If you’re looking to buy a new home in Ontario, the financials are getting tougher – not easier. That’s our take on findings in a new report done for RESCON by the Canadian Centre for Economic Analysis.
The average tax burden on the final purchase price of a new home in Ontario has jumped to almost 36 per cent of the purchase price, a substantial increase from the 31-per-cent figure of just three years ago.
On the average price of a new home in Ontario, which is $1,070,000, consumers would now pay nearly $381,000 in income taxes, corporate, sales and transfer taxes, and development charges and fees. That’s a 16-per-cent increase over 2021 and highlights a troubling trend driven largely by significant increases in development charges.
At a time when taxes and fees should be reduced to encourage more building, we are heading in the opposite direction.
Taxes on new housing are completely out of control. The escalation presents substantial challenges for housing affordability, market stability and economic sustainability across our province.
High fixed fees and development charges squeeze developers’ profit margins and therefore their ability to invest in diverse housing projects.
The taxes are pushing the cost of new housing beyond the reach of most working families. The tax burden is raising the price tag of a new home and directly contributing to the housing crisis we are facing.
Taxes Are Too High
Research revealed that the tax and fee burden on new homes continues to be more than twice that of the rest of the economy and governments now derive nearly four times more revenue from the sale of a new home than builders, further exacerbating the challenges faced by the residential construction sector.
The situation is due mainly due to recent surges in development charges. Of the total tax and fee burden on new housing, 70 per cent consists of direct fees on the home, such as development charges and other fees. The remaining 30 per cent arises from indirect taxes paid during the development process, including income and corporate taxes paid during the ordinary course of a residential construction business.
The tax burden varies by dwelling type and municipality across the province, with rates in some jurisdictions higher than the provincial average.
In the City of Toronto, the average tax and fee burden on a new home is 35.1 per cent, a large apartment is 34.2 per cent, and a small apartment is 35.3 per cent. In the GTA, excluding Toronto, the average burden on a new home is 35.9 per cent, a large apartment is 37 per cent, and a small apartment is 36.9 per cent.
For homes priced at $450,000, an amount which aligns with what many households could afford based on median pre-tax household incomes, the average tax burden rises sharply to 45.2 per cent.
This situation is unsustainable. The huge increases have occurred over the last decade in large part because municipalities have hiked their development charges to pay for municipal infrastructure.
Governments Must Take Action
To bring the fees down, the federal and provincial governments must therefore get more involved in funding public infrastructure at local levels to support growth and ease the tax burden.
The senior levels of government retain a disproportionate share of income. This leaves new homes in Ontario subject to taxation by all three levels of government that is out of whack with the broader economy.
To solve the problem, senior levels of government must take a more active role in funding municipal infrastructure.
The urgency of the problem can not be understated. The state of affairs for the new housing market is grim and the walls are closing in.
In the last quarter, housing starts declined nearly 17 per cent compared to the same period last year. All indicators point to the fact we will not reach the provincial government’s goal of building 1.5 million units between 2022 and 2032. We’d need to build 150,000 units a year during that period but we’re not even close. This year, we are on target in Ontario for 81,300 starts, with the situation still weaking.
Equally disturbing, employment in new residential construction is currently at a peak and will probably fall quite a lot in the years ahead, according to another report done for RESCON. The scenario is worrying as many people rely on our industry for employment. The situation will have economic repercussions.
Ontario has consistently ranked in the bottom half of provinces in terms of homebuilding per capita over the last six years, according to a study released by the Smart Prosperity Institute (SPI), a University of Ottawa-based think tank and research network.
Much of our economic success depends on a robust housing supply. We must address the tax burden and change the narrative.
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.
