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Government is a major contributor to higher Metro house prices

If we are serious about slowing the hyperactive escalator lifting our housing prices to higher and higher levels, then we have to push the emergency button and explore what part is malfunctioning.

If we are serious about slowing the hyperactive escalator lifting our housing prices to higher and higher levels, then we have to push the emergency button and explore what part is malfunctioning.

It is not a deflection to start with our own governments’ responsibilities. It is the best place to start, for good reason.

While we may not be able to much influence a market – particularly one so swayed by global capital, obliged by material and labour costs and affected by the anxious emotions of buyers and sellers – we can determine what governments charge, how long they delay and what impact they have on housing affordability.

Recent studies have some disquieting news. The escalator speed is owed in no small measure to the government revenue-grab.

Taxes, fees and levies level a surprising burden. The glacial pace of approval adds mightily to the price. The modern building codes require additional expenses that are, as one builder told me last week, increasingly “complicated but not sophisticated.”

Are they making housing unaffordable? No. Are they making housing overpriced? Seems so.

Last week at an Urban Development Institute event, housing appraiser and tax expert Paul Sullivan of Burgess Cawley Sullivan and Associates Ltd. identified the extent of governmental overhead. It is not a pretty picture.

Sullivan’s estimate is conservative, predicated on a three-year approval process and a two-year build. But even a modest, new 500-square-foot unit in the booming but densely built Cambie corridor – priced these days around $500,000 – would feature about $162,000 in government charges.

The suite of expenses comprises roughly 27% of the unit’s price. Applied to a larger unit – say, a three-bedroom, 1,200-square-foot, $1.4 million condo – the impact reaches $390,000.

There might be some room for tapering in Sullivan’s estimate, if there isn’t a municipal vacant-home tax or provincial speculation tax, but even then the costs don’t include payroll taxes on labour that builders now bear or the taxes on their materials. His conclusion: “The data clearly demonstrates that all levels of government are making housing less affordable, and far less so with the new provincial government’s 2018 budget,” he told me.

Earlier in May, the C.D. Howe Institute had a look at the extra costs on single-family homes. Its work focused mainly on the Ontario market, but it had a glance at Vancouver and squinted at the eyesore. Authors Benjamin Dachis and Vincent Thivierge calculate that a new single-family home in Vancouver bears an additional $600,000-plus in barriers owing to regulation.

Congratulations are in order: Dachis and Thivierge pronounce us the national champions in this category, more than double the national average, and “among the largest internationally as a share of market costs.”

Their study looked at data from 3,524 single-family homes built in our market over a decade and concluded that 50% of their costs were due to the regulatory and governmental obligations.

It is convenient and self-indulgent to point at international villains, harder to accept our own responsibilities in electing governments that have developed a dependence on the real estate revenue stream that hits their books like a fire hose.

There are silly anecdotes in circulation, too. A builder told me of environmental codes that add $30,000 to the cost of a laneway house and save $10 a month in energy costs. Another official hears of expensive energy envelopes in new housing that compel owners to run air conditioning year-round.

Whatever the case, as we examine the complexities of unaffordability, we have to find ways to shave costs without cutting corners. Concessions need to be made – first by government, not first by owners and builders. It is unlikely we will ever see what we would consider affordable housing out of any exercise to deal with supply or demand, but we can at least slow the escalator on our own accord. •

Kirk LaPointe is editor-in-chief of Business in Vancouver Media Group and vice-president of Glacier Media.