Reducing Canadian housing costs isn't complex

What is lacking is political will

When my family first came to Canada in the early 1800’s, Canada had no building code, no property taxes, no development charges, and no planning departments. Instead Canada had a lot of undeveloped land. Canada still has millions of acres of undeveloped land but today has a labyrinth of rules and regulations governing land use, a well-developed building code to ensure buildings are soundly constructed and safe to live in, and planning departments in every municipality that kowtow to “heritage committees” and lobby groups to control development within a system in Ontario that starts with the Planning Act and manifests itself in the “Official Plan” in each municipality.

The system has created thousands of civil service jobs that pay well, come with indexed pensions, and empower locals in every community lucky enough to qualify for the jobs to lord their power over developers, sometimes in return for bribes or benefits to “friends and family”. Property taxes are the main source of funding for municipalities and, together with development charges, place the burden of funding for fire protection, policing, water and sewer, education and to some extent health care on the costs of housing.

Despite Canada being host to well over 1 billion acres of undeveloped land, it is hard to get planning department approval to build anything anywhere in Canada. One local developer in Collingwood Ontario (where I live) applied for planning approval to build almost 700 homes in 2005, and to date still has not received approval having had to deal with pressure from the town planners to modify his plan of subdivision a number of times to accommodate the preferred kinds of homes the Town wanted, demands that kept changing. Those homes are unlikely to be built any time soon but the developer has had to pay property tax on the land every year and carry the cost of the land without any offsetting returns for two decades. At a modest 5% interest, the 20-year delay (and counting) tripled the cost of the land.

Property tax rates in Canada average 1.12% of “assessed value” but vary widely. In Vancouver the rate is .27807%, in Calgary .65718%, in Edmonton .94475%, in Toronto .662274% and in Winnipeg 2.6439%. Assessed value is typically below market value.

Property taxes as a percentage of market value are markedly lower. A 3-bedroom home in Toronto listed for sale for $1,099,000 discloses property taxes of $5,099.90 or .46%; a similarly sized home listed for $1,639,000 in Vancouver discloses property taxes of $6,562.50 or .41%.

By comparison, property taxes in our southern neighbor United States range from a low of .4% to a high well over 2% of the property’s value and pay for more or less the same services.

The Canadian cities with the least affordable homes are Vancouver and Toronto, by a wide margin. Affordability in these cities is worsened by two factors - development charges are very high and tax rates are very low. The high development charges make construction of new homes more costly and the low tax rates drive up the prices of existing homes in much the same way as low interest rates contributed to higher home prices during the central banks experiment with what they called “quantitative easing” or “QE”. People will pay more for a home if mortgage rates are low and property taxes are low.

In 2022, Toronto recognized $799 million in deferred revenue from development charges, bringing the balance of the deferred revenue account to $2.7 billion. Some sources estimate that development charges comprise 20-25% of the cost of building a new home in Toronto.

The City of Toronto’s 2024 budget amounts to $17.1 billion of which $5.3 billion is collected through property taxes. If the City increased property taxes by 13%, it would not need to collect any development charges to come up with the $799 million from that source in 2022 and the cost of building new homes would fall by 20-25%.

Higher property taxes would tend to reduce the prices people would pay for existing homes and the absence of development charges would reduce the cost of building new ones.

A broader and more generally effective way to reduce housing costs and ultimately house prices (held up today by a lack of sufficient supply) would be to repeal the Planning Act and replace it with a simpler Act that simply required new construction to comply with the Building Code Act and allow Canadians to build whatever they want on land they own without state interference other than to require that construction met the standards set out the code. That return to the state of affairs in the early 1800’s would see a lot more homes built, all of which would satisfy the requirement of the building code, and the added supply would put downward pressure on home prices.

Imagine a Canada where you can build what you want on land that you own, as long as it was built to standards considered safe by Building Code legislation. In short order, likely no more than a few years, home prices would fall to the cost of construction plus a reasonable profit for builders, and the screaming and ranting would be limited to people who thought they had made a mitt full of money by owning a home which was driven up in price artificially by government policies, while their children could actually look forward to owning a home in which to raise their own children.

I would vote for a party that promoted the idea that less government, more freedom and the absence of needless regulation were benefits for every Canadian.