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Construction costs are not the problem. While Vancouver and Toronto have somewhat higher construction costs, nearly all of the housing affordability difference compared to other CMAs is in land-related prices.

Toronto and Vancouver have some of the most restrictive land-use policies

The Vancouver and Toronto housing-affordability crises have developed as their regional governments developed some of the most restrictive land-use policies in the high-income world. Most significantly are “urban-containment” limitations on the use of urban fringe land for new housing (as in Ontario’s “green belt”). This has increased demand, in the largely fixed area in which construction is permitted, while severely putting a lid on the supply of land for development.

Consistent with economics, this has dramatically increased the price of land and thus the cost of housing. The result is that there is no middle-income affordable land, which is needed to build middle-income affordable housing. At the same time, land prices where development is permitted are largely driven by prices on the urban fringe, which is consistent with economic theory.

The same dynamics have been observed in other international markets with urban-containment policies, such as Sydney, Melbourne, Auckland, San Francisco, Portland and London.

Moreover, denser, high-rise housing offers virtually no help. In Toronto, condominium prices have risen strongly and are now higher than detached house prices were a decade ago, even after adjusting for inflation. In Vancouver, condominium prices are nearly equal to detached house prices 10 years ago. This does not take into consideration the smaller size of condominiums compared to houses. Moreover high-rise condominiums provide no yards in which children can play, which makes them less family-friendly.