Cities share blame for housing crisis: study
Some of the blame for the so-called affordable housing crisis in Canadian cities can be attributed to supply-side issues caused by municipal restrictions, according to a new study.
The 52-page report by the Fraser Institute published Thursday suggests municipal regulation of residential development has restricted housing supply, encouraging the growth of prices and distorting local economies.
“We looked at the amount of reduction in supply and any reduction leads to an increase in costs,” said Kenneth Green, senior director at the Fraser Institute and coauthor of The Impact of Land-Use Regulation on Housing Supply in Canada.
The report, which studied metro markets in Toronto, Vancouver and Calgary, comes on the heels of new data that show two of those markets are getting hotter. While Calgary detached home prices continue to slump on a year-overyear basis, detached home price in Metro Vancouver rose almost 39 per cent in June compared to a year earlier and increased almost 20 per cent in Metro Toronto in the same period.
The Fraser Institute looked at five factors that continue to slow down supply of new housing in cities: approval timelines, timeline uncertainty, council and community impacts, costs and fees and the prevalence of rezoning.
The group says that increasing the average approval timeline for residential development by six months is equivalent to cutting the growth of the average neighbourhood in half.
Also out Thursday is a new report from Sotheby ’s International Realty Canada that suggests the luxury end of the housing market is being dominated by sales of houses of $4-million or more in Vancouver and Toronto, something else that is driving up average prices for both cities.
The Fraser Institute study, which covers 68 municipalities (including 18 of Canada’s largest) found developers will simply skip over a region if constructing housing becomes too costly or onerous, something the authors maintain has driven Vancouver’s housing problem.
“If the city of Vancouver were regulated similarly to its suburbs, it might have seen additional growth in its highly desirable downtown and west-side neighbourhoods,” the authors write in their report.
If Vancouver’s census metropolitan area matched Langley Township’s regulation, the regional median for regulation, it would have seen a 2.3 percentage point annual increase in its housing stock. In the district of North Vancouver, lowering regulation to the regional median would have resulted in a 4.4 per cent growth in housing stock, the report says.
“The regulations and permits have actually deterred building where they are most desirable and where governments actually want to see most developed, the dense urban neighbourhoods,” Green said.
In Greater Calgary, regulations in Rocky View County, which surrounds the city, caused developers to simply leapfrog over the area to more distant municipalities, the authors say.
“The regulations are promoting urban sprawl, which is exactly the opposite of most of the stated goals of most cities,” Green said.
The impact is pretty clear, he said. “If you can’t build nearby, it just drives up the cost of the existing stock and makes people even more reluctant to have growth nearby. People will just move to the next municipality just beyond the magic line of whatever any government has drawn.”
Brad Henderson, the chief executive of Sotheby’s in Canada, said the supply limits come at a time when demand continues to expand and that is partially what drove the impressive numbers in the report his company released.
“They are constrained by either greenbelt or water or more,” Henderson said. “You can’t seem to add any more low-density properties. A lot of properties are being torn down but it’s not increasing density because you’ve still got a single family home. The only thing the inner cities can do is add more multiunit residential.”
The constrained supply is taking what was once luxury at $1 million and moving it closer to the median price.
Sotheby’s luxury report found the percentage of homes in the GTA selling for $1 million or more was up 65 per cent from Jan. 1 to June 30, 2016, compared with the same period a year earlier.
“Prices are creeping up. What might have been a $2-million is now a $3- or $4-million home,” Henderson said. “A $1-million home buys you a lot different home than 10 years ago. The definition of luxury starts at about two times the average or benchmark price, that’s the $2.5 million range (in Toronto).”
In Vancouver, the finite amount of supply has driven that average price even higher and it led to a 96 per cent increase in the sale of homes for more than $4 million between January 1 and June 30, 2016 compared with the same period a year earlier.