City charges jack home prices higher: C.D. Howe
November 18, 2020
Courtesy C.D. Howe Institute
Civic fees and taxes are a main reason why new home prices are so high in Canada’s big cities, according to the C.D. Howe Institute.
In Gimme Shelter: How High Municipal Housing Charges and Taxes Decrease Housing Supply, author Benjamin Dachis points to development charges, land transfer taxes, and density bonus payments as partial drivers of reduced supply and soaring home prices for would-be buyers.
The report reveals Vancouver’s housing costs are by far the highest above the cost of construction in Canada, resulting in an extra cost of $644,000 for the average new house.
In other major cities—such as Victoria, Regina, Calgary, Toronto and Ottawa—homebuyers paid an average $230,000 extra on a new home because of limits on supply, according to Dachis.
The report proposes a few key reforms to lower civic costs on new homes.
First, change development charges for water and wastewater from upfront payments for infrastructure to a direct user-pay system to limit upfront charges on housing construction being passed on to buyers through higher purchase prices.
From 2010 to 2018, the study states, eight Ontario municipalities collected $17.4 billion in development charges, including $6.4 billion that was to be dedicated to water infrastructure. But municipalities spent 75 per cent of development charges collected on related capital investments and transferred 11 percent to general operating expenses, the report says.
“Removing water and wastewater charges would reduce single-detached home prices by tens of thousands of dollars in the Greater Toronto Area,” Dachis argues.
Second, B.C. should reform density bonus payments. Typically, these transactions involve a municipality giving a developer bonus density beyond what is permitted in exchange for money or community amenities. “These kinds of payments should be more predictable and be less of a disincentive for growth,” Dachis said.
And finally, the report also calls for ending or reducing land transfer taxes because these add to the cost of new housing.