Real Cost of Housing

Published in the Globe and Mail November 25, 2001.

In previous columns, we looked at the various costs incurred by a purchaser for adjustments and costs contained in the standard new home purchase agreement. It is time to look at the part of housing costs that has nothing to do with actual land or building costs. We're talking about taxes, taxes and more taxes! Whether they are called taxes, development charges, levies, user fees or permit fees, they all add up to anywhere from 16 to 25 per cent of the average price of a new home in the GTA.

To keep things simple, these costs can be grouped into two categories: “hidden” and “not-so-hidden” costs. The not-so-hidden costs are those that the purchaser pays directly on closing for a new home, namely GST and Land Transfer Tax (and sometimes PST on chattels). The "hidden" costs are those taxes and charges that the builder must pay for, long before the foundation is poured.

For those of you who have forgotten, the GST was brought in to replace the previous Federal Sales Tax that was only chargeable on construction materials and not land. It was intended to be revenue neutral for new homes with the rebate covering GST on land. If you believe that, you probably believed the Canadian government during the First World War when it promised that Income Tax introduced at that time would only be temporary. The government now collects more than $1 billion dollars of GST on new homes built across Canada with almost 50 per cent of that coming from Ontario.

Intense lobbying resulted in the GST being only applied to new homes, thereby giving resale homes a huge competitive advantage, particularly homes costing $350,000 and up where the GST rebate of 2.5 per cent is reduced and ultimately eliminated.

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