Local Government Regulations Worsening Canada’s Housing Affordability

The rising prices for new homes in Canada’s most costly cities are a result of the government’s housing regulations, according to policy-research group C.D. Howe Institute.

The institute’s latest report, released Tuesday, said that single-family detached houses across Canada were subject to a steep increase in prices, due to factors such as zoning rules, delays on permit approvals and municipal development fees.
Eight areas of focus are contained in the study – including Toronto, Calgary, Vancouver and Ottawa-Gatineau — where new-home prices are more than 20 percent higher than the cost of construction.

From 2007 to 2016, barriers to homebuilding added an average of $229,000 to the price of a house located in those regions.
The greatest impact was in Vancouver, where buyers paid an average of $644,000 extra for a new house, which works out to about half of the total price. That proportion is equivalent to what other studies have found for Manhattan, C.D. Howe said.
Excessive government regulations are to blame for barriers inhibiting new construction, the group said in the report. It goes on to explain that housing markets function best when the market price of housing is very close to the feasible cost of constructing it, so when prices exceed this construction cost, it’s generally due to extra factors such as government interference.
Prices for homes in Vancouver and Toronto have surged 81 percent and 64 percent, respectively, over the past five years, according to March data from the Canadian Real Estate Association.

The demand outpaces supply in both cities, where housing prices have stayed consistently high despite government policies to tame the increases, such as taxes on foreign buyers and stricter mortgage rules.
When barriers arise to building homes, the cost of existing homes goes up, as buyers are left to compete for the housing that is available. The C.D. Howe study found that barriers to development have added more than $100,000 on average to prices for both new and resale homes in some parts of Ontario.

Cities and provinces have taken some initiatives to assist with housing affordability, such as new taxes, however, further measures can still be taken to make it easier to develop land. Two such changes are that zoning laws could be simplified and developer fees could be reduced. We must ask what the true motives are behind the actions taken by the government when it comes to this issue of affordable housing.

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