How Red Tape is Driving up Housing Prices

Edward Trapunski
by Edward Trapunski November 7, 2016 / No Comments

Red tape is a key detriment to the availability of affordable housing, according to the Fraser Institute. The public policy think tank says higher-end communities are using red tape and development charges as a tool to keep affordable housing out of their neighborhoods.

The Fraser Institute surveyed housing developers and homebuilders in 68 Canadian municipalities to see how residential land-use regulations affects the supply of new housing. It collected data on how long it took and how much it costs to build a housing unit in each jurisdiction. So far it has compiled and released the results for the area in southern Ontario anchored by Toronto, the lower mainland area of British Columbia, and the Calgary-Edmonton corridor.

The co-author of the report, Kenneth Green, says “onerous regulation reduces new-home construction and contributes to higher home prices.”

The organization tallied five components of regulation: Approval timetables, city or town council intervention, costs and fees for permits, rezoning prevalence, and timeline uncertainty. Long and uncertain approval waits, costly fees and local opposition to new homes, it concludes, slows the growth of housing stock. Because of the large pool of eager buyers, this results in fewer new homes and, consequently, rising prices. Removing these barriers, the Fraser Institute claims, would make it easier and financially more attractive for builders and apply downward pressure on housing prices.

In its report on the Greater Golden Horseshoe (GGH), the area in southern Ontario anchored by Toronto, the Fraser Institute points to Oakville—an affluent town in Halton Region—where it claims that permits and other fees needed to build a house average $60,500, and it takes 17.5 months to get construction applications approved. The report calls the even more affluent King Township “the most regulated municipality” where it takes 20.2 months for construction applications to be approved.

Green, the Institute’s senior director of energy and natural resources, says that some homeowners worry that adding housing supply will drive down the value of their own homes. Local councils and community groups can prevent the building of new homes. Their voices tend to be strongest in cities where home values are highest.

Neighbouring Burlington charges an average of $35,500 for permits and approvals, and approvals generally take 14.4 months. Burlington ranks behind Hamilton where permits and approvals cost $21,000 and Pickering, which is at $33,000.

The Fraser Institute study ranked the City of Toronto 20 out of 23 communities in the GGH at $46,570. Toronto earned a low rank because it has the most opposition to development from its elected city councilors, which means it takes an average of 17.7 months before developers can build. Nearly 70% of all residential development in Toronto must be rezoned. The rezoning process takes an average of seven months, about double the region average of four months. The Fraser Institute says that increasing the time it takes a builder to get a construction permit by six months reduces the growth of new housing by 56%.

The survey suggests that stringent municipal and provincial regulation is forcing smaller builders, without the infrastructure to wait it out, to exit the marketplace and limit consumer choice. Reviews and permissions required from various bureaucracies, rather than one single streamlined process slows down the process.

The Fraser Institute found the same widely differing rules and costs in Vancouver and the Calgary-Edmonton Corridor (CEC).

The newly released report for the CEC shows a city-suburban divide. Permit approval times in the City of Calgary average 13.5 months, compared to an average of 7.5 months for the top five suburbs. What’s more, the typical cost of complying with regulations on a per unit basis in Calgary is $5,000 more than in the surrounding less-expensive suburbs.

The Fraser Institute finds that the City of North Vancouver and the District of North Vancouver—where it takes 16.1 months to get approval for a project—has the most red tape in the region for residential development. Only West Vancouver takes longer at 17.7 months. Together, these three communities make up the North Shore of Vancouver. As of 2016, West Vancouver stands as the wealthiest city in Canada with the District of North Vancouver second.

Meanwhile, approvals in Pitt Meadows, on the east side of Metro Vancouver, take on average only five months. Each new unit of housing costs developers $40,000 in North Vancouver compared to only $14,357 in Abbotsford, which is adjacent to Greater Vancouver. Vancouver itself ranks third from the bottom among the 18 cities and towns surveyed in the region.

The municipal officials in the affluent communities say the arduous regulations are not red tape but due diligence. They say that they want to negotiate for developments that best reflects the community and ensure safety. It’s not easy, they say, because development applications span hundreds of pages and require both expert scrutiny and time. There is nothing insidious about it.

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Flickr: Michael Gil