May 4, 2023 – Governments need to take bold action to bring market prices of new housing units more in line with the cost of construction, according to a new report by the C.D. Howe Institute.
In “Buyers Beware: The Cost of Barriers to Building Housing in Canadian Cities” author Benjamin Dachis urges provincial and municipal governments to cut excessive regulations on new housing development projects and lower the upfront costs on homebuyers. This is needed to help Canadians grapple with skyrocketing housing prices. The solution, according to Dachis, is to increase housing supply to help meet the growing demand by enacting new policies that close the gap between construction costs and market rate.
“Evidence from around the world shows that government policies limiting the supply of housing are among the key causes of higher house prices,” Dachis explains. “Existing homeowners often support local government policies such as zoning regulations that restricts new development,” pointing to the common “not in my back yard” attitude among local residents.
Barriers to constructing new single-detached homes, which may be government regulations but includes other market dysfunctions, drive a wedge between what it costs to build and the market price. Over the period studied, 2011 to 2021, a single-detached home in Vancouver cost homebuyers $1.3 million more than what it would physically cost to build in a market without barriers to supply. Homes in the Toronto area now cost homebuyers $350,000 extra over the cost to build.
To help bring market prices more in line with the cost of construction, Dachis makes the following recommendations:
- Provinces should enact mandated minimum targets for municipal housing construction, and delegate enforcement of these targets to neutral, adjudicative bodies with the power to impose fines on laggard cities.
- Reform the upfront development charges on new housing by changing them to user fees for services like water and wastewater once the infrastructure is in place.
- Provinces and cities should set a broad target for increased density, say 50 percent, rather than impose a minimum level on locations regardless of their existing densities, which vary greatly. This would allow for a gradual, but constant, increase in densities across the province.
For more information contact: Benjamin Dachis, Associate Vice President, Public Affairs at the C.D. Howe Institute and Laura Bouchard, Director, Communications, C.D. Howe Institute, 416-865-9935, firstname.lastname@example.org
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.