Our housing supply system is severely strained, to say the least. Some would argue it is broken. Either way, we’re hitting a wall.
In addition to lofty mortgage rates and supply chain issues, the development approvals process for residential projects is too lengthy, and taxes, fees, levies, and development charges are exorbitant. The problem has been festering for decades under successive governments. We’ve had a false sense of security on housing for some time. But the canaries are now singing. The crisis is hitting home. For too long, politicians have fiddled around the edges of the issue, never really tackling it head-on. They’ve introduced band-aid solutions based on political calculations rather than economic reality.
With the consensus that interest rates won’t be coming down significantly anytime soon, it could get even more challenging for millions of Canadian homeowners. In 2024 and 2025, for example, up to 2.2 million mortgage holders will be renewing in a significantly higher interest rate environment. The good news, however, is that the situation can be fixed. We could eliminate the excess taxation, red tape, and bureaucracy that is choking the housing supply and embrace badly needed innovation.
Possible Fixes to the Problem
We’ve pretty well killed the first-time home buyer.
Taxes, fees, and levies account for 31 per cent of the cost of a new home. That means on a $1-million home, a buyer is paying $310,000 to governments. When that figure is averaged over the life of a mortgage, it adds hundreds of thousands of dollars in interest.
We must start by cutting these excessive and exorbitant add-ons. Recently, the federal and provincial governments cut the GST and HST on new purpose-built rental buildings. They should do the same with owner-occupied housing. What, in principle, is fair for new renters should be the same for new home buyers. We should eliminate an equivalent amount of taxes for those buying principal residences.
Permitting RRSP funds to be used for buying principal homes – at least for first-time domestic home buyers and possibly those who are downsizing – without penalty would be a good move.
At the very least, we must stop governments from continuing to add new measures and raise costs. We must stop taxing housing like alcohol and bring back measures that spurred housing projects.
Millennials and Gen Z first-time home buyers, as well as those downsizing, are being hammered by tax increases. Adding more costs and regulatory interventions should be stopped until we right the ship.
Streamlining the approvals process would also help. Despite all the talk, the situation seems to have paradoxically worsened. Modernizing and digitizing the process is proceeding at a glacial pace. Excessive taxation and inefficient approval procedures inhibit innovation and only add to costs.
Meanwhile, offsite construction needs to be further explored, and consideration given to incentivize companies to build modular housing plants in Canada. When offsite construction is used, there is a 30- to 50-per-cent reduction in time spent on a construction site for mid-size projects. While crews are preparing the foundation for a project, construction can begin in the plant.
More Skilled Trades Essential
To make it all work, of course, we will need more skilled trades. We must continue to push for systemic changes in education and immigration. We must convince parents, teachers, and guidance counsellors that a career in the trades where you learn while you earn is rewarding and lucrative.
We must look to immigration to boost the number of workers in the residential construction industry, reduce barriers to licensing in regulated professions by enabling immigrants with experience to get their qualifications faster, and bring in more newcomers with experience in the voluntary trades. The question on this and other issues is whether the bureaucracy responds. I hope so.
We know that – when faced with a challenge – the residential construction industry can and does respond. We did it during COVID. When other industries were forced to close, we kept building. Our industry has a solid reputation for getting the job done. Millions of homes have been built without incident over the decades. We are also the greenest building jurisdiction in North America.
Although the housing market has been dealt some severe body blows, the industry is resilient and agile. As bad as it may be, there are opportunities to turn things around. The timing is right to fix the system. Breaking points can lead to positive transformation if we are willing to seize the moment.
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.
