The Greater Toronto Area housing market is dynamic and complicated, and while many factors contribute to increasing prices, one pivotal way to improve affordability is for governments to recognize the effect of their policies on the prices paid by consumers.
These policies have a huge bearing on home prices. In the GTA, key contributors to the affordability challenge include land-use and land-supply rules; numerous fees and taxes charged at various levels of government; outdated municipal zoning bylaws and approval processes; and fiscal and municipal funding policies.
Housing affordability, especially for low-rise homes such as single detached houses, is a priority issue for the GTA’s new-home development industry. We are in the business of building and selling homes, and we need people to be able to afford our products.
As an industry, we continue to innovate and provide consumers with new affordable housing choices. Ground-related developers continue to build townhouses and detached-home options. Condominium developers keep finding creative ways to maximize living space and reduce suite size to make them more affordable for buyers. But it’s becoming increasingly difficult for us to design, build and sell the homes that buyers – especially first-time buyers – want and can afford.
As mandated by government intensification policies, the industry is building far more high-rise condominiums and far fewer low-rise homes than it did 10 years ago. However, demand for single-family townhouses, detached homes and semi-detached homes has not diminished. Demand is outpacing supply, and the result is reduced housing choice and higher prices for new and resale low-rise homes. Supply is limited due to a lack of land that is serviced with infrastructure and designated for development, both of which are controlled by government.
In addition to land supply, another main factor that reduces housing affordability is government fees and charges – especially development charges. On average, one-fifth of the cost of a new home in the GTA is government fees and taxes and the biggest contributor is development charges.
Development charges are a tax on new homes that affects the affordability of new homes. They are imposed by municipalities, transit agencies and education boards, as a means to help offset the capital cost of growth-related infrastructure such as roads, water and sewer services, transit and other municipal services.
Since 2004, development charges in the GTA have increased between 143 per cent and 357 per cent.
In addition to the taxes and charges on new homes, governments need to be more sensitive to the costs that their policies add to the price of homes. They need to recognize and correct these unintended consequences.