# Simple Metrics for Deciding if You Have Enough Housing

How do we know if we have too much, the right amount, or too little housing?

(Joint with Nathan Lauster and cross-posted at HomeFreeSociology)

What are the best metrics for understanding if a given place has enough housing, just the right amount, or too much? Whether you’re a potential renter or buyer or an analyst or policymaker, the answer really depends on what you’re looking for.

For potential renters and buyers, if you can’t find what you’re looking for and/or it’s not in your price range, then there’s not enough housing. If you can find it, then there’s just the right amount. When is there too much housing? Mostly if you’re already comfortably housed, but concerned about changes to your neighbourhood and/or you’re looking to maximize the price you can get for selling your housing. So we can root a set of foundational answers to questions about housing supply in peoples’ direct experiences interacting with the housing market. We can also extend this to non-market housing. If there are people on the waitlist, there’s not enough non-market housing (note: there are ALWAYS people on the waitlist and we definitely need more non-market housing).

But decisions about whether we have enough housing aren’t actually left to people interacting directly with housing markets. Most people can’t add much to the supply of housing by themselves. Housing has become exceptionally technical, and a vast slew of regulations now prevent most self-building except in informal sectors (in Vancouver most notably the subdivision of existing dwellings into suites, only a minority of which comply with building codes and have a permit). Instead most decisions about how much housing we have are produced via a combination of developers working through their financial models in conjunction with planners, regulators, and politicians working with tight existing constraints on what can be built where. Interestingly, both the comfortably housed and those looking to maximize their prices for selling housing DO get a voice. Why? They tend to be the ones electing (and speaking directly to) local politicians. This group notably includes local developers, who are both actively engaged in maximizing the prices they can get for selling housing and actively engaged in local politics (if you think market developers are unambiguously pro-supply, think again).

So how do we know if we have enough housing in a given place? Or, since the answer always depends upon the perspective, how do we hear from potential residents (including renters and buyers) about whether THEY have enough housing? Their voices are the ones that tend to get left out of debates. Usually, to the extent their voices are heard at all, it’s through some set of metrics informing decision-makers. So let’s return to metrics, because different metrics tell us different things!

Ideally decision-makers consider metrics with specific goals in mind: do we have enough housing in a given place for what purpose? Are we interested in enough housing to meet demand, preserve affordability, or address need? Enough to promote the right kind of growth? Enough to support transit, reduce greenhouse gas emissions, promote urban vitality? Or perhaps we’re worried about too much housing to support our preferred sales price, keep out the wrong kind of people, preserve our favourite aesthetic, maintain green space, or just generally keep our neighbourhood the way we like it? Being clear about these goals is helpful, insofar as they set the criteria for which metrics can provide meaningful answers. If we can decide on our criteria, then we still have to figure out the right metric. Let’s start by looking at the four common elements that make up most metrics:

• Dwellings
• Money
• People
• Land

These are the things we tend to track with our metrics for whether or not we have enough housing, just the right amount, or too much. Dwellings are housing. If we want to figure out if we have enough, then we definitely need to keep track of dwellings. Of note, dwellings can also be differentiated by square footage, number of bedrooms, and related characteristics. Money is an expression of desire, weighted by wealth and/or income (and hence also inherently unequal). People are bodies, variously disposed to live together and share space. Both money and people move around, unlike most dwellings, which are fixed in place. Land is how we fix dwellings in place, and can support various numbers of dwellings. By virtue of fixing dwellings in place, land also defines various kinds of places we might be concerned about: e.g. neighbourhoods, cities, and metropolitan areas. Places are connected to one another: what happens Downtown has an impact on nearby neighbourhoods (e.g. Kitsilano), just as what happens in the City of Vancouver has effects on what happens in the City of Surrey. As a result, metrics should pay careful attention both to place of interest and interconnection between places. In the background, fitting these elements together, we also want to keep in mind that time matters to how we construct metrics.

The key metrics we tend to track often involve just two of the elements above, measured at varying scales of aggregation, places, and times. We can provide a quick and dirty guide to the different questions answered by the key metrics we use to measure if we have enough housing or too much as well as the underlying logistical mechanism guiding our inquiries.

Class of Metric Q. Do we have enough / too much housing to… Logistical Mechanism
Money per Dwelling Preserve Affordability Market Allocation / Inequality
People per Dwelling Fit people into dwelling units Rationing / Sharing Rules
Dwelling per Land Support Urbanism / Reduce Env. Impact Rationing / Sharing Rules (via zoning)

How we define elements matters to how the metrics work, as does how we incorporate time and the level of aggregation (individuals, households, census tracts, cities, metro areas). We’ll keep coming back to these throughout, often with reference to examples from Vancouver, the metro area we know best, but it’s helpful to start by keeping things simple.

## Money per Dwelling (a.k.a. price)

Perhaps the most obvious way to bring these elements together is by asking how much dwellings cost. Given the persistence of market allocation for housing, there will always be enough housing to meet demand… at some price. That’s because the price mechanism sets prices at where demand curves and supply curves meet. Put differently, the demand for $1 dwellings is practically limitless. The demand for$100 million dwellings is practically zero (so far). In between, there’s a demand curve specifying how many dwellings would sell at what price. On the supply side, self-interested owners would rarely sell dwellings if they could only sell them for $1. But they’d probably sell as many as they could get away with if they could sell them for$100 million. In between there’s a supply curve specifying how many dwellings will be sold at what price. The market pricing mechanism moves prices toward equilibrium where demand and supply curves meet. This is the stuff of basic economic analysis (brought to you by a mathematician and a sociologist).

How about if you don’t just want to meet demand, but you want to meet it at a particular price? Maybe you want the market to meet a certain affordability threshold for a certain kind of dwelling? Let’s define this better: do we have enough housing if we want the average two bedroom dwelling priced at $250,000? In some places (e.g. Edmonton), this isn’t far off the mark. There’s enough housing there relative to demand that two bedroom dwellings sell for about$250,000. In other places (e.g. Vancouver), there’s not enough two bedroom dwellings to go around to everyone who might want them at that price, so they’re bid up to a far higher price. It would take the addition of a lot more dwellings to bring prices down to $250,000. So if that’s where you want prices to go, then there is definitely not enough housing. The same general dynamics apply to the market pricing mechanism for apartment rents. Landlords respond to their understanding of local supply and demand when setting their asking rents. The longer their apartments stay on the market without being rented, the more likely they are to lower their asking rents accordingly. Vacancy rates measure the supply of apartments for rent. Correspondingly, the negative correlation between vacancy rates and rent change is very strong. As vacancy rates go up, rents come down. Here’s a comparison by metropolitan area in Canada. Say you want to ensure average rents for two bedroom apartments are affordable, at about$1,200/mo (again, around the rent level of Edmonton, vacancy rate around 5%). The takeaway from the above would appear to be that if you want to lower rents to this level in a market like Metro Vancouver (average rent @ $1,650, asking rents much higher, vacancy rate around 1%), then you need to ensure that a lot more two bedroom apartments come on the market to rent. In short, you don’t have enough housing. Exactly how many two bedroom apartments would you need to add to bring average two bedroom rents down to$1,200/mo in Vancouver? This is a tricky (and worthy) question to answer. It would require knowing the shape of the demand curve (made up by knowing how many apartments would be rented at each rent from, say $1/mo to$1 million/mo). It would be difficult to figure this out, even if we could ask everyone in Vancouver what rent they’d be willing to pay for a two bedroom apartment. Why? Two reasons: 1) at lower rent points, some people might be willing to pay for multiple two bedroom apartments (rich people do all kinds of odd things, and when we use price as our metric, the whims of the wealthy matter more than the needs of the poor); 2) we should almost certainly assume that there are a lot of people living outside of Vancouver (including former residents) who would love to move here if they could find a two bedroom apartment for $1,200/mo. They only get a vote in how much housing gets built through their influence on the demand curve. Otherwise they don’t get heard at all. So it’s difficult to tell just how many two bedroom apartments we would need to add to bring Metro Vancouver rents down to$1,200/mo.

Another way to set a metric is to set an ideal vacancy rate instead of a specific rent. Vacancy rate targeting was explicitly mentioned by several candidates in the last City of Vancouver civic election. Inflation-adjusted rents tend to fall when vacancy rates rise above 3%. Setting a vacancy rate target of 4% or 5% will work to deflate rents.

In general, if your goal in asking if a place has enough housing is to preserve the affordability of market housing, then prices (or rental vacancy rates) should be your metric. If prices are higher (or lower) then you want them to be, then you should work to add to (or reduce) the supply of housing accordingly.

## Conclusion (and Preview)

Overall, there’s still lots to think through when asking if we have enough housing! But metrics can establish crucial common ground for providing answers. Stripping down our metrics to their basics helps demonstrate their utility in terms of what answers they can provide and who they give voice. Overall, price (and rent) metrics provide the best indicators of whether we have enough housing to preserve or achieve market affordability. Non-market waitlists and homeless counts provide the best indicators of local non-market housing need (though they still exclude need from elsewhere). By contrast, residential crowding metrics (people per dwelling) don’t generally tell us much in urbanized Canada, and tend to privilege the voices of those already living in a place (e.g. the “winners” in finding housing). Dwelling per land metrics point toward the limits often imposed upon getting to enough housing in a place, and potentially spell out the rewards for getting there in terms of sustainability and urban vitality.

In terms of underlying logics, the market distribution of housing tracked by price metrics is problematic insofar as the whims of the wealthy far outweigh the dire needs of the poor. But when we simply wave away price metrics, and pretend we’re rationing out housing by need instead (by only tracking persons per dwelling), then we’re saying we don’t care who wins for the limited amount of housing we’re willing to offer when we ration out dwellings to land. Really addressing housing need is a monumental and important task, and requires a much greater investment in non-market housing. But questions quickly arise as to how non-market housing should be rationed, and advocates should pay more attention to providing answers that don’t assume that no one ever moves.

In future posts on housing metrics, we’ll compare across specific measurements within the same class and dig further into more complicated metrics that combine multiple classes (e.g. price to income multiples, core housing needs, shelter & transportation cost to income rations, etc.) So consider this a preview. Rest assured we’ll keep playing around with metrics!