The Increasing Tax Burden on New Ontario Homes
When you think about buying a new home in Ontario, you probably factor in the mortgage, down payment, and closing costs. But what about taxes? The tax burden on new Ontario homes has become a hot topic, as these costs continue to climb. For instance, a couple in Toronto recently found themselves grappling with over $125,000 in development charges alone while purchasing their first home, underscoring just how daunting these expenses can be. With development charges alone reaching tens of thousands of dollars, prospective buyers are bearing a significant financial weight before even stepping foot into their new home.
Matt’s Stats
- Average development charges: $125,000 in Toronto for single-family homes.
- Increase in development charges: Up 30-40% in many municipalities over the past five years.
- Land transfer taxes: Add thousands more to the closing costs.
What Are Development Charges?
Development charges are fees that developers have to pay to municipalities to help cover the costs of new infrastructure like roads, schools, and parks. The intent started out to make sure that growth pays for growth—seems like a great idea, but unfortunately, the burden of these costs often trickles down to homebuyers.
In Toronto, development charges for a single-family home can reach up to $125,000. This isn’t just a GTA issue; similar fees are being charged by municipalities across Ontario, from Mississauga to Hamilton and beyond.
How Much Are New Home Buyers Paying in Taxes?
It’s not just development charges inflating the cost of new homes. Land transfer taxes, municipal fees, HST, and parkland dedication charges all add up. Here’s a breakdown:
- Development charges: $100,000+ in many cities.
- HST on new homes: 13% (there are some rebates available, but it’s usually nominal amounts in comparison to cost).
- Land transfer tax: Depending on where you are, these costs can range between 0.5% to 2.5% of the purchase price.
These taxes and fees can account for 20-30% of the final purchase price, pricing many buyers out of the market.
Why Are Taxes on the Rise?
Why are these costs going up? Several factors contribute to the increasing tax burden:
- Municipal Budget Pressures: Municipalities rely heavily on development charges to fund infrastructure projects. As budgets tighten, local governments will look to increase their other revenue streams to compensate.
- Provincial Legislation: Changes to provincial housing policies, such as Bill 23 (More Homes Built Faster Act), aim to make development approvals happen quicker, but some say this could cause the decrease in development charge revenues to be downloaded to the property tax payers.
- Inflation: We’re sick of hearing about it, but it’s still here. Construction and and material costs have ramped up exponentially over the last 5 years and are the baseline for the cost of new homes.
The Impact on Ontario’s Housing Market
The effects of this tax burden are far-reaching:
- Decreased affordability: First-time buyers, already grappling with high interest rates and record-breaking home prices, find these added costs adding two steps backwards for every one step they go forward.
- Slowed development: Higher fees can discourage builders from launching new projects, reducing supply. We’re already starting to see delays in the GTA, or outright cancellation of projects due to rising costs.
- Widening inequality: Buyers with larger budgets can absorb the costs, but middle- and lower-income families are pushed further out of the market.
Solutions and Alternatives
The current pace of rising costs is a detriment to both first time home buyers, and those that are looking to move to their next home, but there are potential solutions:
- Capping Development Charges: Municipalities could place a limit on these fees to make housing more affordable.
- Increased Provincial Funding: The provincial government could step in to subsidize infrastructure costs, reducing the reliance on development charges.
- Tax Rebates: Expanding HST rebates for new homes could provide a bit of price releif for buyers.
- Encouraging Innovation: Municipalities could incentivize modular or prefab construction methods to lower overall costs.
If we don’t address this now, many Ontarians could be priced out of the market. We’re already starting to see a shift to a “Renter’s Economy in the larger GTA market. Home ownership is becoming a goal that is getting further and further away for a lot of the buyers out there. While there’s no one-size-fits-all solution, fixing this issue, or at least slowing it down, will require collaboration between municipalities, the provincial government, and industry stakeholders…. and we all know how well that usually goes. If we want to build a more affordable Ontario, tackling this tax burden is an important first step to finding a permanent solution.
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