Governments play a major role in new homes bottleneck

No wonder the hottest topic on everyone’s mind today when it comes to new home real estate is the fact that our supply is greatly lagging demand. According to a 2021 Scotiabank study, Canada had fewer housing units per capita that year than any other G7 country. In 2022, Scotiabank also announced that Ontario, Manitoba and Alberta had the lowest number of homes per capita when compared with the other provinces. This got me to thinking about the role our municipal and provincial governments play when it comes to residential development. Recently, our federal government announced removing GST on purpose-built rental housing, but how much will that help in the long run?

Reducing red tape

For many years, developers and our homebuilders’ associations have been urging the municipal governments across the GTA to reduce a lot of the red tape that lengthens the time periods – and money – it costs to develop new communities. COVID exacerbated the problem, but even before it arrived on the scene, it was difficult and time-consuming to wade through layers of government red tape. Minimum lot sizes, zoning regulations, Greenbelt land protection, giving into NIMBYism, approval after approval… this makes no sense, especially with the Ontario Growth Plan calling for intensification. We need new homes and condominiums to be built faster, especially with the increased demand we are seeing from immigration.

And let’s talk rising prices. We have to understand that governments partially determine home prices, especially where development charges are concerned. These charges are the fees developers must pay when they want a building permit. The money goes to installing infrastructure needed when new developments go in, such as water and sewer, roads, fire and police. These fees are set by our municipal governments under Ontario’s Development Charges Act. The cost eventually becomes part of the purchase price.

Hope for government support

Last year in Toronto, City Council voted to raise development charges by 46 per cent, adding tens of thousands onto the price of building a new home. The increase is being phased in through May of next year. Under this bylaw, development charges for singles and semis will rise to $137,040 as of May 1, 2024 – up from $12,366 in 2009. This is unfathomable, considering Toronto has $2.26 billion in development charge reserves, $1.89 billion of which is slated to be spent by 2025. Municipalities in the GTA also have billions in development charges and other fees – yet only a limited amount is being spent on infrastructure. The cost of infrastructure should not be placed totally on the shoulders of developers and ultimately on homebuyers and renters, but on a broader tax base.

And all of that is in addition to taxes, including the Land Transfer Tax – and Toronto is the only Ontario municipality that charges this tax. Torontonians pay Land Transfer Tax twice, first to the province and then to the city. How is this fair in an increasingly challenging residential market?

Our federal government’s recent move to remove GST on purpose-built rental housing is a positive step. Let’s hope we see more government support coming soon.