Why increasing supply is the only answer to Toronto’s housing affordability crisis

Recording: Welcome to The True Condos Podcast with Andrew la Fleur. The place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Okay, it’s my pleasure to welcome to the show for the first time, Ash Navabi. Ash is a senior economist at Housing Matters. Ash, welcome to the show.

Ash Navabi: Thank you very much for having me.

Andrew la Fleur: Yeah, great to have you here, Ash. Looking forward to chatting with you about rent … Oh.

Speaker 4: [inaudible 00:02:33]

Andrew la Fleur: Yes. Yeah, I’m just on a call here. Sorry Ash, just one second.

Ash Navabi: No problem.

Andrew la Fleur: Okay.

Ash Navabi: That was your kid?

Andrew la Fleur: That was a couple of mine that just ran upstairs, here. Let’s start again.

Ash Navabi: Okay.

Andrew la Fleur: Okay.

Ash Navabi: Okay.

Andrew la Fleur: It’s my pleasure to welcome to the show Ash Navabi. Ash is the senior economist at Housing Matters. Ash, welcome to the show.

Ash Navabi: Thank you for having me, Andrew. I’m excited to be here.

Andrew la Fleur: Great. Excited to have you here and to chat with you about rent control and other things. I know you wrote a great article about that, recently published on CBC. We’ll get to that in a minute, but why don’t you just tell everybody a little bit more about your story, your background, how you got interested in housing related issues and rent control? What’s your expertise in, and what are you most passionate about, most interested in?

Ash Navabi: I have a bachelor’s degree in economics. I did a couple of years of graduate school in economics. I view the world through an economic lens. To me, the tools of economics, of methodological individualism, as we call it, just understanding that every part of society came about because of some individual or individuals made choices about particular, concrete, physical products of goods and services, of physical things to do in the universe. It’s amazing to me, the power of economics, and that we can explain everything in the world that we see using the tools of economics.

Ash Navabi: It’s just wonderful, to me, what economics can do. Housing, as someone who lives in the GTA, it’s just on everyone’s mind. To me, it’s so obviously what economics can do for this issue. The lessons of economics have been ignored for so long, that I feel like there’s a real need for someone to come in and just give the basic economics, the basic models of economics, and how they apply to housing, and how I think the popular conceptions of the housing market and housing policy are just so misguided, as viewed from the lens of economics.

Andrew la Fleur: Interesting. Just to be clear, Ash, you’re obviously a big part of the organization, Toronto Housing Matters that you’re part of, is obviously pro-housing, and EMV, as you say. We’ll get into that.

Andrew la Fleur: A lot of people looking at it say, “Oh, this guy, or these people behind this organization must be just a bunch of developers.”

Ash Navabi: Right.

Andrew la Fleur: It sounds like you’re not in the development industry, at all, is that correct?

Ash Navabi: I’m personally not involved in the development industry. Our organization is fairly new. We have very, very little funding. Most of our funding is from personal donors. Of course, there’s a lot of interest from developers.

Andrew la Fleur: Maybe tell us, maybe take a step back and Toronto Housing, the organization-

Ash Navabi: The organization is named Housing Matters.

Andrew la Fleur: … what is it, who are you? Yeah, sorry, yeah, Housing Matters. I keep wanting to call it Toronto Housing.

Ash Navabi: Right, our URL is confusingly title torontohousingmatters.com.

Andrew la Fleur: Okay.

Ash Navabi: Our Twitter handle is @torontohousing_. Housing Matters is … A lot of people think that housing matters, so a lot of the URLs and web addresses were taken. We were limited in that sense.

Ash Navabi: We view our organization, of course, primarily interested in Toronto housing, to start with, but we think nationally, and internationally, these issues are coming up again and again. We think the lessons of economics are international. They aren’t particular within some country or some city’s borders.

Ash Navabi: Yes, we are Torontonians. The organization start in Toronto. We aren’t some — this is an accusation that’s been levied against us — some AstroTurf group of some front by developers. We have not even started seriously fundraising, yet. We’re going to do that in the first quarter of the new year.

Ash Navabi: As of now, this is very boot strapped organization. Our offices are borrowed from somewhere else, in a technology company. We have no direct ties to major developers. We just think basic economics is true, and it applies to housing, just like it applies to carrots, just like it applies to mattresses, just like it applies to cars. We’re really passionate about the economics of housing.

Andrew la Fleur: Okay, so what is the purpose of Housing Matters, and the organization? What’s the mission statement, as it were? Why does Housing Matters exist, and what are you trying to accomplish as a group, as an organization?

Ash Navabi: We’re trying to accomplish simply increasing the supply of housing in Toronto. We think the laws of supply and demand are real. The laws of supply and demand make direct reference to prices and quantities. There’s a relationship between prices and quantities of any good. If we want to lower the price of something, we have to increase the supply of that good. This is the law of supply.

Ash Navabi: As the quantity supplied increases, the price will fall, given that demand isn’t shifting. If demand is also increasing, then supply has to increase faster than demand, or at least as fast as demand. This is elementary economics. Every economic textbook will talk about this. We just want to make sure the policy makers understand this as well.

Andrew la Fleur: I guess, maybe, peeling it back a bit, maybe it’s obviously, but just so we’re on the same page, why do you want to increase supply?

Ash Navabi: We think increasing supply will lower prices. We think prices are too darn high in the city of Toronto.

Andrew la Fleur: Yeah, I think a lot of people would agree with that basic principle, concept of Toronto housing is expensive. Affordability crisis, housing crisis, so many terms that are thrown around lately. It just seems to, obviously, get worse every year.

Ash Navabi: Right.

Andrew la Fleur: Besides just the obviously, but maybe in your opinion, as you see from your lens, not speaking just about the supply, what’s the bigger story here, in your opinion? Why is Toronto housing so expensive? Why are we so unaffordable? How did we get here? How do you explain how we got to where we are today? Moving forward, how do we get out of that problem? How do we fix it?

Ash Navabi: The way I understand the story is that we had a fairly normal housing market, until there was a recession in the mid-’70s. During that recession, the number of units was decreasing, new units built was decreasing. Because other people were still moving into the city, there was a demand for rent control.

Ash Navabi: We had our first non-war related rent control in the city in 1975. That let to other problems, as you get with rent control. Those rental policies were exacerbated over time, and correlate quite strongly with the problems of rental housing in the city.

Ash Navabi: On the flip side, for buying housing, we have zoning laws that restrict land. The quantity of land that you can build on is restricted through zoning laws, through land-use planning laws.

Andrew la Fleur: Right, like you can’t just rip your house down and put up a 20 story condo.

Ash Navabi: You can’t just rip your house down and put up a 20 story condo. You can’t even add an addition that’s longer than 18 inches in some jurisdictions. Forget 20 stories, 18 inches is also too much.

Andrew la Fleur: You can’t rip down a five story building and build an eight story building.

Ash Navabi: Right. We think you don’t even need … There’s a lot of talk about condos. There’s too many condos going up, etc. People are worried we’re going to fill up the city with condos.

Ash Navabi: Here’s just an interesting fact, only about 15% of the city is zoned for condos. Where in that city is that 15% distributed? It’s mostly in the downtown corridors, and the major avenues of this city, and near the highways and major TTC stops. In other words, where people work and along people’s transits on their way to work.

Ash Navabi: Because people do most of their traveling and spend most of their day near condos, they think, “Oh, the whole city must be filling up with condos.” When in reality, it’s just about 15% is condos.

Ash Navabi: We’re not actually in favor of turning the whole city into condo-topia. We think what’s more important, actually, is so-called missing middle housing. The housing in between a detached home and a mid-rise. Just, more fourplexes, we think, could solve this problem. Or not solve it, just alleviate it, greatly.

Andrew la Fleur: Okay. Okay, so you got that out of the way. We’ve established you’re not a front for big developers to push their policy agendas to build 80 story condos all over the city. You’re not looking to, like you said, turn condo-wise, every single corner of the city. Even just modest, the missing middle, is again, another buzzword. A lot of people talking about it lately.

Ash Navabi: Right.

Andrew la Fleur: Are you watching what’s happening in … A bit of a sidebar, but I’m curious what your take is. Are you watching what’s happening in, I believe it’s Minneapolis, that city in Minnesota in the US? There’s a big announcement there. Are you tracking with that?

Ash Navabi: I am only very superficially familiar with what’s happening there. From what I understand, it was very positive that they have virtually up-zoned much of the city, as I understand it.

Andrew la Fleur: Right, yeah. I’m not too familiar with it, either. I just, I was wondering-

Ash Navabi: Right.

Andrew la Fleur: That’s, a lot of people are talking about that right now. Basically, the city, like you said, up-zoned the entire city. You can build, I gather they’re basically saying, any house, anywhere. Any property is fair game to be up-zoned, within reason. Like I said, you still can’t build a 20 story tower, or replace your house with a 20 story tower. Maybe you could replace your house with a triplex?

Ash Navabi: Right.

Andrew la Fleur: What a shocking idea. Put three apartments instead of one.

Ash Navabi: I think that’s a really big stumbling block for a lot of people. When you talk about deregulating land use, people think immediately, “Oh, that must mean you want to turn everywhere into a gigantic condo.”

Ash Navabi: You’ve got to tell them, “No, just allowing more triplexes would be good.” It’s just there’s so many huge of these [Bayend Gables 00:15:59], in Toronto, right? They’re already three stories tall. Why don’t we just have more of them? Why don’t we just have larger three story buildings that fit more families inside? Why do we limit so much of the city to only detached homes? Why do we virtually limit them to single families?

Ash Navabi: Although there have been recent regulations, as of right, you can lease more of a detached home to more than one family. That’s a great development. But just more duplexes, and triplexes, and just more row homes, town homes, those would be all welcome additions that would greatly increase the supply of housing in the city, without also to what many think are unaesthetic, glass condos.

Ash Navabi: Of course, we need more condos if you want Toronto to be a large, major metropolis. It doesn’t have to be the whole city doesn’t have to be condos. Just more of these triplexes and fourplexes would be really good. Just let people build those.

Andrew la Fleur: Right, absolutely. It seems like a simple thing, but it’s certainly not. There’s a lot of opposition to that from a lot of different people in the city for a lot of different reasons.

Andrew la Fleur: I want to get into rent control. You wrote this article, editorial-type article, and it was published on the cbc.ca. The headline was “Why Low-Income Earners Should Actually Welcome Ontario’s Reversal on Rent Control.”

Ash Navabi: Right.

Andrew la Fleur: Very interesting article. Basically, you’re defending the Provencal government’s recent announcement that they’re removing rent control, from this point forward for new dwelling units that have not existed until as of a couple weeks ago. Why don’t you tell us a little bit about that? What’s your main message, your main point you want people to know about rent control, as it pertains to this issue of affordable housing?

Ash Navabi: The standard argument made in favor of rent control is that if you limit the amount that rent can increase year over year, you’re protecting tenants from unethical or greedy rent increases by evil landlords, or what have you. I’m saying that could be true. If you are an existing tenant, rent control does protect you from rapid increases.

Ash Navabi: What is left out of this equation, is that by introducing rent control, landlords do not have an incentive to increase their quantity of supplying new rental units. Not just existing landlords, other people who have maybe an extra room in their home and they want to rent it out, might worry about this, might worry about charging sufficient rent to cover the costs of having a person living inside of your building. Of course, there are costs of having someone live inside your building. They might worry about those costs might not be covered by the increases in rent, so they will not bring new rental units onto the market.

Ash Navabi: It doesn’t just stop there. If you are already a landlord and you are renting out a unit at a rent-controlled rate of a thousand, and someone down the road, or across the street, or another unit in the same building, because they waited a little longer to rent, their unit is now renting for $2 thousand per month. You might not be so inclined to give the same level of maintenance and service to your tenants, as the person paying $2 thousand a month.

Ash Navabi: At the same time, if you are a tenant in one of these rent-controlled buildings, in one of these rent-controlled units, lucky enough to get one of these, because, again, the supply would be dwindling over time. If you were lucky enough to get one of these units, this also will have negative impacts on you.

Ash Navabi: Say you lose your job and you’re looking for a new one, by being in a rent-controlled building, you are geographically limiting yourself to where you can now find a job. You might be too scared to move on the knowledge that if you move to a new unit, you’ll be paying a higher rent elsewhere in the city, if not having problems just find another place to live, based on the fact that the rental supply has dwindled so much. Does that make sense?

Andrew la Fleur: Yeah, no, absolutely. Again, rent control is discouraging people from moving. It discourages free movement of people, and goods, and ideas, and knowledge. Like you said, you are geographically limiting yourself. Overtime, you are going to become less and less likely to move. The further that you fall behind the market rate, the more likely you are to stay in one place and to not move.

Andrew la Fleur: Movement of people, movement of ideas, movement of money is essential to a capitalistic economy working, and thriving and growing.

Ash Navabi: Right, and growing, let’s be specific about what we mean by growing, is that by growing standards of living for everyone, right?

Andrew la Fleur: Right.

Ash Navabi: Right?

Andrew la Fleur: Yeah. We’re taking a step back, like you said. It encourages landlords and property owners to not invest in their properties, to not do maintenance and repairs, to not increase people’s standards of living and expectations. Why would they? There’s no economic incentive for them to do that.

Andrew la Fleur: It’s not just human nature. Like you said, it’s an economic reality. It’s not even a question of morality, or ethics, or anything like that. It’s simply economics, like you illustrate at the beginning.

Ash Navabi: To me, it’s just so strange that people can look at the technology market in the last 30 years, of what’s happened with computers, with telephones, with cellphones, and see the great strides in technology that have happened year over year, while at the same time, getting cheaper and cheaper. How much did a new computer cost in the early 1990s, say? $4-, $5- thousand dollars, and it couldn’t even connect to the internet.

Ash Navabi: What were your options for graphic editing back then? As opposed to now, you can get a $500 iPad and you would have way more computing power, way more graphics power, not to mention access to the entire internet. Right?

Andrew la Fleur: Yep.

Ash Navabi: This is just amazing stuff. You’re getting more for cheaper, and better for cheaper. Why don’t we see this in housing? It’s because we’ve introduced all these controls on prices and quantities that distort the incentives to provide better and cheaper goods. So that we’re stuck with worse and more expensive goods. Isn’t that strange?

Andrew la Fleur: I’ve been on record time, and time, and time again on this podcast. I’m obviously very much opposed to rent control, for many of the reasons you’re outlining as well. What would you say to the counter-arguments that you sometimes hear from people, the pro-rent control people that are saying, “Well, look we have …. ” I don’t know if you follow the stats closely or not, but, “We have a very record-high number of new rental apartments being proposed, in the pipeline for the GTA.”

Andrew la Fleur: People are saying, “Rent control is not inhibiting new supply from coming on. This is evidence that look, we’re seeing a more supply now than we had three years ago when we didn’t have rent controls.” What would you say to that?

Ash Navabi: Jennifer [Teasmat 00:25:16] made that argument, when control was partially repealed a few weeks ago. The response there is that it takes many, many, many years to build new rental units. Between five to eleven years is what I’m familiar with. Before 2017, we had the infamous 1991 loophole, as it was called, which said that any building built after 1991 was not subject to rent-control rules. We did see a surge in applications to build purpose-built rentals in the last few years. A lot of those are coming to market this year or in the next few years.

Ash Navabi: The economic argument is always about the seen and the unseen. When you introduce rent control, what we’re saying is we’re going to have fewer rental units on the market than there otherwise would be. We’re just simply adding a disincentive to increase rent control. It doesn’t mean we’re taking that incentive away altogether.

Ash Navabi: Just because we’re still getting new rental units coming on the market, doesn’t mean that if we took away rent control, that number would be indifferent, or it would be unchanging. My view is the standard economics view, that if you took away rent control, we would have even more rental units coming onto the market.

Ash Navabi: If you took away all of the other regulations that delay and otherwise disincentivize building rental units, you would have even more rental units coming onto the market. People respond the incentives. Regulations and price controls are real incentives that decrease quantities.

Andrew la Fleur: Right. It’s an incentive for the tenant, like you said, to never move, and for that rental unit to never be freed up for anyone else, for supply to be restricted. It’s a disincentive for the provider of that supply to put new supply into it. They know that once their customer, the tenant, is in place, essentially, the price can never be increased.

Ash Navabi: Right. This goes into another issue. If we are in a rent-control environment, and you already have rental units that you can’t demolish, for whatever reason, and of course, there are laws against demolishing rental units in the city of Toronto. Let’s say you have a rental unit and you want to keep this rental unit.

Ash Navabi: Your current tenant is moving out, you’re looking for a new tenant. Because you’re familiar, you understand that once you get a new tenant, they’re going to be very unlikely to move, to say nothing of these tribunal laws, these landlord and tenant dispute laws that greatly favor tenants, to say nothing of those. Just the simple economics of rent control make it very unlikely for a tenant to move.

Ash Navabi: You’re looking for a new tenant, what qualities are you going to be looking for in your new tenant? Are you going to be looking for the first person to knock on the door? Or, because you know there is a shortage of rental units, and the tenant is going to be there for a long time, are you going to be looking to discriminate against your potential tenant, to make sure that they will have the means and ability to pay for a long term? You’ll do this through income statements, [crosstalk 00:29:20].

Andrew la Fleur: If you know that whatever tenant you pick now, you know they’re never going anywhere. You have to assume, you have to say to yourself, “If this is a marriage for life type of arrangement, I’m going to be very picky about who I’m choosing and putting in here. That young person starting out who applies and who is making a starter salary, versus the established person who comes in, who is making more money and has a better track record, economically, then obviously, I’m going to hold out. I’m going to wait. I’m going to pick that other person.”

Andrew la Fleur: Like you said, I’m going to discriminate, naturally, against the lower-quality profile tenant. As that happens over time, that group of people are just going to be finding it harder, and harder, and harder to find, especially, quality housing, or housing at all.

Ash Navabi: Correct. Exactly. This is part of the argument that I make that rent control hurts low-income individuals and families. They’re now going to be competing against high-income individuals and families for the same unit, because the number of rental units is going to be decreasing over time.

Andrew la Fleur: Right. It hurts and it helps. Obviously, if you’re in the unit, it’s helping you. If you never want to move, it’s helping you.

Ash Navabi: It’s helping you, unless you need to find a new job.

Andrew la Fleur: Right, if you have no ambitions or if you’re okay with not ever moving and staying in the same sort of geographical location forever, and not pursuing other opportunities.

Ash Navabi: Basically, if you are retired.

Andrew la Fleur: Yeah.

Ash Navabi: But if you’re prime age, working adult, and you might have to change jobs sometime in the short- to medium-term, then good luck, right?

Andrew la Fleur: Yeah, absolutely. Another thing that I always touch on, is I think a big problem that is never really talked about is just the social problems that it creates between people. In the sense that you’re paying two thousand a month, and the guy beneath you, for the next same unit, is paying a thousand a month. You’re obviously going to resent that person. Naturally, that sort of resentment between those who …

Andrew la Fleur: It’s almost like unions and the whole concept of seniority. It’s like, “Who gets the promotion in the union?” Well, it’s not based on merit. It’s based on seniority and that kind of concept. It’s like, it’s people getting financial incentives for no other reason than they just sat in the same place for a long time, and didn’t ever do anything, and go anywhere with their lives, so to speak.

Andrew la Fleur: I think, over time, that just is going to increasingly create divisions among those who are looking for places and those who already have them in this city. Also, tensions between, as we touched on, landlords and tenants, as well. It’s like the tenant is wanting that fridge to be repaired, or that drafty room in the back to be fixed up, or whatever. The landlord’s going, “No. I can’t increase my rent to cover any costs of doing that, so why would I,” kind of thing.

Andrew la Fleur: It’s just, as opposed to a natural, every other marketplace, every other goods and service in our economy, where it’s like, “Yeah, if I’m the customer and you’re not providing me with good service, I go somewhere else.”

Ash Navabi: Of course.

Andrew la Fleur: “If I’m the service provider, if I’m the business, and I don’t do a good job, I know I’m going to lose my customer.” That reality is taken out of the equation with rent control. The whole thing is distorted, and ultimately, it’s the opposite of what a capitalist system is supposed to produce.

Ash Navabi: Right. We only get these divisions because we have government enforced classes. There’s a protected class, by the government, and by optics, by insinuation, there’s a predatory class, who’s supposedly trying to predate upon this protected class. Of course, most people aren’t predators.

Andrew la Fleur: We don’t talk in those terms about any other business, or good, or service. For some reason, in housing that’s exactly how people think about it and talk about it.

Ash Navabi: Why isn’t the guy who owns the convenience store a predatory for selling you carrots above the cost that he bought them?

Andrew la Fleur: Right.

Ash Navabi: Right?

Andrew la Fleur: Yeah.

Ash Navabi: Apparently, if your mortgage is 1400 and you’re charging 1800 or 2 thousand for a unit, then apparently you are some evil, greedy person.

Andrew la Fleur: Morally evil. Yep.

Ash Navabi: Right. Isn’t that strange?

Andrew la Fleur: [crosstalk 00:34:49] to be stocked.

Ash Navabi: You need to be thwarted by the state.

Andrew la Fleur: At the same time we’re stopping you and thwarting you, we also want you to build more houses and rent out more properties, at a loss.

Ash Navabi: Right. We’re confused that you don’t want to do this.

Andrew la Fleur: Yeah, like, “Why aren’t you doing that for us? Why won’t you build us more houses and rent them to us at more of a loss.” It’s like, “Oh my goodness.”

Andrew la Fleur: Wow, we could go on and on. This is a very fascinating conversation. I think we’re both preaching to the choir here, but it’s great to have you on, Ash, to chat about this.

Ash Navabi: Thanks for having me.

Andrew la Fleur: If people want to learn more about Housing Matters, and these sorts of things, I think you touched on it earlier, but where’s the best place to go, again?

Ash Navabi: Torontohousingmatters.com, is our website. In the new year, especially January, we’re going to be throwing a lot of updates on there. We’ve been working on a very large policy paper on the Yellow Bills. That’s going to be launched around January 7th, if everything goes to plan.

Ash Navabi: You can also follow us on Twitter. We’re pretty active at @torontohousing_.

Andrew la Fleur: Great, yeah, fascinating. Look forward to seeing what you guys are working on and putting out in 2019. I know you guys have events and stuff, too, I noticed. People who are interested in this and who are advocating for more housing, as you are, it would certainly be a good idea to go check you guys out and come to some of your events and things in the future.

Andrew la Fleur: Ash, thank you so much. I definitely include a link to your website and to your Twitter on the show notes for this episode. Anybody listening, you can find that at truecondos.com/podcast, for the show notes for this episode and all episodes.

Andrew la Fleur: Thank you, Ash, so much.

Ash Navabi: Thank you.

Andrew la Fleur: We’ll talk to you soon.

Ash Navabi: Thank you very much.

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