Cash Cow: Government taxes and fees on new housing

A myriad of government charges, fees, and taxes are inflating the high cost of housing in Canada.

 

Photo by Oleksandr P from Pexels

“The only difference between death and taxes,” said humorist Will Rogers, “is that death doesn’t get worse.” Another distinction is that death tends to be fairly obvious. Taxes, however, are a different matter.

Take housing, for example.

If you are one of the dwindling number of Canadians who can afford a home — at an average of  $1.44 million for single-family in the GTA — you probably have no idea that up to 20 per cent of that cost is going to government.

According to the 2022 CMHC report Housing Market Insight – Government Charges on Residential Development in Canada’s Largest Metropolitan Areas, government charges on new development may be defined under the following categories:

  • Taxes, which can be levied at the municipal, provincial, or federal level and can pertain to transactions to buy or sell a property, as well as simply holding it. Taxes are a tool to raise revenue to provide government services;
  • Warranty fees provide insurance to the end user against construction defects in materials, labour, and the building envelope and structure. These fees are typically charged on a per unit basis by a new home warranty program administered by an independent entity under provincial laws;
  •  Municipal fees are charged according to site area or on a per unit or fixed fee basis to review amendments for a given site, site plan approval, development agreements, and other approvals needed from various municipal and regional departments;
  • Development charges, also known as a Development Cost Levies, are fees that may be assessed at the regional level to contribute to capital costs for infrastructure (e.g., sewage treatment plant expansion) necessary to accommodate growth. They can be assessed according to site area or per unit;
  •  Density payments relate to the amount of density permitted on the site and are designed to raise revenue for community amenities (e.g., swimming pools; parks, etc.). They vary widely by municipality and even neighbourhoods within the municipality, as well as the tenure type of the project (e.g., rental; condominium, etc.). The size of contribution payments can be subject to negotiation, introducing an additional layer of complexity and uncertainty. The amount levied is related to the incremental value of the site pending rezoning (“land lift”) or additional density being permitted on a site (“density for benefit”);
  • Permit fees cover administrative costs associated with issuing building, development, and occupancy permits, among others. The number of permits required, as well as the time needed to obtain each, can introduce costly uncertainty to the development timeline. The fee amount can be fixed or charged as a per cent of hard construction costs.
Photo by Oleksandr P from Pexels

CMHC adds a disclaimer, “In all cases, the above… may not represent an exhaustive list.” The report identified on average nine to 10 different government charges on new development, with municipalities levying more than one type of fee (i.e. permit fees; municipal fees; warranty fees; and density payments). In Canada they go under a gaggle of names including “Development Cost Charges;” Impost Fees;” “Lot Levies;” “Development Cost Levies;” “Capital Levies;” or “Off-Site Levies” and so on.

Toronto has the highest average government charge in Canada, across all dwelling types, at $86 per square foot. In the specifically high-rise category, the highest charges are levied in Vancouver on condominiums, at $143 per square foot: on a modest 1,000-sq.-ft. condo in Vancouver, government charges would therefore amount to $143,000. Indeed, those charges on new condominiums are now 60 per cent more than the average 1977 sale price itself would have been for a Vancouver home (across all dwelling types, approximately $90,000).

In 2019, the Building Industry and Land Development Association (BILD) reported on a study by Altus Group, which found government fees, taxes and charges added $222,000 to the cost of an average new single-family home in the GTA, three times higher than San Francisco, Miami, Boston, New York City, Chicago and Houston.

This is an unusual way to address a basic necessity. Homo sapiens is still a tropical species which needs shelter, particularly in Canada’s idyllic climate. When the UN adopted its Universal Declaration of Human Rights in 1948 (drafted by a professor at McGill University), it listed three basic needs: food, clothing, and housing. In Canada, sales taxes on the first two, food and clothing — when applicable at all — are transparently listed on the consumer’s bill of sale; but most of the buffet of taxes and charges on housing, enumerated CMHC, never make their way to the consumer’s Agreement of Purchase & Sale. They are buried in the “supply chain” never to be seen again, except in the inflated total figure at the bottom of the page.

And again, unlike the other two basic human needs, an entire tier of government in Canada — the municipal level — relies overwhelmingly (for its very existence) on the taxation of shelter (property tax) and its expansion (the charges above).

But you won’t find that in the public sector’s typical discourse. Although economists classify price rises as either “demand-pull” or “cost-push” (where “demand-pull” means too many buyers chasing too little product, driving prices up, and “cost-push” referring to cost pressures on inputs), almost the entirety of recent discourse has been on the former, to the exclusion of the latter. We can blame the housing crunch instead on foreign investors or on owners who leave their property vacant or who convert housing to B&B, but the reality is that public sector policies contribute directly to the high cost of housing in Canada.

Sometimes the monetary wheeling and dealing is overt, notably when the municipality lets a developer know that upzoning is negotiable, at a price, like what Ontario calls “Section 37” of its Planning Act, which puts municipal rezoning up for sale.

In short, there is apparently no hesitation in the public sector claiming “a piece of the action” on new housing, as CMHC discerned.

That is not to suggest that Canada should defund municipal government. The crux of the issue is that a fundamental reallocation is in order. The housing crisis teaches this country that it is high time for all Canadians — including all levels of government — to reconsider whether they are part of the solution, or part of the problem.

The 2022 CMHC Housing Market Insight report titled Labour Capacity Constraints and Supply Across Large Provinces in Canada highlighted the reality of skilled construction labour shortage in the residential housing market as the limiting factor in new housing starts — contrary to a shortage of developable lands, presented by the Doug Ford government as justification for Ontario Bill 23 — and went on to recommend focusing housing supply efforts on conversions (renovations), rather than new development.

Since many of the government charges on new development currently contributing to the high cost of housing simply do not apply to renovations, revisions to the tax code — which presently encourages demolition and rebuilding versus renovation through generous tax incentives to developers with a wrecking ball — would be the most effective way to increase the supply of affordable housing.

The truth is, government charges on new residential development are the cash cow that funds governments, municipal governments almost entirely. While it is unlikely that they will disappear entirely, the single act of revising the federal tax code to encourage renovation would both lower the cost of housing and increase supply through the conversion of obsolete buildings.

In a world of limited resources and burgeoning population, we can no longer afford planned obsolescence.


Ken Grafton is a writer living by the river in Aylmer, Quebec. He is a freelance contributor for The Hamilton Spectator and The Chicago Tribune. His writing has appeared in many local, national and international newspapers and publications.

Marc Denhez is a bilingual author, lawyer, and adjudicator with 30 years’ experience in the law of built, natural and intangible heritage. He received Canada’s National Heritage Award and is co-recipient of an Award of Excellence from the Canadian Institute of Planners. 

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