According to a new study released by policy think-tank the Fraser Institute, municipal land-use regulations may to be blame for the falling supply of new homes in some of Canada’s largest cities, contributing to rising home prices.
“The dramatic growth in prices in Canada’s major housing markets is exacerbated by municipal regulations that restrict housing supply, encourage the growth of prices and negatively impact the affordability of housing,” said Kenneth Green, senior director of the Fraser Institute and co-author of the study, in a press release.
The Impact of Land-use Regulation on Housing Supply in Canada is the first study of its kind. The report analyzed 68 municipalities and the how five measures of land-use regulation – construction approval times, timeline uncertainty, regulatory costs and fees, rezoning and the effects of councils and community groups – impact growth in the housing markets of those municipalities.
The core finding of the study is that in more regulated municipalities, housing supply generally experiences slower growth, even when factoring in geographical constraints and transportation. In addition, long approval timelines on projects have also contributed to the falling supply of new homes.
The report also analyzed survey data from developers to gauge how much timeline uncertainty effected each municipality, which was measured on a scale from 1.0 (encourages development) to 5.0 (would not pursue development due to uncertain approval timelines). As developers moved from feeling an average level of uncertainty (2.8 out of 5.0) to feeling more uncertain, growth of new housing fell by 51 per cent. This especially impacts Vancouver, Toronto and Calgary, where developers face even more uncertainty than the national average.
“Regulatory reform at city hall, especially simplifying the process of obtaining building permits where housing demand has grown, could reduce homebuilding costs, increase the number of homes on the market and subsequently push down prices,” said Pierre Desrochers, senior fellow at the Fraser Institute.
“Reforming regulations to encourage new building won’t be easy, but city governments have policy levers at their disposal to help alleviate housing affordability problems in Canada’s major cities,” added Green.