A man walks past an affordable housing complex, being constructed in Charlottetown's Hillsborough Park area, on Feb. 29, 2020.Andrew Vaughan/The Canadian Press
Joe Deschênes Smith is chief executive of Trillium Housing.
For many Canadians, the problem is finding a home they can afford. To encourage the building of more lower-priced housing units, our organization, Trillium Housing, advocates overhauling the current government fee and charge structure for real-estate developers.
It is necessary to abandon the regressive tax in place today in many municipalities, where the same flat fee is charged to developers regardless of the price of the home, and replace it with a percentage charge. Such a change will result in a higher dollar amount charged to over-sized and high-end luxury homes and a lower dollar amount charged to entry-level homes, providing developers with the profit incentive needed to shift production to homes with a lower price.
In 2018, Trillium Housing developed a project called the LOOP that offered two-bedroom and three-bedroom stacked townhouse units in Toronto, selling for $500,000 on average. The city charged our project the full development charges of $30,000 per unit. At the same time, companies behind luxury condos in the city selling for $1.5-million were also paying $30,000 per unit.
Most city charges and fees are a fixed amount regardless of the unit price. Housing budgets have a list of over 20 different city fees – all a set amount. This very structure encourages developers to build bigger, high-priced units. Since luxury homes are charged the same development costs as modest priced units, city fees discourage developers from building entry-level housing, which sell for less. Developers need to make money, after all.
Government charges and fees are needed because they fund city services, and a rate system for calculating them will still raise the same amount of revenue for municipalities. Development charges are often set by first calculating the amount of money that needs to be raised and then dividing that amount by the expected number of homes to be built. So, if the city needs to raise $100-million and expects 2,000 new homes to be built, the charge would be $50,000 per home.
The percentage system could work the same way; the only difference would be to not only forecast the number of homes to be built, but also their average price. Using the same example, to raise $100-million from a forecast to build 2,000 homes, with an average price of $700,000 per home, then the rate would be 7.14 per cent.
If a development charge rate had been in place in 2018 for Trillium Housing’s project, at 3 per cent for example, our organization would have paid $15,000/unit. Meanwhile, that developer for the luxury condo selling for $1.5-million would have paid $45,000. Compared with the current system that sees Trillum and the luxury developer both paying $30,000 each, the city would have raised the same total amount of funding of $60,000.
This system could be even more progressive by setting up three rates: a low rate for truly affordable housing, an average rate and a luxury rate. Most Canadians believe that a reasonable progressive tax rate system, as with our income, is a more equitable way to share the tax burden.
A percentage system rather than a flat fee is a straightforward way to help families with housing affordability and ownership, while keeping money flowing to our cities. We are in a housing crisis – let’s do this for all of us.