Ontario’s housing wounds, in many respects, are self-inflicted. Sales taxes, fees, and levies on new residential construction — particularly development charges — are out of control and making the situation worse. They add to the expense of buying a home and jack up the price tag. We’re at the point where working individuals and families can no longer afford to buy a place in the community in which they live. As a result, many are picking up and moving to other provinces or south of the border.
The tax burden on a newly constructed home in Ontario has jumped to almost 36% of the purchase price, up from 31% just three years ago, according to a report done for the RESCON by the Canadian Centre for Economic Analysis. With the average price of a new home in Ontario at roughly $1,070,000, consumers are now paying $381,000 in income taxes, corporate, sales and transfer taxes, and development charges and fees. The tax and fee burden on new homes is more than twice that of the rest of the economy.
Escalation of development charges is a main factor. A development charge is a fee that municipalities impose on developers when they build new homes or apartments to cover the cost of infrastructure like roads and water treatment plants. Developers pay the charges upfront but in the end the fees are tacked onto the price of a new home, only adding to the cost. Development charges make up a big chunk of the total tax and fee burden on new housing.
In the GTA, excluding Toronto, the average tax and fee burden on a new home is 35.9%, 37% on a large apartment, and 36.9% on a small apartment. In Toronto, the burden is 35.1% on a new home, 34.2% on a large apartment, and 35.3% on a small apartment. The charges are contributing to the housing crisis and pushing the cost of new housing to stratospheric levels. Developers can not invest in new projects because of the carrying costs.
The federal government made some progress by announcing the 5% GST will be removed on construction of new rental apartment buildings. Ontario has indicated that it plans to follow suit and remove the 8% sales tax on qualifying purpose-built rental housing. Federal Opposition Leader Pierre Poilievre, meanwhile, has vowed to eliminate the federal sales tax on new homes sold for under $1 million and Ontario Liberal Leader Bonnie Crombie has pledged that, if elected, she would do away with the provincial land transfer tax for first-time homebuyers. We now need the provincial Conservatives to step up to the plate and do the same.
We must reduce the cost of new housing and enable builders to build homes that people can afford.
In November 2024, a study authored by Canadian economist Mike Moffatt noted that, over the last four years, more than 100,000 more people have moved out of Ontario to other provinces than have moved into Ontario.
Development charges are a big reason for that as they drive up housing costs. A 2022 study done by the Canadian Home Builders’ Association found that Toronto has the highest development charges amongst cities nationwide at $85 per sq. ft. For perspective, the development charge on a single-family home in Toronto was $141,139 as of September. That’s a 993-per-cent increase from 2010 when the charge would have only run you $12,910.
Housing starts in Ontario are expected to come in around 81,000 for 2024, below the government's target of 125,000 and well short of the amount needed to achieve 1.5 million homes by 2031. To heal remedy the housing situation, senior levels of government must step up and play a larger role in funding public infrastructure at the local level, so these fees can be brought down. Municipalities simply don’t have the revenue streams to fund the infrastructure necessary for growth and new housing so they end up loading the cost onto new homeowners via development charges.
We can not keep adopting Band-Aid solutions. We need immediate reform of the taxation and fee structures that affect new housing.
