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[CD Howe] Through the Roof: The High Cost of Building New Housing

[CD Howe] Through the Roof: The High Cost of Building New Housing

by Yvonne von Jena | May 16, 2018

According to a new report by the CD Howe Institute entitled Through the Roof: The High Cost of Barriers to Building New Housing in Canadian Municipalities, the cost of housing in Canada has increased dramatically in recent years. Using data from RPS, the institute calculated that the price of single-detached dwellings more than doubled from January 2005 to the end of 2016. This increase is attributed to recent policies such as taxes on foreign buyers or new federal mortgage rules, which have focused on curtailing the housing demand, rather than taking meaningful steps to increase the supply of housing.

Barriers to Increasing Housing Supply

Says the CD Howe, barriers to increasing housing supply, many stemming from excessive regulation, are driving up the price of homes in Canadian cities by six figures. Authors Benjamin Dachis and Vincent Thivierge calculate that the extra costs on new housing range from an average $229,000 in the eight most restrictive cities to $600,000 in Vancouver.

The Persistent Gap: Cost of Building New and Market Price

The authors find a persistent gap between the cost of building new housing and its market price in major Canadian metropolitan areas. Here are some key metrics and how they vary by area:  

  • Barriers to housing supplymake up around 50% of the cost of housing in the Vancouver areaand more than 20% in the Greater Toronto Area(GTA)
  • The gap between the cost of building new housing and the market priceadds up to $300 per square foot in Vancouverwhile it has stayed around $0 in Montreal since 2007

Other Costs: Zoning, Restrictions and Development Charges

Policies such as zoning rules, restrictions on developing agricultural land, and development charges directly influence both new and existing housing prices. Mr. Dachis and Mr. Thivierge looked at major Ontario municipalities and estimated how much prices would fall if each city lowered barriers to supply to the current provincial average.Overall, the extra costs on new and existing homes are over:

  • $70,000 in the City ofToronto as well as the Peel and Durham regions
  • $90,000 in Halton Region
  • $100,000 in Hamilton, and
  • $125,000 in York Region

Reducing the Economic Cost on New Building

The CD Howe notes that while land use policies can generate important benefits, most studies find that the cost of higher housing prices imposed by housing regulation typically outweighs the benefits. They recommend steps that can be taken by municipalities and provinces across Canada to reduce the economic cost of restrictions on new building. For example, municipal governments and provinces should enable more housing construction by taking steps such as easing restrictions on developing agricultural land, simplifying and updating zoning bylaws, and reducing development charges.