If we are to successfully tackle the ongoing housing supply crisis, we must take drastic action to lower taxes, fees, levies and, in particular, development charges (DCs) on new residential development.
We can not continue the same trajectory. It is simply not sustainable.
Taxes on new housing in the Greater Toronto Area, for example, are the highest in North America and have combined with other factors to eliminate homebuyers – especially first-timers – from the market. In Toronto, DCs alone for single detached homes have increased nearly 2,000 per cent in 20 years.
Just this year, Toronto raised development charges not once, but twice, totalling a 40-per-cent increase.
An analysis of 27 Ontario municipalities between 2004 and 2024 showed that all of them had allowed DC hikes to outstrip the rate of inflation and the Non-residential Building Construction Price Index.
Development charges are paid by developers to municipalities to help pay for the infrastructure needed for new developments such as roads, water, sewage and gas lines. But the charges are out of control. It is also unfair that new buyers are footing the bill for infrastructure that benefits an entire community. It would seem more logical that the cost be equally shared amongst the entire tax base.
Housing costs would be lower
Cutting the fees would make a difference in the price of a new home. In 2022, CMHC figured that if builders didn’t have to pay permit fees, municipal fees, guarantee fees, development charges or density payments, input costs for a high-rise condo in Toronto with 24 storeys could decrease by 15 per cent.
When building a home, developers and builders have myriad expenses in addition to taxes, fees, and levies. The CMHC identified 10 different charges. They must also buy land, seek planning approvals, and absorb the cost of equipment and labour.
Expensive DCs just add to the cost. The Canadian Center for Economic Analysis (CANCEA) shows taxes, fees and levies add 31 per cent to the price tag of a new home. On a typical $1.21-million condo in Toronto, $375,100 is for the add-ons.
When it comes to cost of living, Toronto is now ranked as the most expensive city in Canada, higher than Vancouver. It takes an income of $253,000 to $263,000 to qualify for the average-priced home in Toronto.
Immediate action must be taken to reduce the add-ons as we are far short of the number of new housing units that must be built to make housing affordable. Builders can’t build homes that people can afford to buy. Supply was supposed to double but it’s been falling.
CMHC figures an additional 5.8 million homes must be built by 2030 to bring housing back to affordable levels but that is not likely to happen.
The profound social and psychological toll that lack of housing is having on young adults, immigrants and lower-income families can not be overlooked. The social value cost attributed to lack of housing in the GTA is about 1.75 times greater than that of cancer, according to a 2023 CANCEA report.
Five ways to boost housing
But don’t just take RESCON’s word. A group of 18 developers called the Coalition Against New-Home Taxes is also advocating for a reduction in new home taxes and has written to three levels of government.
The fact of the matter is that, until we lower taxes and fees on new housing, the situation will not change.
First, we should conduct a full and thorough municipal review of the impact of any future local increases in taxes, fees and levies.
Second, governments should also fully exempt or rebate the collection of the HST on the construction of all residential buildings for first-time homebuyers including condominiums.
Third, governments should eliminate the collection of taxes on profits emanating from residential construction projects where such funds are re-invested into advancing similar projects.
Fourth, transfer payments to municipalities should be increased from the federal taxes that are collected from the construction sector to reduce cost pressures.
Fifth, we need predictable, stable and ongoing support from the provincial and federal governments for the construction of municipal infrastructure.
There is an urgent need for immediate action. We are in the midst of a housing supply and affordability crisis that shows no signs of waning. We can not simply sit on our hands and hope for the best.
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.
