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by Steve Pomeroy

It seems that  my article on the factors contributing to excessive home price increases has generated considerable debate most notably by those who assert the problem is lack of supply. Unlike many other articles, I sought to use data and evidence to challenge this view.

The main point in my article was not that we have enough, or excess supply. It was the assertion that, if we expand supply, this will cause prices to stop increasing, or even decrease (the federal government throne speech linked increased supply with increased affordability) . 

I sought to broaden the analysis to show that the larger cause is excessive demand – and more particularly demand enabled by the windfall gain that existing owners have accumulated, augmented by historically low mortgage rates.

The relative levels of home starts vs household growth and the significant variations between cities was used to illustrate the point that similar levels of price increase have occurred in cities with dramatically different supply response – simply to make the point that in examining price increases there is clearly a broader set of factors than a shortage of supply.

And for the record, I explicitly noted the caveat that this overlooked other uses like vacation rentals and demolitions, and that supply is an issue in areas experiencing growth (e.g. the GTA). 

The debunker further asserts that the number of net new households formed is a function of the number of net new homes. They’re not independent of each other! 

I agree there is a relationship, but household formation is similarly much more complex that just the availability of homes. And the migration of young households to other areas has more to do with the price of options in Toronto than the insufficient supply.

I completely agree that increased supply is necessary to address population and household growth and as I noted lagging supply will impose upward pressure on price. 

Where we differ is that I was exploring the issue of price trends, and trying to shift the discourse beyond the assertion that expanding supply is the solution to high prices.