left there was designed to prevent wealthy people from buying small homes on larger properties and replacing them with large homes. And I’m sure San Fran has hundreds of similar “character of the neighborhood” regulations that prevent people from using SFH the way they want. So, obviously if people can’t have a SFH the size they want and the place they want, then their only option is a new HR Condo, which will drive up the demand for condos.
In SEattle – and probably many other cities – developers are forced to provide a certain percentage of new housing (eg HR) as “living wage” housing or some such BS, so that portion is effectively taken off the market. It would be interesting to know how that kind of thing is handled in Canada – are a significant portion of the HR in canada housing projects, not market rate housing?
Last but not least while California is still building the roads that provide access to SFH, the green lobby is making that as expensive and difficult as possible in california and nationwide, and severely restricting the utility of SFH with respect to the main employment centers. So that’s another area of regulation that’s distorting what people actually want. Amazingly, the green lobby is so intent on screwing the SFH market and so rabidly trying to kill “sprawl” they’re even making it preventitively expensive to build rail. Seattle’s LR will build a laughable 50 miles in 50 years at whopping cost of $1B/mile. The transcontinental railway from Minneapolis to Seattle was built in less than a decade.
So ultiamtely I think you’re partially right but only partially because you unrealistically flatten the issue to “HR regulation in US/California” and ignore the relative impacts of all the other regulations distorting the relative demand for different types of housing in both countries
2. August 2024 at 10:47
Kangaroo, You said:
“I do not however believe it would erase the entire difference or nearly so, nor would it equalize the cost in SF”
I agree, perhaps we are talking past each other.
And yes, there are lots of regulations against both SFH and high rises—all bad. But keep in mind that SF and LA did build lots of high rises before the regulations got strict.
3. August 2024 at 04:51
A significant demand pressure on high rises comes from their role as a store of value. Pay a maintenance fee and your asset is protected and guarded.
In my building about 1/3 of the units are neither owner nor tenant occupied. Maybe that’s just V/HNW individuals owning multiple homes or what not but it sure seems like is about holding a physical asset instead of gold.
If anything, Canada has seen even more of that but as you say also responds with supply.
This shows up as a capital account export but rather than selling land we are creating air rights and trading that for consumption goods.
3. August 2024 at 18:51
@Bobster: not quite, population peaked in 2020, and it’s back to 2015 levels. But it’s really a plateau for a few years. Definitely declining now though.
https://www.macrotrends.net/global-metrics/states/california/population
3. August 2024 at 18:57
msgkings, Our population is probably growing again, but way too slowly:
https://www.ocregister.com/2024/05/03/after-losing-population-in-recent-years-california-is-starting-to-grow-again-is-that-a-good-thing/