A new report by the Sauder School of Business at the University of British Columbia is calling on policymakers to allow for the construction of more homes to address Metro Vancouver’s housing affordability crisis.
James Tansey, the Executive Director of the business school’s Centre for Social Innovation and Impact Investing, says the impact of government regulation and zoning constraints is six times larger than the effect of speculators.
“This report pulls together evidence from a number of studies and shows that government intervention in housing policy tends to focus on reducing demand as opposed to improving supply conditions,” he wrote.
“While the population density of the City of Vancouver compares to some of the most successful regions in the world, there is lots of room for growth across the region, without cutting into green spaces and agricultural land. Even within the City of Vancouver, density drops away very quickly from the downtown core to relatively low levels of density across the westside and across most areas south of Broadway.”
His analysis found that the region’s housing market had poor supply elasticity – the ability of the construction and development industry to build the right type and quantity of housing based on market demands, which is partially fuelled by low interest rates. According to Tansey, Vancouver’s supply elasticity is the lowest of any large urban area in Canada, which results in higher real estate prices.
Tansey also asserts that new taxation policies by the provincial government – property transfer tax, foreign buyers tax, and speculation tax – do not tackle the real issue at hand.
“If the goal of the taxation policies was to cap or reduce housing prices, the forecasts would show declining revenues over time as the market responds to higher prices,” he continued.
“Instead, all the taxes… are projected to increase government tax revenue in the coming years. The provincial government appears to view housing stock as the asset base for raising revenue for social programmes including affordable and social housing, by taxing the value tied up in private property.”
Recent tax policies by governments to address the demand factors of housing have “had limited impact to date on housing prices.”
Furthermore, Tansey states the impact Chinese investors have had on local housing prices has been “exaggerated,” adding that “there is much less evidence to support the level of scapegoating of foreign buyers in the media and in policy circles” based on his compilation of data from other studies.
Instead, he recommends regulators and policy makers to “develop mechanisms to better align this desire to invest in property in the region with the goals of improving housing supply.”
This is not to say the volumes of foreign capital are not significant in absolute terms, he says, but factors such as regulation, domestic investors, low interest rates, and economic growth do not receive proportionate attention in comparison.
As well, the region’s affordability is worsened by its poor salaries.
Separate studies released earlier this month also examined the impact of government red tape on housing; a report by C.D. Howe Institute found strict and inflexible regulations add $644,000 to the cost of constructing a single-family home in Vancouver – almost four times Toronto’s costs – while another study by Burgess, Cawley, Sullivan and Associates Ltd. found that government taxes and fees account for 26.22% of the cost of a new-build apartment.
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