Thursday, April 12, 2007

Low cost housing

Everyone is concerned about the relative lack of low cost housing in major cities in Canada. What is causing the lack of low cost housing? It is supply and demand thing - we are not building houses fast enough to reduce the prices.

1) Land Prices are high - when it costs over $250 000 for a basic building lot in the Victoria area, no wonder housing is expensive. Why is land so expensive? For several reasons, in an attempt to curb urban sprawl, a lot of land is off limits to development. This restricts the land for houses. Zoning also restricts what someone can do with a building lot and thereby restricts the number of lots available.

A lot more land is used by roads and infrastructure than is needed. If we allowed in street housing, there would an increase in the number of building lots and a reduction in their costs.

2) The stock of housing is not growing fast enough. If we were building houses and condos faster than the demand, the price will go down. Each cost applied to any development reduces the potential for the development. The red tape should be minimal and the local government should not be charging a development or fees for building permit fees, but instead should amortize these costs over 10 years on the property tax for the development.

Quite simply, the more housing you build, the cheaper housing will get - simple supply and demand.

3) There are too many restrictions on what you can build in most areas. Most local governments do not allow for secondary suites - why not? They provide low cost housing. Local governments also decree restrictions on the land - if I have 8000 square feet of land, why should I not be allowed to build two houses on it? The property set backs are often a significant restriction in being able to use a small lot.

As an example, if there were only 2000 more housing unit in the Greater Victoria area, you would see a dramatic fall in house costs and a much higher vacancy rate. Low income housing needs a much more open market to allow the private sector to build more housing units.
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