Buyers Beware: The Cost of Barriers to Building Housing in Canadian Cities

Note on the source description

This entry was commissioned to cover "C.D. Howe Institute E-Brief 341 (2023) on replacing municipal development charges with land-value capture." The actual document (confirmed as RePEc handle cdh:ebrief:341) is titled "Buyers Beware: The Cost of Barriers to Building Housing in Canadian Cities," by Benjamin Dachis (Associate Vice President, Public Affairs, C.D. Howe Institute), an e-Brief dated May 4, 2023. Its subject is broader than development-charge reform: it is primarily a measurement exercise estimating the gap between market price and physical construction cost for new housing across Canadian metros, with development-charge reform and land-value capture appearing as two of several policy recommendations in its final section. The entry below describes what the document actually contains.

Summary

The e-Brief measures, for 24 Canadian Census Metropolitan Areas (CMAs) over 2011–2021, the gap between the average market sale price of new single-detached homes and their estimated minimum profitable production cost (construction cost plus land cost plus a normal developer margin) — a method adapted from Glaeser and Gyourko (2017) and previously applied to Canada by the same author in a 2018 study (Dachis and Thivierge, Through the Roof). Dachis interprets a large, persistent gap as "housing market dysfunction" — supply-side barriers including development charges, restricted land availability, and regulatory delay — as distinct from genuine construction-cost inflation. The paper was fetched and read in full (13 pages) directly from C.D. Howe's own PDF hosting, after the URL originally supplied (a 2023-05-dated path) had gone dead and redirected to the live publication page.

The Core Argument / Findings

Headline estimates. Using Statistics Canada construction-cost data, CMHC new-home sale price data, and RPS Real Property Solutions housing-size data, Dachis reports that over 2011–2021 a single-detached home in Vancouver cost homebuyers nearly $1.3 million more than it would have cost to build without supply barriers — roughly 63% of the average sale price ($2,003,000 vs. $737,000 estimated minimum profitable production cost). Toronto's gap was $350,000 (32%). Other large gaps appear in Abbotsford-Mission (47%), Regina (36%), and Victoria (36%). Several smaller or slower-growing markets — Windsor, Québec City, Oshawa, London, Sherbrooke — showed negative gaps, read as evidence those markets are not supply-constrained.

Methodology and its limits. The paper follows Glaeser and Gyourko's formula: minimum profitable production cost = (construction cost + land cost) × (1 + developer margin), using a 25% land-cost share (more conservative than Glaeser and Gyourko's 20% rule of thumb, which reduces the estimated gap) and a 17% gross margin implied from typical developer returns. A dedicated section ("Limitations on Methodology") cites a published critique (Murray 2021) of this approach: the price-cost gap conflates several distinct causes (regulatory barriers, land-assembly friction, demand surges outpacing supply, landowner speculation) and says nothing about who bears the cost or benefit — a development charge funding a park may raise prices by less than residents value the resulting amenity, a distinction the raw gap cannot capture.

Policy recommendations. The final section, "How to Close the Gap between Construction Costs and Home Prices," proposes three measures: (1) provincially mandated, non-politically-enforced municipal housing targets, adjudicated by neutral bodies (modeled on Ontario's Land Tribunal) rather than local council discretion; (2) reforming upfront development charges — particularly water and wastewater charges, the largest component of development charges in most of Ontario — into ongoing utility-based user fees tied to actual use, rather than lump-sum charges that shift debt onto new homebuyers and weaken cities' incentive to complete infrastructure; and (3) broadly increasing allowable density rather than site-by-site rezoning battles.

The land-value-capture recommendation. Within the development-charge discussion, the paper endorses land-value capture as the appropriate tool for financing amenities (distinct from user-payable infrastructure like water/sewer): "an optimal way for taxpayers to recoup some of that local benefit is through a land-value tax." It cites Ontario's Community Benefit Charge (CBC) — introduced in 2019, collected since September 2022, capped at 4% of land value, applied at building-permit issuance for buildings over five stories/ten units — as an existing example, and recommends Ontario raise the CBC cap while lowering per-unit development charges, with British Columbia adopting a similar charge (replacing its density-bonus system) at a higher cap.

Relation to the Georgist Case

This paper offers two contributions to the wiki's case. First, its price-cost gap methodology is an independent, non-Georgist Canadian application of the same land-vs-construction-cost decomposition logic underlying the wiki's housing unaffordability is a land problem claim — the paper never uses the phrase "land rent" or cites Georgist theory, but its finding that Vancouver and Toronto homebuyers pay hundreds of thousands to over a million dollars above physical construction cost, while other Canadian cities show no such gap, is structurally the same "it's the land, not the building" finding documented for the US and internationally on that page. Second, the paper's recommendation to fund local infrastructure benefit-capture through a land-value charge rather than a flat per-unit development charge is a live, real-world land-value-capture policy example (Ontario's Community Benefit Charge) directly relevant to the wiki's land value capture concept page — though the paper frames LVC narrowly, as one tool among several supply-side reforms, not as a general Georgist prescription.

Nuances and Limits

The paper's own "Limitations on Methodology" section is load-bearing, not a formality: the price-cost gap is explicitly not a clean measure of regulatory burden alone, and the paper cites a published critique (Murray 2021, Environment and Planning A) arguing marginal and average land-lot prices should not be treated as equal in this method, which can bias the resulting gap estimates. The paper also cautions against reading short time windows causally — Vancouver's gap jumped suddenly in 2015 in a way that plausibly reflects a demand surge rather than any single regulatory change. The land-value-capture discussion is brief (roughly one paragraph) and instrumental — proposed as a financing mechanism for beneficial local amenities (parks) rather than a comprehensive land-rent-capture policy; the paper does not address whether a broader land value tax could substitute for development charges generally, only that community-benefit-type charges specifically should be land-value-based rather than flat per-unit fees. [VERIFY: the claim that Ontario's Community Benefit Charge is "capped at 4 percent" and applies to buildings "with more than five stories and ten units" is reported as stated in the source text; the current legal text of the Ontario regulation was not independently checked.]

Bears On

• Concept: Land Value Capture — supplies a live, named Canadian policy instance (Ontario's Community Benefit Charge) and a mainstream policy-institute argument for using land-value-based charges rather than flat development charges to fund local amenities.
• Problem: Housing unaffordability is a land problem, not a construction-cost problem — an independent Canadian price-cost-gap measurement (Vancouver $1.3M, Toronto $350,000 above construction cost per home, 2011–2021) using the same Glaeser-Gyourko-style decomposition methodology the page's US and international sources rely on.

See Also

• Land Value Capture
• Housing unaffordability is a land problem, not a construction-cost problem
• Split-Rate Taxation
• Land Value Tax
• Henry George

Sources

1. Benjamin Dachis (2023), "Buyers Beware: The Cost of Barriers to Building Housing in Canadian Cities," C.D. Howe Institute e-Brief (RePEc handle cdh:ebrief:341), May 4, 2023. Publication page · PDF — used for the full text: methodology, Table 1 CMA-level cost-gap data, the Murray (2021) critique summary, and the policy recommendations including the land-value-capture/Community Benefit Charge discussion.
2. IDEAS/RePEc listing — used to confirm the E-Brief 341 identifier, author, and publication metadata. ideas.repec.org/p/cdh/ebrief/341.html
3. Benjamin Dachis & Vincent Thivierge (2018), Through the Roof: The High Cost of Barriers to Building New Housing in Canadian Municipalities, C.D. Howe Institute Commentary 513 — cited in the source as the predecessor study this e-Brief updates; not independently read in this pass.