BILD: Taking out the unnecessary costs of housing

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Governments have the tools to alleviate the affordability challenge

As the Greater Toronto Area (GTA) grapples with housing affordability and supply issues, it is crucial to understand the factors influencing housing costs, and where actionable solutions can make a real impact.

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When constructing new homes, labor and material costs are market-based, leaving limited avenues for cost reduction. However, governments can have an impact in three key areas:

First, land costs and supply are major drivers of cost, accounting as much as a quarter of a new home’s cost, depending on housing type and location.

Reluctance to expand municipal boundaries restricts new (generally lower cost) land for development and a finite supply of land within urban boundaries keeps costs elevated.

To address this, governments can increase density, allowing more multifamily units per building to distribute land costs across more units and/or add more land on the outskirts of municipalities.

And, according to a recent survey by Ipsos (on behalf of BILD), public sentiment supports this – with 72 per cent of people agreeing that expanding municipal boundaries would ease housing constraints, and 69 per cent favor higher-density development in existing neighborhoods. Both are required.

Secondly, government fees, taxes, and charges contribute significantly to housing costs, comprising approximately 25 per cent of an average new home’s cost in the GTA.

Municipal fees, particularly development charges (DCs), have increased by 250 to 900 per cent over the past two decades – far in excess of property tax increases.

Federally, HST rebate levels still have yet to be indexed since the GST was introduced on new homes over 30 years ago – despite commitments to do so when the tax was introduced.

Addressing these fees and charges can reduce housing costs and are entirely within the power of governments to do so.

Thirdly, lengthy approval processes exacerbate cost burdens and unnecessarily add cost, especially in times of higher inflation.

Based on BILD’s regular municipal benchmarking study, GTA municipalities take an average of 20 to 24 months for various types of development applications approvals, with some larger municipalities taking far longer – greatly exceeding Planning Act requirements.

We also know that each month of delay adds $2.60 to $3.30 per square foot per month, very quickly adding tens of thousands of dollars in unnecessary costs to housing.

Based on a 900 square foot apartment across 15-20 months of delay you can see how quickly the adage of time equals money adds up to significant extra costs. Streamlining approval processes remains critical and elusive.

These cost levers are all within the purview of governments. Working with our industry, a coordinated collaborative effort is required from all levels of government to alleviate the housing affordability challenges in the region.

Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD), the voice of the home building, land development and professional renovation industry in the GTA. For the latest industry news and new home data, visit www.bildgta.ca.