Dynamic of the housing market
This is normal, and it should be temporary, because there just aren't that many rich people around. If you continue accepting new constructions, at one point the luxury housing market will be saturated and the new constructions will be more affordable as the promoters have to target poorer demographics.
Unfortunately, when the first constructions occur, there is often panic about "gentrification", many seem to believe that any new constructions will inevitably be for the richest, and so try to block any construction, or at least limit them. But in fact, this is a self-fulfilling prophecy, because by restraining supply increases, they keep housing in severe shortage and make sure that supply isn't able to increase enough to ever saturate the upper end of the market. So the reason new constructions aren't targeted to the middle class and below is because we don't allow enough of it.
Still, there is a way for the poor and the middle class to outbid the rich for the available land in a neighborhood...
Higher density: the mass' ace in the holeI've said it often and I'll repeat it: multi-family uses tend to generate more profit per square foot of land than single-family use. Even if the profit margin is lower, the profit associated with one condo building tends to be higher than that of houses built on the same terrain, by sheer numbers alone. So that's how people can outbid the rich, by tolerating higher densities and smaller units than the rich will.
One of the tactics used by the anti-gentrification crowd is to limit density to what exists currently. The reasoning is that blocking the construction of anything is quite hard, but if you limit density, you make it much harder to build anything because any replacement of a building with a new one will not be able to dilute the value of the older building amongst more units. So the new units will have to incorporate the old units' value, a cost that is a severe drag on profits and so may make new projects harder to justify financially.
The law of unintended consequence is in full force here. These limits also impact current residents by making housing more expensive. As I said in an earlier article, what limits the price of housing is the ability to add new housing, the cost of building new units is a ceiling to how high the price of current units can be. If you restrict additional supply, you are in a shortage situation where prices are likely to explode. It also results in keeping housing around well after its "best before" date. Furthermore, it makes sure that the ONLY new units that can be built will only be for the richest people who want to move there, because these density limits deprive the middle class and the poor of their one ace in the hole that allows them to outbid the rich: higher density and smaller units.
So though density limits may reduce the pace of construction, it will also make sure that all new constructions will be the type the anti-gentrification activists hate, for people at an income level far above the current residents'. They have just made it impossible to build new housing for people similar to current residents.
An example of what density limits to prevent gentrification brings about: the "monster home"There is no greater demonstration that density limits are useless to prevent gentrification than the phenomenon of so-called "monster homes" or "monster houses" that are quite common in Vancouver and Toronto. In both of these cities, there are exclusive single-family detached zones quite near to the center of the metropolitan area, zones in highly desirable locations that would normally attract low-rise, if not mid-rise, multifamily developments. However, these developments are banned and density is severely limited as lot sizes are imposed by zoning and only single-family developments can occur. In terms of density limits, you can't do much better.
So what happens? Essentially, either rich people themselves or developers buy older houses, that are already expensive but that are not suitable for the rich (too small, not enough amenities, etc...), they tear them down and build modern houses in their place, houses that are as large as allowed in zoning. These houses are tremendously expensive, not only because they are luxury housing, but because they must include in their price the cost of the earlier house that got torn down.
|In Vancouver, older houses to the right, monster house to the left|
|Surrey, a Vancouver suburb, an older bungalow in the foreground with a recent monster house in the background|
When a neighborhood becomes highly desirable, there really is no real way to keep it from gentrifying, the rich will outbid everyone on a level playing field. The only solution is to allow higher densities, which can allow current residents to keep residing there by accepting higher density housing.
But what happens if the rich also tolerate higher density housing? Many rich people go for condos in mid-rise or high-rise towers, does that mean that they are utterly unbeatable when they accept high-density housing?
Yes, it does. But it's not a problem, because the great thing about density is that it doesn't take a lot of place. And there aren't that many rich people to go around, so if they accept to live in high-rise condos, they will inevitably take very little space and the danger of displacement will be negated.
In conclusionIt is normal for some place that is reviving after years of neglect to have an influx of people who are richer than current residents as promoters will first satisfy the desires of the richest people, since there is more profit to be made with them than with other people. However, that is temporary as the upper end of the market gets saturated very quickly, if people don't try to maintain an housing shortage by limiting construction in a misguided attempt to prevent displacement. It's like tearing off a bandage, the slower you go, the more it will hurt.
So the solution to gentrification is to allow even more construction to allow the upper end of the market to get saturated quickly, to relieve pressure on house prices and to allow current residents to outbid the rich by accepting higher density housing.
At least, that's the solution is the problem anti-gentrification activists fight against is effectively the displacement of current residents... if the real unspoken problem they seek to prevent is the presence of richer people, that they seek to maintain homogeneity in a neighborhood, then that is no "solution", but neither is social mixity a problem in my view.