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Apr 11, 2019

Real reasons for high cost of Toronto housing: All in the numbers

Published Wednesday, April 10, 2019| The Lawyer's Daily

In my first two articles on this subject I offered four reasons why housing is so expensive in the Greater Toronto Area. Here are the remaining elephants in the affordable housing room.

The new mortgage stress test 

When housing was in the doldrums during 2009-2010, the government extended the amortization period to 35 years for residential mortgages. As times have gotten better and housing has heated up, the government through the Canada Mortgage and Housing Corporation (CMHC) has slowly turned the screws on amortization where they now stand at 25 years.

That makes a huge difference to the actual monthly mortgage costs and carrying cost of a home.

But even more impactful were the recent mortgage rule changes made in October 2017 that came into effect Jan. 1, 2018, requiring purchasers of new homes needing a mortgage to meet a stress test.

Under this new stress test, the interest rate to be used by lenders in determining mortgage eligibility of purchasers was not the actual interest rate charged by the lender but a rate which is the greater of the 1) Bank of Canada five-year mortgage rate or, 2) the actual mortgage rate plus two per cent.

This has knocked at least 20 per cent of eligible purchasers out of the housing market.

Cost of government charges and taxes

The biggest elephant in the room with the largest tusks in my view is the level of taxes, both direct and indirect, that are buried in the purchase price of every home.

Someday, the building industry will go the route of the gasoline industry and have a pie chart attached to each purchase agreement, like you see at the pump every time you gas up your car, that shows where every single dollar cost of the sale price goes so that the public will fully understand the enormity of the cut governments take on every home purchase. Most people are floored.

In the city of Toronto for instance, 22 per cent of every dollar spent on a new condominium goes to government charges. This percentage has risen dramatically from the already high level in 2013 when it was 18.7 per cent.

In other regions, the percentage of government charges for a new home range as high as 30 per cent in Brampton and Markham, to a low of 16.3 per cent in the town of Bradford.

What does this mean in dollars and cents? On a $750,000 condo apartment in Toronto, $164,500 is spent on government charges.

In Markham, a similar amount is spent, but on a purchase price of $532,000.

Is it any wonder that housing prices in the GTA are no longer affordable?

Let’s take a look at some of the major culprits:

  • HST: In 1990, there was no HST whatsoever, although there was some federal sales tax buried in the purchase price of a home. Then seven per cent (now five per cent) was added in 1991, subject to certain rebate. In 2009, GST became HST in Ontario at 13 per cent, subject to certain other rebates. Provincial sales tax was fully imposed on new home prices.
  • Development charges (DC): This is the most controversial of all charges. In 1997, the provincial government tried to curb the voracious appetite of municipalities that spend money on grandiose projects and required municipalities to kick in 10 per cent of all growth-related charges. In addition, it prohibited certain items to be charged to new home purchasers, such as hospitals. Notwithstanding those restrictions, since 2004, DC rates have increased by an average of 430 per cent in the core municipalities that were surveyed by Altus Group and summarized in a report dated May 2, 2018. The city of Toronto recently implemented a revision to its DC bylaws that would see them double from $41,000 per unit to $80,000 per unit. This is after DCs were doubled after a two-year freeze in 2008-2009 when housing sales plummeted. DCs are intended to cover growth related charges such as roads, sewers, etc. In the city of Toronto, services are already existing. They certainly need to be upgraded, but is it really to be primarily on the backs of homeowners?
  • The Land Transfer Tax: Toronto generates almost $800 million a year from the Municipal Land Transfer Tax that was imposed by council in October 2009. This tax essentially doubled the provincial rate and has become a huge source of income for the city. Equally important, it goes into the general coffers of the city on the backs of new and used homebuyers.
  • Numerous other government charges imposed on new developments such as parkland levies, s. 37 charges under the Planning Act, development fees, permit fees, application fees.


At the end of the day, purchasers have to pay for these costs.

Meanwhile, the residential realty tax rate is kept at the inflation rate. This has been going on for decades and is a popular election platform, as in “No new taxes!”

But it also leaves new home purchasers, that is, the few who can afford to enter the market, to bear the burden of paying for upgrading municipal infrastructure and servicing deficits.

Everything comes with a price.

If you want to stop urban sprawl, then you get higher land prices and the pricing of single-family homes goes through the roof. If governments continue to impose regulation after regulation on land development, then developing lands will take longer and be substantially more expensive.

And finally, via the Local Planning Appeal Tribunal (LPAT), if the government wants to empower municipalities to allow “nimbyism” to dictate good planning, then there will be less land for development and where there is, the developments will be fewer with less units for sale and that inevitably means higher prices.

If the government sees new homebuyers as proverbial “cash cows,” adult children will be living in their parents’ homes for many more years to come or be permanent renters. Alternatively, parents will have to start mortgaging their houses even more to get down payments for their children.

Either way, neither is a palatable solution to the affordable housing problem that anyone wants.

This is the third part of a three-part series. Read part one here and part two here.

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