Gimme Shelter : How High Municipal Housing Charges and Taxes Decrease Housing Supply
Homebuyers in Canadian cities face a multitude of taxes and charges that increase the cost of buying a home. Government policies whose affect is to limit the supply of the kinds of homes people want and can afford are among the key causes of higher property prices. Restrictions on housing supply and extra costs hinder the efficiency of the housing market. Recent Canadian-specific research has found a persistent gap between the cost of building new homes and their market price in major Canadian census metropolitan areas. Vancouver’s housing regulation costs are by far the largest in Canada, resulting in an extra cost of $644,000 for the average new house. Elsewhere in Canada – Vancouver, Abbotsford, Victoria, Kelowna, Regina, Calgary, Toronto and Ottawa-Gatineau – homebuyers paid an average $230,000 extra on a new house because of limits on supply. To lower the cost of new housing and increase the supply, the author recommends cities and provinces change their taxes and charges on housing by: Transforming development charges for water and wastewater from upfront payments for infrastructure to a direct user-pay system. Upfront charges on housing construction are passed on to buyers in the form of higher purchase prices. Lower upfront charges will lower housing purchase costs. Charging the full cost of water-related capital and operations in a per-usage fee on services after project completion, whenever feasible, will also lead to less water wastage than through an upfront fee. Reforming density bonus payments. For years, the so-called Section 37 benefits in Ontario – at least until reforms in 2019 – and the Community Amenity Contributions in British Columbia have caused developers major problems because of the uncertainty surrounding their costs. Typically, these transactions involve a municipality giving a developer bonus density beyond that permitted by zoning laws in exchange for money or community amenities. All provinces should amend legislation that governs these kinds of payments, making them more predictable and reducing their disincentive for growth. Eliminate or Reduce Land Transfer Taxes. Land transfer taxes are perhaps the most economically costly tax a government can collect. Cities that currently have them should look to reduce or eliminate them and instead rely more on property taxes. Provinces that have them should also eliminate them and move instead toward financing government services with broadly based consumption taxes. Rely on property taxes from housing for financing municipal government services. Property taxes are akin to a user fee in cases when individuals cannot be charged for parks or services such as police or fire. Governments should replace reductions or deferrals of property taxes with income-tested supports that people can use for any kind of housing costs