By Casey Edge August 15, 2018

The certainty of death, taxes, and municipal inspection fees

Canadian Contractor

Guest columnist Casey Edge exposes increased building fees for what they are: Taxes!

As municipalities seeing the strong home building market continue across Canada, they appear to regard the industry as a cash cow waiting to be milked. Casey Edge, Executive Director of the Victoria Residential Builders Association, has been alarmed by the increases and how they impact housing affordability.

Benjamin Franklin wrote nearly 250 years ago, “In this world nothing can be said to be certain, except death and taxes.” Today, you could add one more thing: building fees levied by municipalities.

Taxes, some disguised as inspection fees, are most certainly contributing to the death of housing affordability across Canada. As housing starts and renovations increase, municipalities are enjoying enormous windfalls from building inspection fees, often calculated on the “value of construction.”

For example, construction value may include contractor’s profit, workers’ compensation, liability insurance, employment insurance, and the rising cost of lumber and drywall. These factors have no relationship to the cost of delivering inspection services.

Municipal services, such as inspections, should be charged under the common law principle of reciprocity – fair market fee for reciprocal service. Under this principle, these fees are supposed to resemble the cost of delivering the service.

However, municipalities are generating million dollar surpluses from their inspection fees, which are subsequently delivered to general revenue — like a tax. This is similar to Land/Property Transfer Taxes (PTT) where the tax is based on market value with no relationship to the cost of doing the land transfer. For example, in British Columbia, the PTT generates more than $2 billion annually — more than the combined revenue from mining, energy, forestry, Crown land tenures and natural gas. The rising value of housing and land generating these tax windfalls normally end up in general revenue.

The same may be said for inspection fee surpluses. They are often directed to general revenue like a tax, rather than remaining in the building department to regulate construction. This is a distinguishable feature between a tax and a fee.

In addition to paying for the inspection service, new homebuyers are subsidizing the overall administrative operations of the municipality, plus paying property taxes conceived for the same purpose. This tax pyramiding lacks transparency and is another example of homebuyers being used as cash machines for government revenue, rather than paying an appropriate fee for service.

Rising government regulations and fees are the focus of a recent C.D. Howe Institute report, Through the Roof: The High Cost of Barriers to Building New Housing in Canadian Municipalities. The report describes how government regulations and fees on new housing are adding hundreds of thousands of dollars per home. The report also busts the myth often heard from municipal councilors that developers, not homebuyers, pay for added regulations, amenities and fees. Every contractor should have a copy of the C.D. Howe report at the ready to counter the nonsense often heard wafting through development public hearings.

The bottom line is that the calculation of inspection fees must change from construction value to the real cost of inspections based on trips to sites, etc. This is in the interests of housing affordability and complying with the intent of the common law principle of reciprocity. Otherwise, call them what they are – taxes – like all of the other government tax grabs that are contributing to the death of housing affordability in Canada.

If it looks like a duck, swims like a duck and quacks like a duck — it’s a duck.

Casey Edge is CEO of the Victoria Residential Builders Association and a passionate advocate for the home building industry in Canada.