Approval delays linked with lower housing affordability

We need to close the gap in housing supply to tackle the problem of housing affordability in Canada. CMHC research has estimated that an additional 3.5 million new units are needed by 2030 for affordability to be restored.

Rules about the development and use of land are one of several key mechanisms that influence how affordable our housing is and how our communities grow. While many of the regulations have important socio-economic goals, the extent and suboptimal implementation of these regulations can limit what developers can do and may hold back the development of new housing. We need to examine where these limits are to help policymakers better understand Canada's troubling supply gaps.

CMHC and Statistics Canada worked together to develop the 2022 Municipal Land Use and Regulation Survey. This survey looks at land use rules in diverse cities across Canada. Although not exhaustive, we ask questions about zoning, fees, approval times, community consultation, density limits and environmental assessments.

We're sharing some high-level findings from the survey. Further research about how land use rules affect housing supply and affordability will be developed soon.

Higher residential land use regulation seems to be associated with lower housing affordability

Preliminary analysis from the survey shows that higher overall land use regulation seems to be associated with lower housing affordability across Canadian municipalities. The corresponding data can be found in the table, which is aggregated by region or province.

The Municipal Land Use and Regulation Index captures the degree of land use regulation in a given city. Higher values indicate more regulation and smaller values represent less regulation. For ease of interpretation, these values have been normalized relative to the Greater Toronto Area (100).

The speed of approving new developments is the most crucial survey factor in understanding differences in housing affordability among various land use regulations.

Notes: This table is comprised of municipalities who responded to the 2022 Municipal Land Use and Regulation Survey. We obtained house price and household income data from the 2021 Canadian Census. Values for the Municipal Land Use and Regulation Index total regulation and Approval Delays Index are normalized to 100 for the Greater Toronto Area, the highest overall score among these regions. Therefore, values less than 100 indicate less regulation and values more than 100 indicate more regulation relative to the Greater Toronto Area.

Get a detailed breakdown of the results at the Census Metropolitan Area (CMA) level.

Regulation scores vary from city to city, and these estimates provide a broader understanding of differences between key regions in Canada. The Survey shows:

• Greater Toronto and Greater Vancouver have the highest Municipal Land Use and Regulation Index scores (100 and 98 respectively) and stand out sharply relative to other regions in Canada
• Atlantic provinces, Québec and the Prairies are much less regulated, having 23% to 34% less land use regulation than the Greater Toronto Area

The Municipal Land Use and Regulation Index scores relate strongly with housing affordability, as measured by the house price to income ratio.

Greater Toronto and Greater Vancouver have the highest house price to income ratios (9.25 and 14.19 respectively). They are shown to have much lower housing affordability relative to other regions in Canada. This includes Saskatchewan (3.68) and Manitoba (3.32) where land use regulation scores are also notably lower.

The experiences of Greater Toronto and Greater Vancouver also stand out relative to other large urban areas. For example, both Greater Montréal and Greater Edmonton have lower Municipal Land Use and Regulation Index scores (77 and 73) and housing there is more affordable as indicated by lower house price to income ratios (6.63 and 4.28).

Approval times can be costly

Long approval times for new developments can make building projects more costly. Among the surveyed land use regulations, the time it takes to approve new projects (the "Approval Delay Index") is the most important survey factor explaining differences in housing affordability across regions.

The Greater Toronto and Greater Vancouver Areas have the longest approval times in Canada, which are almost 4 times as long as regions with more affordable housing.

Understanding differences in affordability: impact of regulation on developers

Approval delays are not the only regulatory factor affecting housing affordability. Our analysis shows that the “Developers Restriction Index” is also a key factor for understanding differences in housing affordability — this includes survey questions on fees, environmental assessments and mandated criteria. Interestingly, the “Density Restriction Index” has the weakest association with affordability differences in Canadian municipalities.

Implications

This analysis validates concerns expressed by CMHC's 2018 report about links between land use regulation and increasing prices in large metropolitan areas. The report highlighted differences in land use policy as a key issue for new development but cited remaining data gaps as a limitation in our understanding of this issue.

The 2022 Municipal Land Use and Regulation Survey works to address this data gap. This survey provides housing system participants the opportunity to conduct evidence-based analysis and to evaluate how land use regulations are linked to affordability and supply outcomes.

The survey could also benefit participants of the Housing Accelerator Fund, which funds local governments aiming to develop 100,000 new homes in Canada. The survey's overall regulation and approval time data highlights key differences that could help the Fund’s program participants overcome barriers.

The survey aims to strengthen partnerships between CMHC and other governments and can help municipalities assess planning policies and develop best practices. These partnerships can help foster a shared goal of achieving affordable housing for all Canadians.

Further research will help us better understand how the regulatory context affects home prices and which policies lead to more affordable housing and new supply growth.

Visit Statistics Canada to learn more

Notes: While the article contains “Greater” urban areas this table contains Census Metropolitan Areas (CMAs) — a more granular geography. This table is comprised of municipalities who responded to the 2022 Municipal Land Use and Regulation Survey. Values for the Municipal Land Use and Regulation Index and Approval Delay Index are normalized to 100 for the Toronto CMA. Therefore, values less than 100 indicate less regulation and values more than 100 indicate more regulation relative to the Toronto CMA.