Canada’s housing market is being squeezed from both sides, as federal and provincial policies stifle demand while municipal governments stall the supply of new homes. The residential construction industry, a multibillion-dollar behemoth, contributed seven per cent of Canada’s GDP in 2016, according to BMO economist Robert Kavcic. In British Columbia alone, home building adds $23 billion annually to provincial GDP — almost twice that of the forest industry. Yet industry groups say government measures are making it harder to build and harder to buy.
Policies squeeze buyers while supply lags
The federal government has placed increasing restrictions on mortgage lending, even though residential mortgage defaults are nearly invisible at about 0.3 per cent. Over the past year, two rounds of mortgage “stress tests” have cut borrower buying power by 17 per cent and shut nearly a fifth of first-time buyers out of the market entirely. Three rounds of interest rate hikes have pushed mortgage rates higher across the board. Earlier measures doubled the minimum downpayment to 10 per cent on insured mortgages over $500,000 and included a series of increases in mortgage insurance rates through Canada Mortgage and Housing Corp.
Provincially, Ontario and British Columbia have introduced foreign buyer taxes. B.C. recently boosted its tax to 20 per cent and extended it to areas with few foreign buyers. Ontario released a housing plan aimed at slowing demand. The cumulative effect is a deliberate cooling of demand, but supply has not kept pace.
Municipal bottlenecks and zoning add to costs
While senior governments target demand, municipalities have slowed the delivery of new homes. “It now takes seven to eight years for a multi-family project to be built in Vancouver,” said Anne McMullin, president and CEO of the Urban Development Institute, Pacific Region. She pointed to “municipal permitting delay bottlenecks, which can take years, and restrictive, single-family zoning, on about 85 per cent of residential land across Metro.”
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CMHC identified the weak supply response in both Metro Vancouver and the Greater Toronto Area as a critical driver of housing affordability. BILD GTA noted that “the ongoing decline in new housing inventory is a direct reflection of how difficult it is for the industry to bring product to market,” citing out-of-date zoning bylaws and permit approval delays that have increased dramatically.
The Fraser Institute, in a study of B.C.’s Lower Mainland, found that municipal compliance costs and fees range from $4,300 per home built in Pitt Meadows to almost $78,000 per home in Vancouver.
At a recent Vancouver conference, supply proponents called for an end to mandatory public hearings as a way to get more homes started. Sonya Trauss, founder of the San Francisco Bay Area Renters Federation, said, “The people who live near a proposed new development are the last people who should be asked if they want higher density. You are guaranteed to get a ‘no.'”
The public may be catching on that delays and regulations — not developers — are the true barrier to affordability.
