Theoretical physicist Albert Einstein once said, “No problem can be solved from the same level of consciousness that created it.”
In other words, fixing a messy situation requires a shift in mindset.
That wisdom is particularly relevant to Canada’s housing affordability crisis, where years of rising taxes, fees and government charges have helped price homeownership beyond the reach of many families.
The good news is governments have finally begun to acknowledge taxes are part of the problem. The introduction of a temporary HST rebate on new homes and the Canada-Ontario Development Charge Reduction Program (DCRP) are significant steps in the right direction.
So is the new $1-billion funding deal aimed at helping municipalities that do not collect development charges build the infrastructure needed to support new housing.
But if policy-makers are serious about restoring affordability and increasing housing supply, these measures cannot be temporary. They need to be made permanent.
For years, governments have talked about increasing housing supply while continuing to pile costs onto new housing. The result has been predictable.
Today, taxes and government-imposed charges account for approximately 36 per cent of the cost of a new home in Ontario.
That means more than one-third of the purchase price of a new house has nothing to do with land, labour or building materials. It is simply government costs embedded in the price.
Among the biggest contributors to that burden are development charges, or DCs.
DCs are fees levied by municipalities on new residential construction to fund growth-related infrastructure.
Municipalities use the revenue to help pay for roads, water and wastewater systems, parks, community centres and other public amenities required to accommodate new residents.
While the concept may appear reasonable on the surface, the reality is DCs have become one of the most damaging barriers to housing affordability in Ontario.
In many Greater Toronto Area municipalities, DCs exceed $100,000 per single-family home.
In some communities, the combined impact of DCs and other municipal levies can add as much as $200,000 to the cost of a new home. Those costs are not absorbed by the builders; they are passed directly to homebuyers and renters.
The problem is not simply that DCs are expensive, it is that they are the wrong way to pay for growth.
A recent report from the C.D. Howe Institute argued that growth-supporting infrastructure benefits entire communities, not just new homebuyers.
Existing residents use the roads, parks, libraries and recreational facilities that growth helps fund. Yet under the current system, the cost of building much of that infrastructure is disproportionately borne by the relatively small number of people purchasing newly built homes.
This creates a fundamentally inequitable system in which younger families and first-time buyers effectively subsidize infrastructure that benefits everyone.
DCs are also an inefficient financing tool.
Because they are embedded into the cost of housing, infrastructure ends up being financed through residential mortgages carrying consumer borrowing rates rather than through government borrowing at significantly lower bond rates.
That means families pay interest for decades on infrastructure costs that could be financed far more efficiently by governments.
The recently announced DCRP recognizes this reality. Under the joint federal-provincial initiative, municipalities can receive government funding if they reduce residential DCs by between 30 and 50 per cent or more and maintain those reductions for at least three years.
The program deserves praise because it acknowledges what the housing industry has been saying for years: DCs have become a major affordability obstacle.
But there is one glaring problem. The reductions are temporary.
Builders planning communities and infrastructure investments operate on timelines measured in years and often decades.
Buyers making major purchasing decisions need certainty. Municipalities making long-term infrastructure plans need predictability. A three-year reduction may provide short-term relief, but it will not fundamentally change the economics of housing construction if everyone expects the charges to return.
The same argument applies to the temporary HST rebate on new homes.
Introduced this year by the federal and Ontario governments, the rebate provides up to $130,000 in relief on qualifying new home purchases. Critics questioned whether it would make a meaningful difference. The market has already provided the answer.
According to recent data, Ontario recorded 8,410 new home sales during the first three months following the HST cut, compared with 3,645 sales during the same period a year earlier. That represents a remarkable 130-per-cent increase.
Those numbers are difficult to ignore.
The HST rebate is stimulating housing demand at a time when new home construction desperately needs support.
Governments deserve credit for recognizing that housing taxes are part of the problem. The HST rebate and DC reductions represent important progress and demonstrate that affordability can improve when governments reduce the tax burden on housing. But temporary solutions will not solve a permanent problem.
If policy-makers truly want to tackle the housing crisis, they must finish the job and make both the HST rebate and DC reductions permanent. Such a move would provide certainty and improve affordability.
Einstein was right. Solving big problems requires a new way of thinking. In housing, that means abandoning the outdated practice of treating new homes as a revenue source and recognizing them for what they are: an essential part of Ontario’s economic and social future.
Richard Lyall is president of the Residential Construction Council of Ontario. He has represented the building industry in Ontario since 1991. Contact him at [email protected].
