The efforts of various governments to control the rise in housing prices by reducing demand through tax policy has been of little avail.

In his report on Metro Vancouver housing titled Growing Pains, James Tansey, executive director, Centre for Social Innovation and Impact Investing, suggests that the best way for municipal and provincial governments to have the biggest impact on housing affordability is to reduce the time and cost of gaining regulatory approval.

Since taxes have not worked to reduce demand, Tansey asks what is the downside of significantly improving supply conditions?

“I think some of it is driven by governance and some of it is fear at a municipal level there will be pushback against density outside of the corridors,” said Tansey, on Business in Vancouver’s podcast BIV Today. “I think that’s because a lot of people misunderstand what density means. I think they see it as being high-rises and small condos when there are lots of examples across the region of in character density.”

So what’s causing rising housing prices? According to information gathered in the report, the rise is housing prices is largely the result of B.C.’s strong economy. Income, interest rates and populations explain two thirds of the rise in housing prices.

Housing prices in Vancouver rose 48% from 2010 to 2016, 16% was the result of rising disposable income, 11% was the result of an increase in young adults and 9% of the increase was due to lower interest rates. The remaining 12% is from unobserved factors, which includes cost of regulation, speculation and geographical constraints.

Regulations accounts for six times the additional cost of speculation. Along constraints imposed by the mountains, the boarder and the Pacific Ocean, regulations have the largest impact on prices after considering for market fundamentals like interest rates and population growth. Regulation accounts for 3.6% of the housing price increases compared to 0.6% attributed to speculation.

What is The Downside of Improving Housing Supply Conditions? by Albert Van Santvoort | Business in Vancouver