Home building hampered by regulatory hurdles

Smoothing out kinks in the home-building process can pay dividends to anyone looking for a new home

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WINNIPEG, REGINA, CALGARY, EDMONTON OUT

By Kenneth Green
Ian Herzog
and Josef Filipowicz
The Fraser Institute

CALGARY, AB Aug 28, 2015/ Troy Media/ – In Calgary, home prices have more than doubled over the past decade. Despite the recent economic slowdown, more people are moving to Alberta than leaving it. Economic conditions in Alberta wax and wane over time, but the demand for living here persists. Satisfying this demand requires that new homes continue to be built in Alberta’s cities and towns.

Yet, the supply of new housing can be hampered by the regulatory hurdles homebuilders face. A recent study by the Fraser Institute measures these hurdles in the Calgary-Edmonton Corridor, Alberta’s urban spine running through the province along Highway 2.

If it takes too long to gain city hall’s approval for housing developments, the supply of new homes will lag behind demand. This can make new housing scarce, and drive prices higher across the region by creating a perpetual seller’s market. The study estimates that typical approval timelines range from six months in Strathmore and 7.3 months in Red Deer to 13.2 months in Chestermere and 15.1 months in Rocky View County.

Prohibitive compliance costs, including development charges and legal fees, can also make the economics of more affordable housing options turn sour. These costs add up to a low of $12,600 per new home built in Strathmore and a high of $33,333 per home in Rocky View County. Such a wide gap begs questions about what development fees aim to achieve.

Responsibly set fees, reflecting new infrastructure costs, can lift the fiscal burden of new development from existing taxpayers, making it easier to accommodate. This is especially true at the urban fringe where new roads and sewers are often necessary. Many of the cities in the Calgary-Edmonton Corridor are building new communities at their fringes, yet their fees and compliance costs vary significantly. For example, Airdrie and Chestermere, which offer similar commutes to Calgary’s core and have seen similar growth, differ in typical regulatory costs by almost $10,000 per new home.

Persistent rezoning in a city raises questions about the plans and bylaws it has in place, and can add to administrative burdens. Survey evidence suggests zoning bylaws must be amended to accommodate more than 60 per cent of new residential development in 10 of 12 cities studied. Estimates of rezoning’s effect on approval timelines range from less than one additional month in Red Deer to just under 15 additional months in Rocky View County.

Council and community groups are often a force for good, but they can undervalue the needs of newcomers as Canadians continue to converge on urban centres. A survey of industry professionals revealed that opposition to residential development from council and community groups tends to be strongest in cities where homes are most valuable Rocky View County and Chestermere and less of a deterrent to building in places such as Strathmore and Edmonton, where people have amassed less equity in their homes. One should be careful attributing a specific causal story to this correlation, as outside factors like regional land-use policies and water provision may ultimately impact prices. Nevertheless, there is clearly a cost to amplifying voices against new housing.

Cities such as Rocky View County and Calgary, where survey evidence suggests red tape is thickest, can turn to their neighbours in Airdrie, Cochrane and Strathmore for examples of effective land-use regulations, which impose less of a burden on building. Smoothing out kinks in the home-building process can pay dividends to anyone looking for a new home in Alberta’s major cities.

Kenneth Green is senior director of Natural Resource Studies at the Fraser Institute. Ian Herzog is a Fraser Institute economist and Josef Filipowicz is a Fraser Institute policy analyst.

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