Excessive Regulations And Barriers To Development Are Costing Canadian Home Buyers An Extra $200,000: New Study

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Excessive Regulations And Barriers To Development Are Costing Canadian Home Buyers An Extra $200,000: New Study

Photo Source: Joao Cruz 

Outdated zoning bylaws, deferrals on permit approvals, amplified development charges, and land-use restrictions in Southern Ontario’s Greenbelt, have added nearly $168,000 to single-detached homes in the Greater Toronto Area (GTA), and $644,000 in Vancouver – the two (already) priciest cities in Canada.

According to a new study released last week by C.D. Howe Institute, government regulations have been the driving force contributing to increased home prices, and have been acting as a barrier for developers to construct additional housing. The report highlights that while government policies have helped curb the demand for housing, they have not entertained much focus to increase the supply. To solve the supply/demand imbalance, many analysts believe government policies must change, especially in cities like Toronto and Vancouver, where demand is far exceeding supply.

The research done by the institute shows that home buyers throughout Canada paid an average of $229,000 extra per home between the years 2007 and 2016. High development charges and burdensome land-use restrictions are the two largest drivers on the cost of housing.  “A well-functioning housing market results in the market price of housing being close to the feasible cost of constructing it. If price persistently this construction cost, it is often due to barriers that inhibit new construction. These barriers often stem from excessive regulations,” reads the report.

Photo Source: Katherine McCormack 

Prices also typically increase when difficulty arises for developers to get permits based on various intensification targets. Restrictions on developing on protected land (The Greenbelt – a 7,200 square-km land that borders around Lake Ontario) is one of the factors contributing as construction impediment for developers. Recently, there has been a lot of buzz around the topic of developing on the Greenbelt, mainly from Ontario Progressive Conservative Leader, Doug Ford. Last month, Ford announced he would partially open up the province’s Greenbelt to developers if he were to be elected premier next month. Shortly after receiving a great deal of criticism following the announcement, he quickly reversed his pledge.

However, the study, which focused on eight cities in Canada, found that if legislation allowed for development on the Greenbelt, it could reduce single-detached home prices by nearly $50,000 in Hamilton, and between $25,000 and $30,000 in York and Halton regions alone. By simply increasing land availability, and reducing development and zoning costs it would cut costs of single-detached homes by over $70,000 in Toronto, Peel, and Durham regions, $90,000 in Halton, over $100,000 in Hamilton, and nearly $125,000 in York region.

Photo Source: Patrick Tomasso 

While opening up that space will drive costs down and address supply issues, the Greenbelt is not the land that developers would be looking for.  C.D. Howe’s Associate Director of Research Ben Dachis recently told CTV “it’s the land that’s between the existing urban growth boundary and the Greenbelt. There’s lots of land available in that area.” Dachis also addressed that problems truly arise with the strict zoning laws which require lengthy approval processes. “Provincial policies and municipal policies in terms of zoning it for agricultural use and not for residential use make it very difficult for developers to get access to that land, and that means higher prices for housing.”

Photo Source: Alexey Suslyakov 

Dachis also addressed the foreign buyers’ taxation, which was introduced last year as a solution to limit investment from outside the country, in hopes of dampening the housing crisis in both Toronto and Vancouver. Dachis discredits the tax as cooling measure, stating regulations are the main culprit in driving up costs. “Foreign buyers only increase the cost of housing if there is a major restriction in the ability for developers to build new homes to cater to this foreign buyer or speculator demand. If you have that ability for developers to come in with a new product, guess what? You can have all the foreign buyer demand you want – it’s not going to lead to significantly increased house prices.”

 

 

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