NWT’s Economic Realities, Pt 3: Why Construction Here Is So Expensive

Gnomes for everyone

Imagine the City of Yellowknife had passed a bylaw requiring all new houses to include a $5,000 garden gnome set. The cost of a new house built under this code would increase by $5,000 — but the implications would be much broader. All existing Yellowknife houses not sporting any of the little figurines would also increase in cost, because their replacement cost would now be $5,000 higher. Similarly, if garden gnomes had always been required in housing and the City removed the bylaw, housing costs in both existing and new houses going forward would be reduced.

This admittedly silly example highlights the role city hall, as the regulator of land use and construction within Yellowknife, can play in reducing the cost of housing though cheaper supply.

While a new homeowner only sees the purchase price for their new home, buried inside is not just the cost of construction but also what the City required the builder to include in the first place. While many requirements are health and safety issues, others reflect a city’s collective priorities — things like parking minimums, landscaping, energy efficiency, minimum lot sizes and garage placement, to name a few. While most of these requirements provide value to a homeowner, they all add to the cost of construction.

We’re not alone in this struggle — socially liberal cities tend to find themselves with conservative housing policies. A liberal city like San Francisco will often restrict new housing development and unwittingly keep adding to the cost of development until real estate prices skyrocket, forcing lower- and even middle-income people out of the area.

In the last few years, the City has brought in some excellent policies:

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• Allowing increased densities in the city centre

• Allowing increased opportunities for infill housing

• Bringing in the laneway housing bylaw

• Loosening parking requirements

• Maintaining predictable development requirements

While these policies may not seem like major changes, they are having the desired effect: an increase in the supply of housing. Over the last few years, we’ve seen hundreds of new units entering the market.

By getting rid of some garden gnomes, supply has increased. And while market observers may feel like the price of the new supply is high, let’s look at its effect on the resale market.

By far the biggest increase in supply has been the multi-family condominium market. (As interest rates rise, we’ll see more rental units emerging, too.) While new condominium units have come online at the higher end of the market, older apartment-style condominiums have decreased in price around 7 percent in the last few months. Eventually, as the large supply peters out, we will see older condominium prices begin to recover.

With this in mind, do Yellowknifers really want to lower the cost of living? The renters among us should say yes — get rid of those garden gnomes! The trouble is, Yellowknife homeowners have already paid for their garden gnomes, and they may not be ready to haul them to the dump.

City Hall is not the only arbiter of housing costs. In Part Four, we will look at the labour issues facing contractors and the territorial government policies that exacerbate the problem.

Part OnePart Two and Part Four

This Article Is Part of a Series

Previous: NWT’s Economic Realities, Pt 2: Why Rent Here Is So Expensive

Next: NWT’s Economic Realities, Pt 4: When Real Estate Becomes Mobile

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