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What is the solution to inconveniences resulting from redevelopment?
By John Dickie, CFAA President
In many communities with growing numbers of people and households, Canada needs more housing, especially rental housing. However, many factors combine to restrict and delay new housing supply. Due to overly restrictive and outdated zoning by-laws, rental property owners are restricted in where, and in what density, they can develop in-fill housing. Greenbelts restrict development on the immediate outskirts of major cities. Many cities face limitations from physical geography, such as the ocean, lakes or mountains. As well, excessive taxation applies in the form of the GST/HST, usually at 13 to 15 per cent of the building’s value, at the time of initial occupancy. Development charges, community amenity charges, and other municipal charges can also easily amount to 8 to 10 per cent of the costs of construction and land. Building regulations also impose substantial increases in cost, through excessive parking requirements and other limitations that drive up overall costs. Insufficient staffing in planning departments, and lengthy processes, delay development and impose increased costs. All in all, the wonder is not that new housing is scarce and expensive, but rather that new housing is not more scarce and more expensive than it is. The high price of new housing draws up the value and price of existing housing at all price points in the market, including old rental housing at the low end of the market. That is what makes it difficult for low-income tenants to find alternate housing at rents they can afford, when they need to move to allow major renovations or demolitions to occur, or when they want to move for other reasons.
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Moreover, as Avrom Charach points out in his comments about Manitoba on page 20, when there is ample new housing, there is less incentive to perform major renovations. As well, when there is no rent control, as in Saskatchewan, there is less incentive to perform major renovations and there is a higher vacancy rate so that more alternate housing is available to tenants who want or need to move. In fact, far from being a solution to tenant displacement on redevelopment, rent control is a major part of the problem. Rent control discourages new development, which increases market prices and market rents. That is the effect on the supply side, which most people understand. Rent control also encourages tenants to hang on to the rental units they currently occupy, even if those units are larger than the tenant household now needs or they are situated in a location less valuable to the current tenant than the location or size of unit would be to tenants who want to move there. That is the effect on the demand side of the rental housing market. While little recognized, that effect is as damaging as the effect of rent control on the supply side. Trying to dictate market prices never works. When prices (or rents) are constrained by law, shortages and misallocations always result. The way for governments to minimize the inconvenience that occurs on redevelopment or major renovations is to eliminate or reduce rent control restrictions, free up redevelopment and new development, and cut back on the land use restrictions, charges, and taxes that make new housing so expensive.
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