Houses are under construction are in a new Ottawa suburb, on Oct. 15, 2021.Adrian Wyld/The Canadian Press
It has taken years but a consensus is coalescing on the need to build (many) more homes across the country. What’s garnered less attention is how to pay for everything else that growing cities need, from sewers and power to transit and schools.
Development cost charges on new homes, to help fund infrastructure, have existed for decades. At first they seemed to make sense. If new housing requires a new sewer, the price of the homes should reflect such broader costs.
But the equation has become strained. Existing homes also benefit from new infrastructure and new owners pay property taxes and other fees. Where’s the line between who should pay for what? Further, many existing owners have been greatly enriched by ever-higher home prices. Continuing to shift the burden of costs on to new homes, as people aspiring to buy grapple with high prices, starts making a lot less sense.
At the end of September in Vancouver, the big focus on one priority – housing – smashed up against the quiet need for the other – infrastructure. What it showed was how much governments have come to rely on taxing new homes and why reform is necessary.
The federal Liberals, inspired to action by low poll numbers, had eliminated the GST on new purpose-built rental housing, a move many have long called for. The subsidy will cost Ottawa $4.6-billion over the next six years. Soon after, it emerged that Metro Vancouver, a regional body whose job includes planning for water and sewers, is set to more than triple fees levied on new homes in the part of the country where the cost of housing first started to spin out of control years ago. The proposed charges will add several billion in costs to new housing.
The Liberals were not impressed, watching a lower level of government undermine their own efforts. The party’s $4-billion housing program to get cities to loosen their zoning to allow for more homes has finally started to roll out. While the money is meant to reward cities that change, the Liberals are also using it as a stick: Plans to award housing funds to Burnaby and Surrey, two cities in the Vancouver region, were abruptly cancelled when Metro Vancouver’s plans to escalate fees roused attention.
Beyond the political theatrics, and the fact the Metro Vancouver plan had been in the works since spring, the debate is an essential one. That new infrastructure is needed and older infrastructure needs upgrades is obvious. The question of who pays and how much has to be reconsidered.
Reversing Metro Vancouver’s proposal is an ideal place to start.
Metro Vancouver plans $35-billion of capital spending over three decades. About one-third is deemed to handle growth. Development cost charges on new homes already pay for the majority of that projected growth.
But Metro Vancouver has proposed new housing should pay for all of the new growth, to lessen tax increases on existing owners. The result would be a dizzying hike on new homes: for one example, taxes on a new apartment unit would jump to $20,906 from $6,249 – eating up about half of potential savings of the waived GST on rental homes.
Cities, wanting to keep property taxes lower than they otherwise would have been, have become overly reliant on development charges.
Look at Toronto. The city’s development charges on every newly built two-bedroom condo is now $80,210. A two-bedroom rental is charged $54,926. Both are way higher than a decade ago, when the general rate was $15,695. The majority of the charge is for services like transit, child care, fire and police – which should normally be covered in full by property taxes. Another example is the use of land transfer taxes in B.C. and Ontario when homes are purchased, to reduce pressure on property taxes paid each year.
This is all part of a system that favours existing owners over everyone else – and the higher and often unnoticed taxes the systems impose that undermine the goal of building a lot more new housing.
The long trend of piling costs on Canadians who are struggling to buy a home or find a place to rent, all while trying to ease the load shouldered by people who already own a home, has to stop. The costs of growth must be shared. And governments need to work together, rather than pulling in opposite directions.