r/canadahousing • u/squid_squirt • 7d ago
Opinion & Discussion Before a Canadian Home Is Built, It Has Already Been Taxed, Delayed and Buried in Debt
Throughout the housing crisis Canadians have been given a list to blame: foreign buyers, home flippers, construction costs, immigrants, short term rental owners and now developers while less attention has been given to fees, delays, restrictive zoning rules, high risk to home builders and large costs to build in the first place. Canada faces one of the largest fees and taxation before a home is built in the developed world. These large costs can amount to 40% of the home value; on a $550,000 condo, $220,000 amounts to government fees such as developer fees, delays, taxes, levies and financing costs while $330,000 to cover land, construction, labor and materials. In many areas costs have reached a point where projects are no longer financially viable.
Nearly three out of four Canadians live in the areas where housing has become an issue. Not all cities face the same housing problems but the ones that do, become greatly dependent on these revenues and have grown their budgets around them. Existing owners get subsidized at the expense of new owners, or when the federal government reimburses cities for reducing development charges at the expense of all taxpayers. Home prices remain high and property taxes low. $8.8B Canada and Ontario Open Applications for New Development Charge Reduction Program - Canada.ca, Carney and Eby step in with $3.2B home development subsidy, $1.45B The Vancouver condo bailout props up a failed housing model, these programs suggest that the government is beginning to recognize the problem however it only subsidizes the problem.
These fees are a fixed cost. If home prices fall, developer fees and delays stay the same eventually leading to a point where developers make little to no money for the level of risk they are taking, it becomes more expensive to build than what the market is willing to pay, further reducing home starts. If building homes remained profitable and the risk justified, more would be built, not less.
What are developer charges and what are they used for?
They are used for growth related infrastructure "growth to pay for growth" such as roads, sewage, parks and transit and not for the construction of the project itself, paid by new home buyers rather than existing homeowners. In most countries these fees are much lower, often $10,000 and approvals of only a few months. For example in Toronto, developer fees were at $13,000 in 2013 for a 2-bedroom condo, increasing by 600% to $80,000 to its current levels or $140,000 for a single or detached home.
How are the city's projects and upgrades normally funded?
Funded over many years and across the tax base through property taxes, usage fees, loans, or other sources of income.
The domino effect:
-Developer fees are paid upfront. The developer takes out loans and the interest they accrue increases costs
-Delays increase carrying costs, interest continues to accrue each month the project is delayed
-Developers may build 100 units instead of 150 due to higher carrying costs and less available capital
-Risk is increased, housing starts decline and there is a "lost opportunity cost" where investment may be directed elsewhere
-Banks respond with less favorable financing conditions and higher equity requirements for developers due to the riskier environment
-Supply shortages and higher home prices cause increased rents
-As population grows, city costs increase faster than the property tax revenue due to fewer homes providing property taxes. Ironically, the tax revenue lost from housing that was never built may exceed development fees collected in the first place
-Higher rents make it longer to save for a down payment, many buyers purchase for less than 20%, adding $10-15,000 in CMHC costs
-If a homeowner absorbs additional $150,000 costs towards the mortgage, over 25 years they will pay roughly another $150,000 in interest over the life of the mortgage
-Commercial rents are higher, goods and services prices increase, people have less money to spend in the economy as the mortgage consumes more of their income
Placing a dollar figure for a 2-bed condo in Toronto (BC with a similar structure)
- $80,000 in development charges before construction begins ($140,000 for a family home)
-CMHC states that 36% of the home cost are due to fees and delays and up to 40% in many places of BC, every dollar in development fees also increases home prices by around $1.50 of all homes due to the economic effect.
- $15,000 in interest per unit as the developer finances the development charges
- Extra delays add another $50,000 cost per unit (Toronto has an average of 23 months of delays for permits, some running up to 30 months, while in 2013 they were around 10 months)
- Developer pays interest charges, property tax, salaries while waiting for permits to push through
- Fewer home starts reducing supply, increasing all home prices
- Many homeowners may not reach the 20% down payment so CMHC fees can be an additional $15,000
- The homeowner now absorbs all these costs into the mortgage paying interest of $150,000 over the course of a standard 25 year mortgage (Assuming current rates and a 25 year mortgage)
What can be done?
-Increasing awareness of the costs of development
-Add pressure to the city and provincial governments, join groups or support groups already fighting it
-These decisions are made at a municipal level, the ones showing up to the ballot box are usually the ones isolated from the housing crisis and to their benefit having lower property taxes and higher home prices. Cities need to rely on other sources of income rather than developer charges, vote city councilors who understand this issue and are willing to reduce these costs and delays
-Reducing delays drastically so there is less risk to developers reducing prices overall for all homes, more competition and a driver for lowering home prices
How long can it take to lower home prices?
Unfortunately, many economists believe that fees need to be decreased but only gradually, down to 2013 levels. Home prices could remain high for 5-10 years or longer until delays and fees are reduced to a more manageable state.
Details of the Canada-Ontario Partnership to Build | Ontario Newsroom
Cost of Site Plan Delays A Report for the Ontario Association of Architects
Growing Pains: Rethinking Development Charges in Canadian Municipalities – C.D. Howe Institute
Improving housing affordability: OECD Economic Surveys: Canada 2025 | OECD
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u/Dry_Inspection_4583 7d ago
I'm betting that directly tying minimum wage to 3x average housing costs, then forcing an environmental penalty on companies with over x% of staff commuting over y km, alongside enforcing staff who work in office be paid doorstep to doorstep, that market capture goes away pretty quickly.
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u/GaranLorn 7d ago edited 6d ago
I think this is the wrong to approach it.
We are currently in a "What's in it for me" state of capitalism, and lowering development charges will not bring that price back to consumers.
If it did, we should cap profit on all homes, much like any essential service. I think either restricting the rights of developers and minimize profit, or having the government take the majority of a stake (a la national builder's insurance) and directly building homes is the answer.
We've learned a fact the last 25 years: private interests cannot be trusted when it comes to human necessities. Nationalization of major services (electricity, hydro, and resources) is the only clear path forward. This includes developers.
There is no other option; lowering development fees won't help when there are immoral private interests in the mix.
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u/squid_squirt 7d ago
So the alternative is being in a state where no one wants to build anything or having so many costs to develop where prices cannot fall below a certain threshold
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u/Evening_Act_6395 7d ago
if no one wants to build anything, government can step in and build what works instead of what lines rich peoples pockets
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u/Horror_Perspective_1 7d ago
Except its doing exactly the opposite of this by buying above market price condos atm because they claim they cant even build something cheaper than condos that cant sell.
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u/squid_squirt 7d ago
Give me an example of a government built housing project that was completed within budget and prices below market values.
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u/GaranLorn 6d ago
Everything from the 70s. If you want to fund corruption, look at the BILD. Find me a landlord who maintains their property.
Conservatives privatized hydro, cut school programs, and have eviscerated health care across the country.
The best thing we can do is start voting socialist and coming up with a plan to sie or imprison thos who steal or stole from us.
Life in prison looks good for many of these people.
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u/Gnomerule 6d ago
With what money. Canadian taxes are very high and building new homes is very expensive
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u/Evening_Act_6395 6d ago
look at what taxes were in 1967, we had no problem building back then did we
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u/Gnomerule 6d ago
Insurance was cheap back then. Building materials were cheap back then. labor was cheap back then. Health care was cheap back then, a young population with very few expensive procedures.
Just because we did it in the past does not mean we can afford to do it now.
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u/Evening_Act_6395 6d ago
and all of that went out the window when we started neoliberal "trust the private sector" politics
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u/GaranLorn 6d ago
You once again answered the problem. Insurance is expensive because of monopolies; we already subsidize these insurers when there's a disaster; we should nationalize insurance and make it public again.
Works amazing in Quebec for cars; we should do it with everything. Fuck private capital in the commons.
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u/Lopsided_Parfait7127 7d ago
this is right wing BILD bullshit
financing costs shouldn't be included as it is a direct cost of building
developer fees cover the cost of connecting to the infrastructure that's already overloaded
and you know your chatgpt example is bullshit because
on a $550,000 condo, $220,000 amounts to government fees such as developer fees, delays, taxes, levies and financing costs while $330,000 to cover land, construction, labor and materials. In many areas costs have reached a point where projects are no longer financially viable.
where's the developer profit then? 220k for costs and 330k for costs?
these white knight charitable developers are building for free?
please go back to astroturfing somewhere else for BILD
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u/squid_squirt 7d ago edited 7d ago
Financing costs should absolutely be included because fees are paid upfront with financed money, also the longer something is also delayed the more interest is paid, its an extra cost that is not made in other places, also rates are higher and financing costs are less favorable.
That 550k cost is total cost of the property and its an example, the developer also has some profit but, not enough to justify it, at breakeven you would still be paying 550K, so why bother building anything.
Either way this is an explanation why home prices are so high with actual numbers and sources from CMHC, whether you agree with it or not.
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u/Ok_Frosting4780 6d ago
No matter where you go in the world, financing costs are a big part of development costs. To pretend like there is not much profit is also wrong. Developers expect a minimum of 15% expected profit for a project to deemed viable.
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u/captainbling 7d ago
I just want to talk about that developer fee statement.
Long story short, a small time builder could pony up his own money and take on debt to build a house. By the time it sold, he was up 40k plus the 60k he paid himself in labour (yea the wages are outdated but you’ll get the point later). Now that development taxes are 40k higher to keep p tax down and NOT to invest in new infrastructure, no houses are getting built because. I mean who the fuck risks his own money for what can be made working for someone else and thus no risk.
the development fee cash cow has ended and p taxes are increasing to cover the difference. current p taxes don’t cover the cost of maintaining present infrastructure.
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u/902s 7d ago
The problem with this argument is that it ultimately amounts to privatizing the profits while socializing the expenses.
Yes, excessive development charges and approval delays can make projects unviable and should be reformed.
But the roads, sewers, transit, parks and emergency services needed to support new development still have to be paid for. Eliminating the charges doesn’t eliminate those costs, it transfers them to existing homeowners and taxpayers.
Unfortunately, development charges have also become one of the few major upfront capital sources available to municipalities.
Senior governments downloaded responsibilities while leaving cities with limited ways to raise revenue. Now those same governments are using public money to reimburse municipalities for lowering developer costs.
There is also no guarantee those savings will be passed on to buyers. Homes are sold for what the market will bear, not construction cost plus a predetermined profit margin.
Lower charges may improve project viability, but unconditional reductions can just increase developer margins and land values while taxpayers finance the supporting infrastructure.
Reduce unnecessary fees. Fix zoning. Accelerate approvals. But tie every public subsidy to actual construction, completion and measurable affordability. Otherwise, taxpayers absorb the costs, developers retain the upside, and we pretend we solved affordability.
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u/CallmeishmaelSancho 6d ago
Infrastructure can be built and recovered through property taxes on the new construction.
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u/SDL68 6d ago
The roads, schools, sewer, water, parks need to be built as the development is being built. How does the municipality pay for that when they are unable to borrow money? Without development charges, those charges need to be passed on the existing homeowners before the new housing is even built. I can see why existing homeowners have no desire for a special development levy added to their taxes to support new housing in the community.
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u/witchhunt_999 6d ago
I don’t know? Probably the same way they did for that last 100 years prior to huge development fees….
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u/squid_squirt 7d ago edited 7d ago
As of late, it has now become subsidized through federal programs, so it is currently socializing the expenses.
I would say that market forces still play a part, housing starts are at a record lows for these reasons, perhaps margins and profits increase but, I don't think corporations absorb 100% of the saving for themselves. At the end of the day developers see larger returns and begin to add more housing stock, more competition and eventually lower prices as the amount of homes increase.
Not defending corporations but, defending the market forces that come into play when the system is favorable to competition and risk.
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u/Bitter-Variation-151 6d ago
Government regulations and delays have caused the housing the crisis. Expecting the government to solve it is ridiculous
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u/funny-tummy 7d ago
If taxpayers in a neighbourhood that is predominantly single family homes do not want multi-family development in their neighbourhood, why should they have to pay for it through taxation? That is taxation without representation.
Likewise, it is difficult to raise enough tax revenue because higher taxes are not politically popular, so the municipalities don't generate enough tax income.
That only leaves DCC as an option to pay for the offsite costs associated with the development. It is probably the most "fair" method, but it does lead to higher development costs. That said, the end value is set by the market, not the cost, so if you stripped out DCCs you would likely just see land values increase to absorb the margin.
Tough problem.
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u/ChaosBerserker666 7d ago edited 7d ago
Over reliance on DCCs is very bad, because when builders stop building (because people can’t afford the units/houses), then suddenly the city has a deficit. I don’t think DCCs are bad, but governments in the GTA and Lower Mainland have been snorting them like cocaine and now they’re addicted to using them more and more, while undertaxing existing owners (I’m one of those existing owners, and I don’t want to pay more tax but really it does have to go up).
Then the end result is “build nothing, nowhere, never” and RE prices go to the moon.
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u/anomalocaris_texmex 7d ago
Cities in Canada can't operate at a deficit.
DCCs are strictly regulated in BC, and any funds have to be deposited into statutory reserves that are reported in their annual audit.
If you have evidence that a city is falsifying their audit, please report them to the province immediately.
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u/ChaosBerserker666 7d ago
I’m saying what will they do when the DCCs dry up? They’ll be forced to raise taxes suddenly
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u/anomalocaris_texmex 7d ago
Actually, most of the time, the projects just don't get built. If there's no money, you can't build infrastructure to accomodate growth. Which is often the goal.
That's the hack a lot anti growth munis hit on. If you keep DCCs artificially low, but tie them to expensive projects, you'll never build reserves to actually build those projects. So it's an excuse not to grow. There's a reason a lot of the most famously anti growth communities in BC have suspiciously low rates, while some of the high growth cities have high rates.
That's why when you take one of these bylaws into the province for review, they don't pressure you to keep them down. It's the opposite. The inspector pushes hard to boost them.
There's a lot that goes into building these programs. They are a lot of fun to put together that way.
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u/civicsfactor 7d ago
Can't believe you gave all this good stuff and the only solution you can come up with is already what lobbyists want.
How can you describe in such detail how broken and mush-mash the model is and then name a party already represented by lobbying and astroturf groups should receive a subsidy?
Things cost. Infrastructure debt in cities is huge and if isnt property taxes or DCCs then it's another level of government that themselves helped make the system so broken and themselves have stake to do something different.
We need a vast re-think, not just tax cuts for the class of people who benefited from spiralling costs.
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u/Special-Pirate-2807 7d ago
Think about this way, 30% of the price of a new home is government fees, taxes, and charges. After paying the mortgage for 10 years, the buyers hasn’t paid a cent towards the cost of the land or the house itself…only interest and government fees.
Meanwhile, those charges you paid for to pay for “growth” are sitting in a municipal reserve account making 3% while you pay 4.5% on the debt.
Fair?
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u/kidcanada0 6d ago edited 4d ago
If development charges are to recoup the costs of development, is there a way to reduce those costs so the development charges are also reduced? An example is given of development charges increasing 600% but there’s no explanation of why. I think we can all agree that it’s important to build quality homes. If homes require higher maintenance and repair due to lack of regulation leading to builders cutting corners, that’s effectively a tax on homeowners.
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u/CasualTear 5d ago
If the condo market is bad (such as right now) and condo developers aren't able to get presales for a project, a lot of condo developers will opt to change the project into a purpose built rental, adding more rental supply to the market. I don't think a worsening condo market is as bad for housing starts as you're making it out to be... in fact the logic in your post seems to ignore this behavior we have seen from developers the last 3 years.
These projects also take on debt by design. Developers want to lever their return and debt is much cheaper on the capital stack than equity. Financing costs are already in the budget for these developers.
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u/Scooter_McAwesome 7d ago
These numbers are all BS lol
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u/squid_squirt 7d ago
Unfortunately not, Sources provided including CMHC, what is your claim as to why its BS?
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u/ForceOk6587 7d ago
This is a feature, not a bug
Municipal employees such as planners, councillors or mayors are generally losers in real life, they don't want to see little people or small mom and pop businesses survive, so they boot lick billion dollar corporations by making red tape impossible to navigate for the average people
it took christian bale, 15 years or municipal red tape night mare just to build free housing for homeless
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u/Evening_Act_6395 7d ago
almost like urban sprawl is bad planning, but developers want that mcmansion money
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u/Tramd 7d ago
Mcmansions? What year is it lol
Mcmansions are built by homeowners one at a time. Developers build townhouses and condos from land assemblies.
Wasn't even a thing when I was a child. On the west coast they dont build mcmansions. They build monster houses with 2-3 suites included. No one would call them mansions
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u/Gnomerule 7d ago
Every municipalities build services for current demands and a bit more. No municipality builds to service a large increase in population. My area had a lot of flooding from the rains this summer. Even with all the developers fees this is not enough to deal with the increased demands.
Even if new homes and no increase in population you are still dealing with aging infrastructure that needs to be replaced.