Ontarian View: Look to the taxes

The residential construction industry, and particularly the high-rise condo sector in the Toronto area, has taken a shellacking lately as many developers have put their projects on hold. Years of high interest rates, excessive taxes, bureaucracy and red tape, and an outdated and abysmally slow approvals system created a perfect storm of debilitating conditions for homebuilders.

Hold on to your hats. There may be more pain coming.

That was one of the prevailing messages conveyed during Housing Summit 4.0, a recent event hosted by the Residential Construction Council of Ontario that featured discussions and remarks by political leaders and industry stakeholders on how to tackle the crisis. Speakers presented statistics, data and material that painted a dismal picture, with the industry facing massive layoffs. Planning applications are down 50 percent in GTA municipalities. To illustrate, condo sales in the GTA dropped 81 percent in September compared to the same month last year. The backlog of unclaimed new housing in the region has also risen considerably. As Marlon Bray, executive vice-president at Clark Construction Management, told the summit, the already dire crisis will get even worse going forward if no significant changes are made. Home prices are currently four to five times higher than 20 years ago and over the same period, the price of land is 10 to 11 times higher, while development charges are 30 percent higher. Corey Pacht, partner and executive vice-president of operations at Fitzrovia, noted the condo situation is much worse than it appears as nothing is going to get delivered over the next two years. Many speakers at the summit indicated that taxes on new housing are a major problem. In the GTA, for example, new housing taxes are the highest in North America. In Toronto, development charges alone for single detached homes have increased nearly 2,000 per cent in 20 years. We’ve been sounding the alarm for years on the issue and called on governments to reduce the sales taxes on new market-built housing, much like they did recently for purpose-built rentals.

Certainly, governments could do more. Research presented at the summit showed that federally only 23 per cent of people feel the government is doing enough, while provincially that figure is 26 per cent and municipally it is 20 per cent. The recent announcement by federal Opposition Leader Pierre Poilievre that the Conservatives, if elected, would axe the five-per-cent GST on new homes sold for under $1 million is the type of courageous, bold, out-of-the-box thinking we need to tackle the housing crisis. The $1-million figure is a tad low for places like the GTA and it would be better if it were perhaps $1.5 million. But we’re heading in the right direction, nonetheless. Homebuilders have been telling the government for some time now that taxes are one of the main reasons for the housing supply crisis. Reducing the sales taxes would significantly lower the cost of new housing and thereby enable builders to build homes that people can afford. Taxes on the purchase of a new home have risen from 24 per cent in 2012 to 31 per cent today. These taxes are ultimately passed on to new home buyers who must finance the added costs. On a $1-million home, the Tory plan would result in tax savings of $50,000 and reduce mortgage payments. It would spark construction of more new homes and generate revenue for governments. It’s a good plan, one the federal Liberals should consider. Likewise, provinces like Ontario also need to get in on the act and remove their taxes on new home sales. This would spur the market. High taxes only add to the cost of housing. The cost is then passed on to homebuyers. Reducing them would lower the cost of housing and enable builders to build homes that people can afford. A report done by the Canadian Centre for Economic Analysis found the tax burden on new home construction is two times higher than other sectors of the economy. Infrastructure-dependent products and sectors such as cars, electronics and manufacturing are not taxed nearly as much. As noted in a LinkedIn post by Mike Moffatt, senior director of policy and innovation at the Smart Prosperity Institute, the tax piece is vital and there is no path to attainability if the taxes on new home construction are more than $200,000. In Vaughan, for example, development charges alone on a 750-square-foot apartment are $124,874.

We are at a crossroads. We are in a generational housing crisis with the middle class struggling to afford a home. Many people are now leaving our cities because they can’t buy a home. Taxes are a major reason. All levels of government must be aligned in dealing with this challenge. Affordable housing is crucial to growth. We cannot simply sit on our hands and hope for the best.

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.