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Government levies push up cost of new homes in GTA

April 29, 2018
Janet McFarland

Government taxes, fees and development charges on new homes have soared over the past five years in the Toronto area, accounting for up to a quarter of the price of a new home and contributing to rapid price growth in the region.

A new report to be released Monday by the Building Industry and Land Development Association (BILD) says government-imposed fees will average $186,332 on a new house built in 2018, a 60-per-cent increase from $116,172 in 2013.

The report looked at six municipalities within the Greater Toronto Area, concluding government charges now equal 22 per cent of the average purchase price of a new detached house across the region, according to data prepared by Altus Group Ltd. for BILD.

The growth in fees is even higher in the condominium sector, where government charges will average $121,281 a condo in 2018, up 90 per cent from $63,968 in 2013. The charges equal almost 24 per cent of an average condo price.

BILD chief executive David Wilkes said many home buyers do not realize the impact government charges have on the price of their new homes.

“There’s no question that this is adding to costs and compounding affordability issues,” he said.

The greatest growth in government levies comes from the development charges imposed by municipalities to help cover costs such as roads, parks and sewers. While builders pay the costs, they are typically passed along to consumers in the pricing of new homes.

In the City of Toronto, basic development charges are currently assessed at $41,251 for each new detached house, BILD said.

But city council approved a new rate structure last week that will see the fee almost double to $80,227 by 2020.

The increase will be phased in over three years, with half the increase taking effect in November this year. The BILD report used the increase as of November in its estimates.

Mr. Wilkes said BILD is concerned about the shifting balance in the amount of municipal costs being paid by new home buyers versus existing home owners.

"Development charges should be used to support capital costs associated with new development, and not as a way to avoid new property tax increases,” he said.

Municipalities also collect education development charges on behalf of school boards, as well as GO Transit development charges, and various fees for building permits and services. The total government charges studied in the report also include fees paid directly by buyers such as land-transfer taxes, HST and mortgage insurance.

In total, government charges average $205,926 per new home in the City of Toronto, BILD said.

Once a tiny factor in home costs, municipal development charges have soared over the past two decades. Including the increase approved last week, development charges in Toronto will have climbed more than 1,000 per cent between 1995 and 2020, Altus said. Charges to date have climbed almost 400 per cent in Markham since 1995 and 573 per cent in Brampton.

The increases come as builders are also facing other growing costs.

Construction costs for new condominium buildings in the Toronto area, including labour and materials, climbed an estimated 6 per cent to 8 per cent last year and are expected to climb at least as much in 2018, said David Schoonjans, senior director of cost and project management at Altus Group.

He said the rapid pace of condo sales in the Toronto region is creating booming demand for construction and materials that is pushing costs higher as firms operate full-tilt.

Toronto developer Brad Lamb, founder of Lamb Development Corp., said the cost to buy land has also skyrocketed over the past five years from about $50 a square foot to $250 a square foot for sites that already have appropriate zoning for development.

“All of these things make it very difficult now to develop in Toronto,” he said. “It’s very hard to do this business.”

He said he is most upset by the recent increase to development charges in Toronto, however.

“It’s just grabbing money they think they can get from the development industry,” he said. “In the end it’s just passed on to the consumer. It’s just inflationary, making condos more expensive.”

Condo developer CentreCourt Inc., which is currently building six high-rise tower projects in Toronto, is moving quickly to lock in construction costs with various contractors and suppliers as soon as construction is ready to launch to try to control price increases, said company president Shamez Virani.

“We’re aggressively tendering as much as we can, as quickly as we can,” Mr. Virani said.

He expects costs to grow between 5 per cent and 10 per cent in 2018, which is the highest pace of cost inflation he has seen in recent memory.

Mr. Virani said CentreCourt also wants to “sell buildings in the same market we build them in,” which means the company won’t launch pre-construction sales for condo units until it has secured all municipal approvals and is relatively close to construction, typically within six months.

“I think one of the biggest misconceptions about our industry is that people see prices rising and think that means developers are making money hand over fist,” he said.

“I’d say for us as a business, we would rather have an environment where prices and costs stayed relatively flat. That’s a market where you can thoughtfully plan and execute.”