An empirical study by some Finnish economists sheds explains how new housing helps people along a “chain” of homes. The piece links to the original study.
https://www.planetizen.com/news/202...ilters-naturally-occurring-affordable-housing
Rather than the brief article on the paper, I would encourage people interested in the subject to download the paper itself:
I would suggest to you a reading of the paper, from 2021, which is listed as not having yet been peer-reviewed........is problematic.
I don't doubt their conclusions about moving chains, however, their own data and conditionalizations suggest deep problems with applying this to the Toronto market.
From the above:
"Compared to US cities, the moving chains in the HMA are more likely to reach middle- and low-income
neighborhoods and reach them faster. The difference may be partly driven by differences
in the data and methodology used to construct moving chains, but they probably largely
reflect differences in underlying income inequality and residential segregation. That is,
the socio-economic distance between expensive and affordable neighborhoods is smaller
in the HMA compared to US cities."
Note that historically differences in Canada/Toronto would be lower and probably still are lower than those in the U.S; they are certainly greater than what one would see in Helsinki.
Further:
"It is important to note that our results speak to the potential of new construction
to loosen middle- and lower-income sub-markets in the metropolitan area. However,
we cannot make any claims about the effect of new construction on the immediately
surrounding neighborhoods (see e.g. Diamond and McQuade 2019; Li 2019; Singh et
al. 2019; Pennington 2020; Asquith et al. 2021), nor do we look at price effects in the
neighborhoods reached by the moving chains (see e.g. Mense 2020)"
Also important:
"4.3 Moving chains
Before characterizing the origin neighborhoods and movers in each round, we show the
share of individuals originating from the HMA in each round. In Figure 3, we see that,
while in round one, around 90% of movers are from the HMA, this share gradually
decreases to 50% by round six, regardless of the type of new building we look at. The
gradual decline in the share of moves originating within the HMA reflects one main reason
why moving chains break before they reach low-income neighborhoods in the HMA"
Of note here, HMA is Helsinki Metropolitan Area
Let's look further:
"The share of residents originating from the bottom quintile zip codes is 10-15% de-
pending on the neighborhood division. The share is higher when using the zip code
division and increases only slightly when we move to further rounds. This is somewhat
surprising and potentially due to zip codes containing different types of smaller neigh-
borhoods. That is, the movers from the bottom zip code quintile may be those living in
the highest quality parts of the zip codes and may have the highest incomes in these zip
codes. If so, the zip code level analysis would overstate the extent that new buildings
loosen low-income housing markets"
Here we see a key observation:
Another interesting point of comparison for market-rate buildings is rent-controlled
social housing. In Figures 4b, 4d and 4f we show the results for moving chains triggered
by new social housing buildings. The main difference between market-rate and social
housing emerges in the first few rounds where the share of moves coming from the bottom-
half and bottom-quintile are higher. Thus, social housing buildings loosen the middle-
and low-income housing markets more directly, but this comes with considerable costs
to taxpayers due to forgone rental income (see Eerola and Saarimaa 2018).11 This is
consistent with the interpretation made above that moving chains reach middle- and low-
income neighborhoods faster when the price difference between the city’s core and other
neighborhoods is smaller.
***
The scale of this study is a potential issue, it involves only
2,939 new market rate destination units.
That's about 4-5 average sized Toronto developments.
***
There is also a hypothetical element to their study, something I always find bothersome no matter what a study is about or what it portends to discern.
"For each of the 4,473 observations,
we construct a dummy that takes the value 1 if at least one origin unit or household
in the chain (out of the possible six) is ranked in the bottom half or bottom quintile of
the median disposable income distribution. We take the average of this dummy variable
across all observations within the same new destination building. As long as it is above
zero, we conclude that the chain triggered by that new destination building includes a
lower-income neighborhood or household. Finally, we take an average of the collapsed
dummy variable. We report these averages in Table A1."
************
To be clear, in a housing constrained environment (low vacancy, high rent/price to income ratio) I don't think there is any real question that more supply does some good at the margins, provided demand remains static.
At the very least, more supply should, in theory, suppress rent/price gain; however, this is only true if demand is static, if demand is growing, additional supply won't hurt, but may not actually ameliorate things. Supply must grow faster than demand to achieve that, which has been shown to be all but impossible in the Toronto market at current levels of demand growth.
**
People moving, as the study itself notes, is not in fact indicative of the benefit ascribed, which is more or less social mobility.
They don't look at actual prices, or their level relative to income, which is key to establishing whether people who are moving are achieving better housing in a better area, because of the housing market as opposed to a change in their personal income.
***
I would deem the study to be inconclusive, beyond supporting the obvious, that if supply grows where demand remains static there is a probably advantage to those in the market to rent/buy,
