Lyall: Development charges are out of control and new home buyers are paying the price

There have been recent upticks, but we’re still not building enough homes to meet set targets. Regulatory red tape, exorbitant taxes, fees and development charges are the main reasons.

Canada requires up to 4.8 million new homes by 2035 but is only building 250,000 to 260,000 units a year, which will result in a significant deficit. Ontario is projecting 64,800 total new builds this year — far short of the pace needed to meet the target of 1.5 million homes over a decade.

Meanwhile, investment in residential construction is also declining across Canada. Data from Statistics Canada shows that the nation’s real estate sector saw $22.6 billion invested in building construction in March, a drop of $304.6 million, or 1.3 per cent, compared with February.

The bureaucracy problem

An analysis from Canada Mortgage and Housing Corporation highlights that government regulations and red tape have slowed the industry’s response to changes in housing demand. In other words, the bureaucracy has gummed up the system and made it difficult to build.

Alarmingly, the report found that housing starts in Canada could have been nearly 30 per cent higher from 2006 to 2024, and home prices close to 10 per cent lower, if the Canadian housing industry had been as responsive as the U.S. sector. Regulatory conditions, along with economic and demographic structural factors, are singled out as the reasons for the decline.

Canada has tighter rules when it comes to land use compared with the U.S., which makes it more difficult to add new housing supply quickly. This puts the housing crisis in perspective and explains why — when it comes to new home supply — Canada is one of the worst-performing developed countries.

The good news is that the solution to unravelling this Gordian knot lies within our control.

Taxes and fees are driving up costs

For years, the RESCON team and its allies have been advocating for change: cutting bureaucracy, speeding up, simplifying and digitizing the approvals system, and reducing taxes, fees and levies like development charges (DCs) on new housing, which only add to the cost of a new home.

Research done by the Canadian Centre for Economic Analysis (CANCEA) in 2024 showed 36 per cent of the cost of new housing in Ontario is due to government-imposed taxes, fees and levies — a 16 per cent increase from 2021, when the average rate was 31 per cent.

Another CANCEA report showed that if the HST were cut for three years on new housing in Ontario, the government would still see net positive revenue, more than 25,000 residential construction jobs would be preserved and $3.9 billion would be generated for the economy.

Some movement, but not enough

Response from political leaders and government bodies has been mixed. Some jurisdictions are tackling the problem; others have their heads in the sand. Helpful policies have been announced, but implementation has lagged.

For example, it has been more than a year since the HST rebate was first announced and the regulations are still not in place.

In our view, the temporary HST rebates that have been announced must become permanent. Out-of-control DCs must also be substantially reduced and offset with a new, fair government funding formula to pay for growth-related infrastructure. The present system is unfair and unfairly saddles new home buyers with the cost of funding public services.

There was some positive news recently with the announcement that the Ontario and federal governments are opening applications for the Development Charge Reduction Program, which will deliver funding over 10 years to municipalities that reduce DCs for all residential types by 30 to 50 per cent or more and maintain them for at least three years.

The help can’t come soon enough.

In Toronto, for example, development charges alone have increased more than 1,000 per cent since 2009, rising from roughly $12,000 to nearly $138,000 for a single-detached home. Those costs are embedded in the purchase price paid by buyers, many of whom are already stretched financially.

The development approval process is still painfully slow. In the GTA, approvals routinely take 14 to 25 months — nearly double the national average. Every month of delay adds carrying costs, financing risk and uncertainty that builders must recover through higher prices.

Time for action

It is time for more action — and speedy implementation.

The decentralized nature of Canada presents a challenge, leaving the door open for inaction. It can feel like the Wild West, with one level of government pointing the finger at another. Instead of playing the blame game, it is time for governments to work together.

After all, there is strength in numbers.

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