Housing construction continues in a new residential development in Richmond Hill, Ont. The federal and Ontario governments plan to spend $8.8-billion to reduce development charges in a bid to revive the market.Sammy Kogan/The Globe and Mail
The federal government and Ontario will invest $8.8-billion in infrastructure over the next decade in a bid to encourage the province’s municipalities to reduce real estate development charges, offering another boost to home builders at a time when new home sales across the country have plunged.
Combined with a measure announced last week to rebate the harmonized sales tax on new homes in the province, the two governments now project the taxpayer funds will cut up to $200,000 in taxes and fees for a new home in Ontario, marking the latest incentive designed to revive the home building market.
Developers have long complained about the steady increase in development charges, which are fees municipalities require developers to pay to help cover the cost of providing infrastructure such as roads and sewers.
The development charges, along with higher borrowing and construction costs, have made it more difficult for home builders to launch projects.
“This will lower upfront costs and create certainty for builders to build affordable homes you can buy and rent,” Prime Minister Mark Carney said Monday at a news conference to announce the funding.
A building is demolished on Ontario St. in Toronto last week, on a site that will become two residential towers.Fred Lum/The Globe and Mail
The governments said the $8.8-billion in infrastructure investment will be provided over 10 years and that municipalities that receive it will be required to cut development charges, also known as DCs, for three years.
Ontario Premier Doug Ford said the funding will be prioritized for municipalities that agree to cut their development charges by up to 50 per cent, as well as those that have already lowered the charges in recent months.
“If you don’t cut DCs, you aren’t getting any money,” Mr. Ford said at the news conference. “But if you do, we will be there to support you.”
Ontario municipalities collectively raise an annual average of about $3.5-billion in development charges based on figures from the past decade, according to trade group Building Industry and Land Development Association.
Minto Group, a major Canadian home builder, said the development charge reductions could lead to more new home sales, which would lead to more home building.
“It’s a huge chunk of the cost structure,” Minto chief executive officer Michael Waters said. He said his company has seven to eight large home building projects on hold in Ontario, which could launch if they got preconstruction sales.
“We build if we can sell,” he said. “If this generates more sales, then absolutely I think us and many others will build.”
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Under the agreement, some infrastructure funding will also go to municipalities that do not levy development charges, although a specific breakdown was not released.
“You can’t leave municipalities out who spent the last two decades doing the right thing and being responsible,” said Mike Moffatt, an economist and founding director of the University of Ottawa’s Missing Middle Initiative.
The development charge reduction incentive is the latest government effort to help home builders, who have faced a steep drop in new-construction home sales. In Toronto, for instance, sales are roughly 80 per cent below their 10-year average.
In an interview, Gregor Robertson, federal Minister of Housing and Infrastructure, called Monday’s announcement “the biggest scale partnership ever between Canada and a province for housing and infrastructure.”
He said he’s hopeful partnerships with other provinces will follow, observing that Vancouver’s market is “a close second” to Toronto in facing home building and housing market challenges.
“We’re working hard at getting as many [provinces] as we can as soon as possible,” he said.
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Last week, Ontario and the federal government said they would rebate the 13-per-cent harmonized sales tax for most buyers of new-construction homes. That rebate would help individuals, investors and corporations buy up thousands of new condo units that have been completed but remain unsold.
On Monday, the federal government said it will provide Ontario with $875-million to cover the removal of the federal portion of HST on new homes there.
The downturn in housing sales has pummelled the Toronto region’s preconstruction condo market. About 7,000 newly built condo units are completed and unsold, and 15,000 more unsold units are expected to hit the market over the next few years, according to Urbanation Inc.
Mr. Carney acknowledged that the federal government’s initiatives were designed to help the condo market in Toronto.
“By helping buyers attain new homes and helping builders start new projects, we will unfreeze the condo market in the Greater Toronto Area,” he said in prepared remarks.
The group representing Ontario’s 444 municipalities welcomed the new investment.
“While we have yet to see the details of the agreement, the recognition by both levels of government that reductions in development charges must be largely offset by federal and provincial infrastructure investments is significant,” Robin Jones, president of the Association of Municipalities of Ontario, said in a statement.
Yet it’s unclear whether the $8.8-billion will be enough to reach the governments’ target of a 50-per-cent reduction in DCs, said Mr. Moffatt, who added he’s waiting to see details on what types of housing it applies to and the conditions put on municipalities to ensure they don’t increase other housing construction-related fees.
The dire state of home sales and construction also means “we’re in uncharted territory,” he said, making it hard to analyze the effectiveness of government housing policies.
“It still probably doesn’t get us anywhere near the 500,000 new homes the federal government has promised,” Mr. Moffatt said, “but it definitely moves us in the right direction.”
Also on Monday, the Ontario government unveiled its own new proposals it said would speed up the province’s sluggish pace of home building.
The government said it intends to standardize the municipal official plans that designate where housing can be built. It is also proposing to restrict municipalities’ power to impose landscaping or other aesthetic requirements on development projects, among other changes.
And the province said it will consult on a proposal to require development charges to be disclosed to homebuyers.
With reports from Jeff Gray
Editor’s note: This article has been updated to correct the spelling of Urbanation.