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Approval delays and land use regulations by municipalities are limiting housing affordability across Canada, according to a recent study by Canada Mortgage and Housing Corp.

Rules about the development and use of land can limit what developers are allowed to do and may hold back the development of new housing due to suboptimal implementation, the national housing agency said.

CMHC said its analysis shows that municipalities with higher overall land-use regulation have lower housing affordability.

“You can achieve certain objectives with regulation, but if it sort of slows down housing supply, the consequence might be less affordability,” CMHC’s chief economist, Bob Dugan, said in an interview.

The study said Greater Toronto and Greater Vancouver have the highest level of municipal land use regulations and stand out sharply relative to other regions in Canada. Meanwhile, the Atlantic provinces, Quebec and the Prairies are much less regulated, having a regulatory burden when it comes to land use that is 23 to 34 per cent lower than in the Greater Toronto Area.

To assess the amount of regulation in individual markets, Dugan said municipalities were surveyed about regulations such as density limits (which was one of the lower-correlating factors), availability of land for residential development and lot-size requirements.

They were also asked about permit approval processing times and the degree of involvement city councils, community organizations or other stakeholders have in the process of getting approvals done.

“Often regulations have other good intentions, for example, regulations that make the housing system greener or more climate-friendly,” Dugan said. “There are good reasons for certain regulations, but I think we have to look at them all and realize that there’s a cost benefit.”

Municipalities should look at individual regulations, assess their goals, compare that with what it can do to affordability and make a choice, he said.

Dugan said that it may be worth sacrificing some affordability for regulations that aim to make housing greener. But for other regulations, affordability may be more important and compromises may need to be made, he said.

“It’s a way to look at regulation as a whole and try to realize (which) regulation does slow down supply response. This can come at the expense of affordability,” he said.

CMHC measured the house-price-to-income ratio to show how regulation relates to housing affordability. It said Greater Toronto and Greater Vancouver have the highest house price to income ratios, and are shown to have much lower housing affordability relative to other regions in Canada.

It also pointed to long approval times for new developments, which it said can make building projects more costly, thus affecting affordability.

The Greater Toronto and Greater Vancouver areas have the longest approval times in Canada, which are almost four times as long as regions with more affordable housing, it said.

Dugan noted that there will be other factors that affect supply response and contribute to “deteriorating affordability,” aside from regulation.

“I don’t want to pretend that regulation is the only issue at play here,” he said. “There will be other pieces to the puzzle as well that affect the supply response.”


Story by: Financial Post