Calgary's skyline in March, 2020.Jeff McIntosh/The Canadian Press
Something interesting is happening in the Calgary real estate market: The median price of apartments is falling amid a relative glut of listings. That wouldn’t normally be all that interesting – the relationship of supply and demand is, in fact, basic economics – but when it comes to housing a lot of people claim such a link doesn’t exist.
The argument that more housing doesn’t help make housing more affordable is voiced by think tanks, professors and residents everywhere trying to block nearby developments.
It has also, oddly, been wielded by the mayor of Calgary. As he led council this month to reverse a loosening of zoning rules that allowed multiple-unit buildings without special approval in neighbourhoods of single-family homes, Jeromy Farkas called it “a pipe dream” that this sort of development helped with affordability.
“Typically, it’s all about a $600,000 bungalow being torn down and being replaced with four $700,000 luxury condos,” the mayor said. “Young people have been sold this false promise that as long as we build more and more expensive condos for the developers, housing will somehow trickle down to them.”
However, beyond standard economic theory, recent statistics from his own city highlight that the interplay of supply and demand does in fact affect prices. Through April, compared with last year, apartment sales in the city plunged nearly 37 per cent as listings remained flat. Supply increased relative to demand. Unsurprisingly, the median price fell.
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Alas, rather than allowing the free market to work, the mayor is making policy based on anecdote and local ire.
Calgary nixed the 2024 zoning change allowing more multi-units buildings only 20 months after it came into effect. This was not long enough to assess its full impact. Just 811 homes in multi-unit buildings were approved under the new policy and 146 completed, according to the city.
To be fair, Mr. Farkas ran for mayor last year on a promise of changing the zoning back. However, his zeal to reverse the policy puts him at odds with evidence that housing actually does trickle down. Creating new homes – even expensive ones – takes pressure off other parts of the market, thereby opening up possibilities at multiple price-points.
This is more than academic theory. A large study in Switzerland looked recently at whether building housing at the higher end of the market indirectly helped low-income households by creating a sort of spillover effect. And it did.
“New construction triggers moving chains that initially attract affluent households into expensive units and, as chains progress, vacate less expensive units that enable lower-income households to move,” University of Bern researchers Lukas Hauck and Frederic Kluser wrote earlier this year.
Converting single-family houses in Calgary to multiple units should logically help affordability, regardless of how the units of any particular project are priced.
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The council decision to tighten zoning also puts at risk federal funding, as much as $861-million according to a February report from Calgary city staff.
The mayor has waved away that possibility but must come clean with Calgarians. What will not be funded if any of that federal money is withheld? How much would taxes have to rise to cover a gap?
Realistically, Mr. Farkas is not likely to change course on a signature policy that helped propel him to the mayor’s chair. However, it would help his constituents if he keeps an open mind on multiplex housing.
The older zoning rules that were reinstated by Calgary council earlier this month take effect again in August. Under them, multiplexes will not be banned in residential neighbourhoods. Developers will still be able to seek approval for specific projects.
If politicians are serious about finding ways to increase density – as the councillor who introduced the motion tightening the zoning rules suggested – the city should make the application process as simple and streamlined as possible. And staff should look for ways to approve such projects, recognizing that multiplexes can work just fine in single-family-home neighbourhoods, rather than excuses to block them.
This is an imperfect solution that will lead to slower development than letting the free market work. Unfortunately, this approach will reduce the number of options for Calgarians looking to buy a place to live – and fewer homes mean higher prices. That’s just economics.