Construction and land development delays fuel price growth

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A report released on Thursday (July 7) identified delays to development stemming from municipal-level restrictions as the main driving factors in the supply shortages that have led to intensified price growth in Canada’s hottest housing markets.
 
“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,” study co-author and Fraser Institute senior director Kenneth Green wrote in the report, as quoted by a MoneySense special.
 
The study “The Impact of Land-Use Regulation on Housing Supply in Canada” looked at five factors—construction approval times, timeline uncertainties, regulatory costs and fees, rezoning, and the effects of council and community groups on development—in 68 municipalities covering Vancouver, Toronto, and Calgary.
 
Among the report’s most crucial findings is that a correlation exists between greater regulation and reduced supply growth.
 
Lengthy project-approval timelines, in particular, have proven to be potent deterrents: A 6-month increase in the time it takes to acquire a construction permit is accompanied by a 56 per cent weakening in supply growth, as developers would rather just overlook an area or region if the existing rules make it too difficult or costly to build.
 
These findings imply that effective solutions can be crafted at the municipal and city levels, however, reducing the need for drawn-out petitions to and regulatory interventions by the federal government.
 
“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,” Green said.
 
“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,” Fraser Institute senior fellow Pierre Desrochers agreed.

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