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Developers and builders are facing a dilemma.
They want to build houses, but interest rates, excessive fees, taxes and levies on top of slow development approvals have made it too costly to construct dwellings people can afford to buy.
As a result, housing starts are cratering across the country. Recent figures from the Canada Mortgage and Housing Corporation (CMHC) indicate that national housing starts have waned – at exactly the time we need them to rise. It’s a trend that is expected to continue. Not a good metric for a country that needs 3.5 million more units to be erected this decade over and above what it normally builds.
Even that figure may be too low. CIBC economist Benjamin Tal recently said the true number should be five million homes, as population figures don’t adequately count non-permanent residents. The consensus, though, is that the slowdown in new home construction will continue through the remainder of this year. Meanwhile, several new condo projects have been put on hold by developers.
To get more shovels in the ground, governments must lower taxes, fees and levies on new housing, cut red tape and speed up the development approvals process, which only adds to the price tag. In Toronto, for example, taxes, fees and levies now represent 31 per cent of the cost of buying a new home. On a $1-million home, that amounts to $310,000. That’s a truly ridiculous amount.
We are taxing housing like tobacco and alcohol. The taxes are unsustainable, impractical and unfair. New home buyers end up getting priced out of the market.
We must provide tax relief to new home buyers – particularly those who are purchasing their first home. The federal government could start by rebating first-time buyers the full HST on a purchase and establishing programs that eliminate the collection of taxes on profits from residential construction projects when the funds are re-invested into advancing similar projects.
Other levels of government, meantime, must also find a way to decrease taxes, fees and levies. Such moves would certainly help.
Governments must also reduce the bureaucracy and red tape that gets in the way of progress and stymies the construction industry’s attempts to build the required housing quickly and decisively.
The Toronto’s Housing Now initiative is a prime example of government policy getting in the way of development. It was launched in 2019 to activate city-owned lands and stimulate the development of affordable rental housing near transit but it didn’t get underway until August 2023. Across the country, it literally takes years to get projects approved. They get mired in outdated planning regulations, inefficient approvals processes and an unresponsive system of bureaucracy. It can add months and years to any new building project, particularly purpose-built rentals.
Governments must expedite planning approvals processes. All sectors involved in the planning approvals process, from planning departments to building departments, must become more efficient, responsive and predictable with respect to their reviews of applications. Excessively long timelines for the approval of development applications doesn’t serve anyone. It only results in unnecessary and increased costs that are eventually borne by the new homebuyer.
Present planning processes are not only slow but also, in many instances, out of date and inconsistent with the current digital age. We need updated digitized systems and more as-of-right approvals, more responsive planning staff, mandated timelines for approvals, innovative approaches and reduced regulatory burdens.
Staff should be required to respond in a timely manner, co-ordinate planning applications processes among divisions and expedite approvals. Solutions to these challenges have been implemented successfully across the world and there is no reason why similar levels of success cannot be realized here in Canada.
Perhaps we could learn from Australia, which is in a similar situation as Canada. The country is developing a plan of action to build more homes over the next five years. The Property Council of Australia engaged Savills to examine the impacts of increased taxes on charges on housing supply and affordability across the Six Cities Region in New South Wales. They have significant government charges and taxes on new housing – very much like the situation we have in Canada.
The report concluded that imposing a moratorium on new taxes and charges and reducing project approval timeframes by six months would result in 190,000 homes being built between 2025 and 2029, compared to the present forecast of 126,000 homes – an increase of 64,000 homes.
The takeaway?
Reduces the new taxes and charges and speed-up approvals and more housing will be built. Simple really. Canada is one of the best places in the world to live. We have everything in our grasp to make our country prosperous, with plenty of affordable housing. Yet we are failing to meet that challenge. We cannot allow this situation to continue.