Just over two weeks ago, following a move to cut development charges in Vaughan by up to 47 per cent, mayor Steven Del Duca proclaimed that 鈥渄evelopment charges are an unfair tax on new home buyers鈥 and urged other GTA municipalities to follow suit.
He is right, and they should be reduced 鈥 especially now, given the present 鈥榗ost to build鈥 housing crisis that is gripping the GTA.
To build more housing that meets the needs of a growing population and address the lack of affordability, bold leadership, like that shown by Del Duca and Vaughan, is crucial.
Simply put, there are two sides of the new home equation: the ability to afford to buy and the cost to build.
Stripping away other purchase considerations, fundamentally the ability to afford is determined by a person鈥檚 income (less debt), housing cost, sales taxes, amount of down payment, interest rate, and amortization period.
Over the last few years, interest rates have gone up significantly and longer-term amortization periods were limited. Changes to both are happening but the impacts take time to be felt. As a result, .
On the cost to build side, there is the cost of land, professional services (architects, engineers, etc.), financing costs, materials, labour, community and/or building related costs and municipal development related fees and charges. Costs for all are up significantly.
Construction cost inflation over the last five years is close to 75 per cent for apartments and approaching 100 per cent for single-family homes. The cost for all of the aforementioned factors, except municipal development related fees and charges, are determined by the market and beyond the control of any one entity. Rates for municipal fees and charges are set by local councils every few years and are within the control of those elected officials.
Over the last few years in the GTA, these two dynamics described above have played out as follows. Interest rates rose, eroding people’s ability to purchase, sales dried up (2024 levels are about 75 per cent below the 10-year average), new home prices fell by 15 per cent, and the cost to build skyrocketed.
New projects are struggling to meet their presale thresholds necessary to get construction financing and margins (typically in the 12 per cent range) are evaporating聽鈥 these, too, are necessary to get project financing, as banks and investors will not lend without it. New housing construction projects are stalling out across the region.
What may not be commonly known is that housing starts typically lag construction sales by one-and-a-half to two years. And right on cue, the CMHC reported in August and September of this year that housing starts were falling in the GTA, and the pace of decline is accelerating. The housing supply of tomorrow (2027-2028) is literally stalling out because of economic viability today.
Enter Mayor Del Duca and the Vaughan council. Vaughan is a vital area in the GTA鈥檚 growth. Anyone driving up Hwy. 400 cannot help but notice the intensification and new communities being developed around the Vaughan subway station in their metropolitan centre聽鈥 precisely where such development should be, based on good transit-supportive planning.
They recognized that, while it is not a silver bullet, lowering development charges by up to 47 per cent would play an important role in helping to unstick the conditions that have led to stalled housing development.
They did not stand by the dated municipal dogma 鈥済rowth paying for growth.鈥 Instead they recognized the importance of development to continuing to ensure that Vaughan would remain what it is, a welcoming, thriving, and diverse city for present and future generations. After all, all residents benefit from new infrastructure and services, not simply new home buyers.
The builders and developers of the Building Industry and Land Development Association want to build housing that people can afford to buy. It鈥檚 not much of a business if you can鈥檛 sell the product you make.
Unfortunately, market conditions in this region have created a situation where providing the housing required at a cost people can afford is challenging.
The industry recognizes we have a role to play in seeing how and where costs can be stripped out of the system to help provide the residents of the GTA the housing they need.
We also have a role in recognizing and applauding municipal leadership for taking action to be a part of the solution. Bravo, Mayor Del Duca and bravo Vaughan council.
We call on municipalities and regional governments across the GTA to follow their lead and be part of the solution.
To join the conversation set a first and last name in your user profile.
Sign in or register for free to join the Conversation