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Chris Spoke: Don’t overthink it. The solution to our housing problem is to build more

Commentary

Housing in our major cities is becoming increasingly unaffordable. I think we all know this by now.

Most people recognize that this is due to supply constraints that limit the amount of new housing being completed every year to house new people. That is, the price elasticity of supply (or responsiveness of supply to rising prices) is too low.

The CMHC studied this exact metric in a large 2018 research report on the drivers of home price growth in Canada’s five largest metropolitan areas between 2010 and 2016, and estimated that housing starts in Montreal, Calgary, and Edmonton rise one percent to two percent for every one percent increase in home prices. In Toronto and Vancouver however, housing starts only grow by 0.5 percent and 0.3 percent, respectively.

Unsurprisingly, Toronto and Vancouver are leading the pack in terms of our housing affordability crisis.

Most people also recognize that the most meaningful of these supply constraints take the form of land-use rules that set large parts of our cities aside as being effectively out of bounds for new housing development. These rules are informed by a not-in-my-backyard (NIMBY) sentiment that pits incumbent homeowners against newcomers, whether they’re young people or immigrant families.

As former CMHC President and CEO Evan Sidall puts it, succinctly, “homeowner NIMBYism makes affordability worse.”

But “most people” isn’t “all people.”

Some people reject this simple explanation to a simple (if serious) problem and think that new housing supply will not and can not improve the situation. They think this because, as they put it, the real problem is that housing has become “financialized.”

“Homeowner NIMBYism makes affordability worse.”

In 2019, a Toronto City Councillor wrote about this for Spacing magazine.

“That’s financialization and it has nothing to do with the simple supply and demand curves taught in high school. It makes housing more expensive. It increases the concentration of wealth. It is an insanely risky way to run the biggest economic sector in the world.”

This word, financialization, has gained traction among some progressive politicians and activists who recognize that housing affordability has become a problem but who reject the efficacy of supply side solutions, that is, of land use liberalization and increased development activity.

So, what does it mean? I understand financialization to mean three things.

First, the increased legibility of housing by global capital markets.

Thanks in large part to the internet, the housing market has become more efficient as information asymmetries have eroded. It’s now much easier for an analyst in New York City, London, or Hong Kong to get a good understanding of distant housing markets and allocate capital accordingly.

Second, the process by which housing in major cities has become attractive as a store of value, due in large part to its predictable scarcity.

Housing in most major North American cities is predictably scarce because a series of land use and other rules have made it hard to build. These are the supply constraints I mentioned above. As a consequence, housing values in these cities typically increase at a higher rate than inflation. This makes housing attractive as a store of value.

Finally, an inflating money supply that contributes to and exacerbates the increased demand brought about by both of the points above.

To restate the point, these are all demand-side factors impacting housing prices and affordability. They do directly have to do with the simple supply and demand curves taught in high school.

Which is not to say that financialization couldn’t be a problem, or that we shouldn’t explore relevant solutions. Predictable scarcity for instance could become predictable abundance given — you guessed it — land use liberalization and increased development activity.

Author’s note: Hub contributor Ginny Roth and I will be discussing the topic of housing affordability with GMU economist Bryan Caplan on June 7th at 7:45 PM EST. Register at blueforum.ca with promo code HUB for free access.

Here’s why the best rosé isn’t actually a rosé

Commentary

Here is the story of how the very first rosé isn’t one at all, except it’s the best. I refer to Tavel, the name of the wine and of the small town in the South of France where it is grown and made.

Tavel lies on the right (east) bank of the Rhône just north of Avignon, and opposite its left bank twin, the much better known, Châteauneuf-du-Pape. The two towns, and the wines they are famous for, form a kind of ying and yang of the Southern Rhône. They share the same climate, the same soil types and are made with the same combination of grapes, with Grenache usually acting as the dominant one in the blend.

They also have a history of papal patronage going back to the middle ages, not just at Avignon but also in Rome. But while the wines of Châteauneuf have always been coveted for their brooding dark fruit, Tavel has always been a red wine made in a clear lighter style. It’s just that no one thought to call it rosé until the last half of the 20th century.

The colour of a wine depends partly on the grape variety, or varieties, used to make it. But while you can’t make red wine from white grapes, you can make orange wine from them, and you can certainly make white wine from red grapes.

This is because the way to extract colour from grapes, that have begun to ferment into wine, is to leave the juice that has been pressed from the fruit, in contact with the skins. In Champagne they make Blanc-de-Noir, a white sparkling wine, by separating Pinot Noir from its skins right away.

Some red wines might be left to “macerate” on their skins for several days, and if the winemaker wants to intensify the process, she might “bleed” some of the juice off of the skins. Bleeding red wines is, in fact, a way to make rosé with the juice that has been removed, though it’s not how they make Tavel.

The rules for making Tavel are ancient and as clear as the wine: contact with the skins will be for the one night after the grapes have been pressed. This is enough to make Tavel a deep pink verging on ruby red.

In the two decades that I have been writing about wine, I have watched rosé go from a niche product to an established one. In the warm weather months, it’s become unremarkable to be offered a glass of rosé in the backyard of a friend.

The style of rosé that is predominant here and around the world is ‘Provençal’: a crisp with a light coppery or salmon hue. This colour would have come from very limited skin contact. Generally speaking, I like these wines fine, but for the nearly always present note of strawberry, they may as well be white wines.

There’s no structure, nor weight on the palate. Lacking complexity, they strike me as being designed to be drunk quick and cold on a warm evening. The Provençal-style rosés serve their purpose, but there are very few of them that could carry a diner through a meal.

Tavel is almost always recognizable on a store shelf, in part because of its distinct tall and skinny clear bottle, but mostly for its deep pink colour. The colour is the clue that the wine will have some tannic structure and weight from being on its skins overnight. Those skins provide more than texture, they also provide flavour. Beyond strawberry are the red fruit flavours associated with Grenache, like cherry and raspberry. Tavel wines really do show more like a very light and racy red with a line of acidity that will take them through from aperitif to a main course of grilled meat.

In 1936 Tavel was named as one of France’s first Appellation d’Origine Contrôlée, demarcated by a small area of land around the town, and given the restriction that only “Tavel” (in other words, rosé that’s not really rosé) could be made there. This has had the effect of keeping the production and the number of producers small.

There are only about two dozen producers, and maybe the same number of growers that sell grapes to the Tavel co-operative or one of the big houses of the Rhône Valley like Guigal or Famille Perrin.

In the past couple of decades, when faced with competition from the Provençal rosé the producers decided to double down on their tradition of making a ‘vin gastronomique’ instead of changing the way they make wine to follow fashion.

Unfortunately this means that Tavel has become pricier than most rosé, usually within $25 to $30 a bottle. Fortunately, though, they’ve kept their audience and seem to be growing it steadily, as Tavel wines are widely available, especially now that it’s the season for them.

As a small appellation with strict controls on production, the quality of Tavel wines is fairly uniform and consistent. The producers below are in most markets in this country and make wines that I have enjoyed very much.

Château d’Acqueria: aqueria.com

Château de Manissy: chateau-de-manissy.com

Domaine LaFond Roc-Epine: roc-epine.com

Domaine Maby: domainemaby.fr

Domaine de la Mordorée: domaine-mordoree.com