Development costs, regulations drive up Vancouver home prices ‘with some of the worst performers in the world’
Fees pushing up home prices: Report
Cheryl Chan
The Province
Government regulations and development charges have driven up house prices in Metro Vancouver to the tune of $644,000 per new house, according to a new report from the C.D. Howe Institute.
The report shows that in Vancouver, after factoring in a profit for the developer, close to half of the price of a new detached home is due to government fees and regulations.
The report, released Tuesday, found the cost of barriers to housing supply in Canadian municipalities — such as zoning regulations, development charges and limits on housing development — are highest in B.C., with the Vancouver census metropolitan area leading the pack, followed by Abbotsford and Victoria.
“Vancouver is, by far, the most restrictive region in Canada,” said Benjamin Dachis, associate director of research at C.D. Howe, who co-authored the report with Vincent Thivierge. “It’s so restrictive it’s on par with some of the worst performers in the world like in New York and some cities in the U.K. and Australia.”
The study looked at the cost of barriers to building a new home between 2007 and 2016.
In Vancouver, the restriction cost, or the gap between the cost to build the house and the cost to buy it, was $322 per square foot. For an average detached house worth $1.3 million, the cost works out to $644,000, or about half the end price for home buyers.
Abbotsford’s restriction cost also made up about half of the average house price, while Victoria’s extra costs were 37 per cent.
Homebuyers in Canada’s eight most restrictive cities paid an extra $229,000 per new house, said the study.
“When you see a great big gap between what it costs to build and what people end up paying, that’s a pretty clear sign of housing market dysfunction,” Dachis said.
Construction costs included labour and materials as well as a 17 per cent markup to account for developers’ profit margin. It does not include the cost of land.
The report makes a number of recommendations, including easing restrictions on developing agricultural land and reducing development charges.
Bob De Wit, CEO of the Greater Vancouver Home Builders’ Association, said the biggest driver of increased prices in the Vancouver area has been land, but excessive regulations and extra development fees don’t help.
“No one in our industry would say we need a zero-regulation environment,” he said. “But we would say there are a lot of regulatory burdens in the industry that make it much more expensive to build homes and the C.D. Howe report shows that.”
Community amenity contributions, which developers pay in exchange for rezoning rights towards services such as parks, libraries and child care facilities, have added to the per unit cost of multi-family dwellings across the region, while development cost charges, which apply to single-family homes, have been on the rise in almost every city in Metro Vancouver, said De Wit.
He recommended city hall work on speeding up permit application processing times, which range from about three months in the Township of Langley to 12 to 18 months in Vancouver for single-family homes.
“If it’s more efficient, we can get supply online quicker and that would make housing costs better,” he said.
University of B.C. economics professor Tom Davidoff said municipalities have been making progress on the supply side, but need to go further and loosen up zoning in single-family areas.
He believes CACs have a place in the process, however, and are “overrated” as a problem.
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