Catch-22 and the Economics of Building Rental Housing
Those of you who read Catch-22 will no doubt like me have fond memories of the book. There are two aspects of the book that seem relevant to Vancouver's current rental housing crisis.
The first is
The other was Yosarrian who tried to get out of flying more missions. To get out of flying missions he had to prove he was mad. But that didn't work since anyone who wanted to stop flying missions couldn't be mad. Or something like that.
So why is Vancouver's rental market like this. Well, in order to bring down rents, we need to increase the supply of rental housing. But if rents do indeed come down, as they are, in part due to increased supply, then new projects will no longer be financially feasible. So eventually, rents will go back up. Are you following me?
Russil WVong's post reporting on Cressey's numbers.
I thought about this today when I received an email from Russil Wvong. It offered several important observations. The first is that larger suites, which are most needed, are not financially viable. The cost is greater than the rent that can be charged. So they have to be subsidized by smaller suites that we don't really need.
While Cressey's numbers are overly simplified (a small suite is usually more expensive to build on a cost per sq.ft. than a larger suite, etc.) the point being made is absolutely valid.
The other point is that the more we build, the more rents come down, and as a result, we will not be able to build more, until rents rise again. That's why I thought of Catch-22. Read on!
The conclusion is right. We don't need to just reduce rents. We need to reduce costs. And one way to do that is reduce municipal fees. Fortunately, I think municipal politicians and officials are now getting the message. But if they don't, they just need to wait until a few more developments go into foreclosure. It won't take much longer.