Originally posted on The Globe and Mail
Housing supply and affordability is one of the leading issues across Canada, and the situation is particularly dire in Vancouver. We all recognize this, particularly developers, who for the most part are trying to be part of the solution.
Here’s the foundation of the problem. With increasing development cost charges, property taxes, municipal charges, utility costs and GST on new rental buildings, developers typically spend at least 15 per cent to 20 per cent of our total project budget on these government-level taxes. And with all the red tape, we face a four- to six-year pathway to deliver much-needed rental housing.
For all of that, municipalities and the provincial and federal governments pay lip service to do more to help, but in reality, their various policies don’t do much more than increase their own revenue. Governments need to step up. Developers can’t create more forms of attainable housing for Canadians without help and better collaboration.
At PC Urban, the company I founded in 2010, we typically face a two- to three-year approval process to build a new purpose-built rental apartment building. It doesn’t matter if the building is in Vancouver, Victoria, Toronto or any other major city. It then takes another two to three years to construct the building.
And the current system, whereby a developer purchases underdeveloped land and then faces a barrage of municipal costs, taxes and fees is exacerbating the housing crisis. The federal government, despite its promise in 2016, requires us to self-assess and pay the GST when the building is complete and the first renter moves in. To give you an idea of the magnitude of a GST payment, one of our 200-unit apartment projects will be subject to a GST payment of $5.33-million upon completion.
Another example: At one of our project sites, we will pay $13.1-million in municipal, provincial and federal fees and approvals. This is out of a total budget of $75-million. This means 15 per cent of our total budget is going to the various governments.
Similarly, the municipalities get into the act. In each city, there is a regime of various development cost charges, or DCCs, levies, fees, taxes, offsite upgrades requirements, and now increasing rigour to construct our buildings more sustainably. Sustainability and energy efficiency are noble causes, but when taken together, dramatically affects construction costs. All of these fees find their way, unfortunately, to the apartment renter in order to make each new building economically viable. Why? Because if the building is not viable, it can’t be financed, and therefore it cannot be built.
It’s true the Canadian government has programs through Canadian Mortgage and Housing Corp., or CMHC, to assist developers. But the project needs to be scaled up and streamlined as it takes three months to get through the process. It’s too slow.
Recently, the sharp rise in construction costs has also been a factor for developers. Our costs are up 22 per cent, year-over-year. Those expenses, along with the jump in interest rates, higher land costs and municipal taxes are making purpose-built rental less and less tenable.
This is already being seen in Toronto, where there has been a marked decline in purpose-built rental construction in the past year. A recent CMHC report said this decline suggests “some builders may be pausing to reassess the feasibility of development.” However, new legislation tabled in Ontario in October included a number of changes to help build housing faster and bring costs down for affordable housing, non-profit housing and “inclusionary zoning units.” This is in addition to reducing development charges up to 25 per cent for family-sized rental units.
Not all developers are evil profit-seeking entities. Our team at PC Urban Properties feels strongly about our social responsibility to build housing and places where people work. But we also work hard every day to support 31 employees and about 200 consultants and tradespeople. We are facing costs and delays that make our work impossible.
The government of Canada needs to eliminate the GST on new rental buildings and provide forms of tax credits to help support us. The government can also provide low-interest loans. The province can freeze property taxes until our projects are completed and are occupied. And the cities we build in can stop charging DCCs on new 100-per-cent rental buildings. In no jurisdiction in the world has affordable housing been solved without these types of incentives.