Woodside Terraces | 6 fl | U/C

[danbrotherston]

There are times when government intervention in the market is appropriate. Safety requirements, long term flexibility, maintenance of fairness, and the forced internalization of externalities are important examples of this. Some markets should be highly regulated; for example, I think all tobacco packaging should be identical, and designed by Health Canada — the only input the manufacturers should have is which short string of letters to print on the package to identify them.

But the specific size of units to be made in condo towers is definitely not one of them. Remember, the last time we had a big discussion about unit sizes seeming to be out of whack with what some people wanted, it was because the developers were building lots of 5-bedroom units. And why where they doing that? In part because of parking requirements that were defined to be per unit. Given many students’ cooking habits (i.e., fast food), I’m surprised the developers didn’t create 10- or 20-bedroom “apartments” and really shrink their parking requirements. The point is that the problem there was an extremely ill-considered intervention in the market, in the form of parking minima, which are a bad idea in the first place and then on top of that were implemented in an incompetent fashion.

I do agree that government intervention is more likely to cause unanticipated side effects in this case. But that doesn't mean that the market does the best thing at all times.

Leaving aside intervention for the moment, smaller units are more profitable, which necessarily means the market will prefer them, even in the face of equal demand.

We are also in a situation where demand greatly outstrips supply (and in housing, there is usually going to be a large impedence mismatch due to the timeline of projects, you'll often have demand and supply mismatched), as a result, developers have near limitless demand to satisfy, so they will satisfy the most profitable demand first.

As for intervention, we already have intervention in the market, in so many different ways. We should never think of any market as "free", we have intervention in the housing market by government in ways of having downtown be perceived as less safe, as schools be rated worse, fewer schools in general, we have cultural interventions where people (and I do mean, real people that I know) feel it is wrong to raise a family in an apartment, and they will tell you that, quite openly. Markets like those for housing are not purely the demands of informed, open consumers, they're a combination of consumer demands, developer plans, city and government regulations, and cultural (which is highly affected by advertising and media), and other factors. This is true for many markets, but especially for housing.

I'm not saying more intervention is right, but I'm saying we shouldn't pretend like it isn't happening.