New homes and red tape in Canada’s Capital Region

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posted December 10, 2015

Canada’s Capital Region is growing quickly, and will continue to require a steady stream of new housing to keep up with new demand. Between the last two censuses, the Ottawa-Gatineau metropolitan area’s population grew by 9.1 per cent, outpacing other metro areas like Montreal, and in step with Greater Toronto and Vancouver. In order for the Capital Region to continue offering economic opportunities to newcomers, it’s critical that the supply of new dwellings keeps up with demand.

Regulatory barriers to housing construction can ripple throughout local economies. It’s important that red tape at city hall does not slow the supply of new housing as employment opportunities continue to draw newcomers. If it does, housing can become scarce and inflated costs can absorb the wage gains found in prosperous places. This effect is well-documented in America’s metropolitan areas; places with the most restrictive land-use regulations tend to see their economic booms followed by the largest house-price growth. The most constrained places also tend to lose out on potential long-run employment gains following good times.

In short, policies affecting how quickly property developers can respond to demand for new homes have far-reaching effects. While prudent city planning is important, excessive fees and onerous regulations can add costs and complications to residential development.

In a nationwide survey of developers and homebuilders, the Fraser Institute collected data on how residential development is affected by regulation across Canadian municipalities. The survey produced estimates of the length and uncertainty of approval timelines, compliance costs and fees, the role of city council and community members in residential development, and the effects of zoning bylaws in cities across Canada. The results show a stark divide across the Ottawa River.

The amount of time required to get a building permit averages more than 15 months in Gatineau, and more than 17 months in Ottawa. These long timelines are cause for concern. If it takes too long to get city hall’s approval for housing developments, the supply of new homes may lag behind demand.

Moreover, prohibitive compliance costs, such as development charges and legal fees, are another factor that can make the economics of more affordable housing options turn sour, adding more than $20,000 per new home built in Gatineau. These costs and fees more than double when building in Ottawa (typically near $44,000 per unit), despite these cities sharing housing and labour markets.

Administrative burdens can be exacerbated by a frequent need for re-zoning, which raises questions about the plans and bylaws a city has in place. The survey’s evidence suggests that zoning bylaws need to be amended to accommodate more than three quarters of new residential development in Ottawa, and less than half in Gatineau. Estimates of re-zoning’s effect on approval timelines is similar in both cities, pushing back construction by an additional five months, on average.

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. The nationwide survey revealed that opposition to residential development from council and community groups tends to be strongest in cities where dwelling values are highest, and less of a deterrent to building in places where people have amassed less equity in their homes. Council and community groups in Gatineau and Clarence-Rockland present little-to-no deterrence to development, while in Ottawa, which has the region’s most valuable dwellings, this deterrence is stronger. It’s troubling to find that voices against new housing are amplified where it is most valuable.

Ottawa, where survey evidence suggests red tape is the thickest, should look across the river to Gatineau for an example of more effective land-use regulations, which impose less of a burden on building. Indeed, Gatineau grew faster than Ottawa between 2006 and 2011. Smoothing out the kinks in the process that gets new homes built can pay dividends to anyone looking for a new home in Canada’s Capital Region.