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Thursday , 24 July 2014
Higher development charges mean lower housing affordability: BILD

Higher development charges mean lower housing affordability: BILD

Homebuyers already pay enough to the government and asking them to pay even more is unfair. As it is, more than one-fifth of the cost of a new home goes to governments in the form of development charges and a host of other charges and taxes. With home affordability a “significant challenge” for homebuyers in the GTA, doing anything that would increase the burden would be unfair.

That is the message of the Building Industry and Land Development Association (BILD), continuing its response to an increase in development charges proposed by Metrolinx to fund transit expansion.

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Government charges and fees make up 20 per cent of the cost of the average condo in Toronto, a new study shows. Ontario’s builders say home buyers are paying their share, and the building industry opposes more charges to fund transit.

“Increasing development charges and other government fees is not the answer,” said Bryan Tuckey, BILD president and CEO. “New homebuyers across the GTA are already doing their fair share to support the development of essential public infrastructure.”

BILD commissioned Altus Group Economic Consulting to review government charges on new homes in several GTA municipalities and released the review last week. The purpose of the review, BILD says, was to “help make sense” of the fees and charges and their impact on the cost of a new home.

The issue of housing affordability poses significant challenges for the industry as it does for homebuyers in the GTA. Since 2005, the average selling price of new low‐rise homes across the GTA has increased by 70%, while the average selling price of new high‐rise homes has increased by 61%. While the cost of housing is also driven by a range of economic and market factors outside of the scope of this study, the increase in government charges have also been a factor in the increased price for new homes in the GTA.

Altus Group Economic Consulting

The review found that total government fees and charges amount to an average of $118,400 on a new single detached home, which is 23 per cent of the overall cost; and $64,000 on a new high-rise home (condominium), which is 20 per cent of the cost.

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Development charges, the study found, make up the bulk of the various governments’ take on a new home: they range from 33 per cent to 52 per cent of the total government charges. And they have been rising dramatically: since 2004, development charges in the municipalities studied have risen between 143 per cent and 357 per cent.

More than half of the government charges are levied on land owners, builders and developers, but these charges are “often” passed on to the home buyer. The other 44 per cent are imposed directly on the home buyer, so it is the “end-user” of the home who really bears the burden.

The charges in question include an impressive array. There are municipal development charges that fund the town’s police, fire services, parks, libraries, roads, water, sewage and transit. There are also separate education charges, GO Transit development charges, and area-specific development charges. As well there are various fees associated with municipal approvals and permits. Hydro/utility fees are also levied on new development.

Then there are property taxes, HST, Land Transfer Tax, CMHC mortgage insurance, and Tarion enrolment.

In the city of Toronto, these charges add up to $106,200 per home, or 19.7 per cent of the average new home price.

As the study points out, the issue of development charges and their impact on home affordability is a complex one, “and there are no easy answers.” However, the report does conclude that the various charges do increase the costs of home ownership and thus reduce the amount of “income availability” for paying mortgage and other living costs. Also, to the extent that government-imposed charges increase the cost of a home, home buyers could be forced to take out larger mortgages, and thus pay more interest over the life of the mortgage.

BILD clearly believes that the building industry. which is described as part of the “economic foundation” of the GTA, is doing more than its share in terms of supporting infrastructure—193,000 jobs in home construction and related fields were created last year alone, generating more than $10 billion in wages and several billion in taxes to various levels of government.

“Everyone needs and wants the public services these government fees and charges fund,” Stuckey said in the Toronto Star. “But it’s time we all contact our government representatives to tell them how important it is to keep the rates affordable.”

Economic impact of new home construction in the GTA (2011)

$24.6 billion total value of new home construction

193,000 jobs created in home construction and related fields

$10 billion in wages

$1.8 billion in federal and provincial income tax revenues

$840 million in CPP premiums

$330 million in employment insurance premiums

1.6 billion in HST revenues to the federal government, and another $1.9 billion to the provincial government

Altus Group Economic Consulting

 

 

About Nicole Ryan Editor

I am Nicole Ryan, a contributing editor at Condo.ca—Canada's Condominium Magazine.

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