Tax Burden On Housing Must Be Rolled Back

Canada stands at a critical juncture in its ongoing battle to boost the supply and affordability of new homes. The need for new housing is dire, but figures show fewer homes are being built.

The 2022-2031 period is on track to be the decade with the fewest homes built per new persons added to the Canadian population since at least 1972. This is not a setback; it is a catastrophe.

Without swift and decisive action, rising housing costs will continue to deter Canadians from starting families and raising children, and continue to hinder economic development and undermine the financial stability of Canadian households. Already, our birth rate is below the level needed to replace the population. In the past five years, it has dropped even more sharply.

The exorbitant increase in development charges (DCs) is a major reason for our housing crisis. They impose significant financial pressure on new home construction and housing affordability. 

DCs must be paid when a building permit is issued. Developers must front the cost and carry the financing. Eventually, when the home is completed and sold, the developer can recoup the cost. In the end, though, unbeknownst to many, it is the new home that buyer ends up paying the cost.

Dramatic Rise in Development Charges

The tax burden now accounts for 36 per cent of the cost of a new home. DCs make up a large chunk of that. When more than a third of your payout is going to taxes, fees and levies, it’s little wonder that people – especially first-time homebuyers – have a tough time covering the cost.

For many years, and particularly over the last decade, municipalities have hiked these charges at an exponential rate. This has added unnecessary costs unrelated to new housing growth. The hikes are also inconsistent with market realities and have contributed to housing becoming too expensive for most

Toronto, for example, has raised development charges for single and semi-detached homes by 464 per cent from 2014 to 2024, whereas incomes in Ontario only went up 29 per cent over that time. 

DCs and related taxes and fees on low-rise housing have increased by an average of 33 per cent across Canada in the last two years, according to the Canadian Home Builders’ Association. Sadly, the GTA has the highest taxes for both new low- and high-rise housing anywhere in the world.

In Ontario, the government should roll-back municipal DCs by at least 10 years, to 2014/2015 levels, and future increase in DCs should be tied to the rate of inflation.

To put things in perspective, the overall average tax burden on a new home in Toronto increased 35 per cent between 2022 and 2024, despite a drop in land values and home prices over the same period. Municipalities have blamed the increase on rising prices for homes.

There’s little transparency and it can be difficult getting numbers on DCs as there is no national database. Often, figures must be compiled from a hodge podge of municipal websites and provincial databases.  

Public Disclosure is Necessary

Recently, a paper authored by Ross McKitrick, a professor of economics at the University of Guelph, and published by the Macdonald-Laurier Institute, suggested that each region should publish a set of DC benchmarks that indicate the reasonable amounts municipalities should aim to charge. 

The author notes that Ontario passed Bill 23 that mandated some reductions in DCs, and the Ontario Development Charges Act (Ontario 2024) itself exempts some building projects, but for the most part municipalities have considerable freedom to impose charges as they see fit. 

As McKitrick rightly stated, in this respect each municipality is a local monopoly and we should not be surprised to see fees exceed marginal costs, especially with so little public disclosure.

As the paper pointed out, publishing benchmarks would provide some constraint on excessive DCs.

Housing starts in Ontario decreased substantially in 2024 from the year before. There were 74,573 starts in the province in 2024, compared to 89,297 in 2023, according to CMHC figures.

Condo starts in Ontario in 2024 fell to their lowest level since 2002 at 9,258 units – a 51-per-cent drop from the 2023 figure of 18,950 units and 56 per cent below the 10-year average of 21,213 units.

To resolve the housing crisis, we must lower the cost of building homes and condos. Doing so will restore the dream of home ownership to many and secure our long-term economic stability.