High home prices drive new construction, not vice versa

Where home prices are high, people want to build more, and you get more new construction. Where home prices are low, you get less new construction. There's a lot more new construction in Vancouver than in Saskatoon. 

In Vancouver, quite a few people think it's the other way around, that new construction causes high prices.

A recent exchange on Reddit:

Lazy-Contribution-50: My thesis is that rezoning in Vancouver in this way will drive prices of housing up and not down. Feel free to disagree, but given how things have gone here the past decade I don’t think that’s an unreasonable assumption.

russilwvong: Sorry, you've got cause and effect 100% backwards. There's so much rezoning and new construction in Vancouver because prices are high, not the other way around.

Lazy-Contribution-50: So why haven’t prices dropped? Every new build condo building sells their units for more and more each time.

russilwvong: Home prices reflect rents (basically the value of the future stream of rents you can either collect or not have to pay), plus there's speculation on top of that.

Rents are high because vacancy rates in Vancouver are low, despite the current pace of new construction.

Vacancy rates are low because there's a mismatch between jobs and housing: we're adding jobs faster than we're adding housing.

Leave a Comment

Your email address will not be published. Required fields are marked *