Canadian Contractor

By Richard Lyall   

Cutting costs

Canadian Contractor Financials

To spur construction of much-needed new homes, condos and apartment buildings – and make units more affordable to people who want to buy them – we must find ways to reduce the costs of building.

High interest rates have forced buyers to the sidelines and an unfortunate perfect storm of inflation, and rising costs for labour and materials, have taken a toll and added to the problem.

To significantly change the narrative, significant and immediate action is needed.

First, we must reduce the excessive and exorbitant taxes, fees and levies that are imposed on new homes. Doing so, will reduce the fees that must be paid by builders and developers and passed on to buyers.

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In Ontario, for example, taxes on the purchase of a new home account for up to 31 per cent of the price, up from 24 per cent in 2012, according to a report by the Canadian Centre for Economic Analysis. The tax burden on new home construction is two times higher than other sectors of the economy.

In Toronto, you need about $263,000 in gross annual income to be approved for an average home priced at $1.1 million, according to nesto, an online mortgage lending company.

At the other end of the country, it’s a similar story. Government fees for a typical wood-frame condo development in Vancouver represent nearly 30 per cent of the final purchase price of a unit.

Those seeking to buy a new home in Vancouver would need an annual income of about $285,000 for an average home priced at $1.2 million.

Much too high.

Government fees imposed on a project can range from development charges that cover the costs of infrastructure needs to GST and HST, the cost of building and development permits, land transfer taxes and more.

Buyers are often unaware of the burden these fees add to the price tag of their new home. For example, if a consumer buys a $1-million home in Toronto, they’re paying $310,000 in taxes, fees and levies.

Hold on to your hats. When that is amortized over the life of a mortgage, it amounts to hundreds of thousands of dollars in interest payments. Such fees and taxes have essentially killed the first-time home buyer.

Recently, the federal government cut the GST on purpose-built rentals. The province followed suit by axing the HST. This should be extended to owner-occupied housing as well because of the same rationale.

To stimulate buying, governments should also consider allowing RRSP funds to be used for buying principal residences – at least for first-time domestic buyers and possibly those who are downsizing.

Equally important, the development approvals process needs to be streamlined. There has been a lot of talk on this, but the industry is not seeing the walk. It is a horribly tortured process that builders and developers go through to get projects approved. It can take years and is not for the faint of heart.

The situation seems to have paradoxically worsened. Approval times are taking far too long. Obtaining a building permit in Canada is often a protracted process. At the City of Toronto, for instance, the average approval timeline to get a permit for a project is now 33 months, up from 21 in 2020. That does not include the time and money put into identifying a site and figuring out finances.

A young person could literally grow old waiting for a project to be approved. Thankfully, both the federal and provincial governments have incentive programs tied to improving efficiencies and building homes more quickly.

Excessive green building requirements are also adding to the cost of building homes. Builders are creating greener and more sustainable buildings yet are under increasing pressure to electrify homes and pull out all the stops to reach unrealistic greenhouse gas emissions targets. Meanwhile, some municipalities are rolling out their own standards, allowing builders little time to adapt.

This only impedes construction of new housing and adds to the cost at a time when sales are already down. We must be realistic about what can be achieved. Unworkable measures only raise the cost of new home construction. This is not the time to add to the burden.

The federal government took some action in its recent fall economic statement, pledging to dole out $15 billion in new loan funding through the Apartment Construction Loan Program – starting in 2025 – to builders of rental properties. The move is expected to aid in the building of 30,000 new rental units.

The government also committed to spending $1 billion via the Affordable Housing Fund for non-profit, co-op and public housing initiatives to build more than 7,000 affordable homes by 2028.

However, we still have a long way to go to reach the housing targets that are needed to bring housing back to affordability. A national strategy to tackle the problem and address the chronic shortfall of housing would be beneficial. However, we must start by significantly reducing the cost of building new homes.

It is a self-inflicted wound that can and must be fixed.

Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.

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