THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, October 9, 2025
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 10:30 a.m. [ET] to examine, and report on, Canada’s housing crisis and the challenges currently facing Canadian home buyers, with a particular focus on government taxes, fees and levies.
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Clément Gignac, and I am a senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy.
I would like to welcome everyone with us today, as well as those following our proceedings online on sencanada.ca. Before proceeding any further, I would kindly ask my fellow committee members to introduce themselves.
[English]
Senator Varone: Senator Toni Varone from Ontario.
Senator Loffreda: Good morning. I am Senator Tony Loffreda from Montreal, Quebec.
[Translation]
Senator Henkel: Good morning. I am Danièle Henkel from Quebec.
[English]
Senator Mohamed: Good morning. Senator Farah Mohamed. I’m sitting in for Senator Ringuette.
Senator McBean: Good morning. Senator Marnie McBean, Ontario.
Senator Fridhandler: Good day. Senator Daryl Fridhandler, Alberta.
Senator Martin: Hello. Senator Yonah Martin from British Columbia.
The Chair: Thank you, colleagues. Today, we continue our special study on Canada’s housing crisis and the challenges currently facing Canadian homebuyers, with a particular focus on government taxes, fees and levies.
I wish to welcome the following witnesses to this committee: Representing the Missing Middle Initiative, we welcome Mike Moffatt, Founding Director; and Alex Beheshti, Senior Researcher Associate. Thank you for accepting our invitation. Welcome to this committee.
As you’re appearing before us by video conference, should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk, and we will try to fix it.
Mr. Moffatt, I understand you have prepared opening remarks. I encourage you to keep your opening statement to less than five minutes in order to allow for questions from senators.
Mr. Moffatt, you have the floor.
Mike Moffatt, Founding Director, Missing Middle Initiative: Thank you for having us here today. My name is Mike Moffatt. My colleague Alex Beheshti, our resident expert on development charges and municipal issues, has also joined us. We are from the University of Ottawa’s Missing Middle Initiative. We’re a think tank devoted to helping create a Canada where every middle-class individual or family in every city has a high quality of life and access to both market-rate rental and market-rate ownership housing options that are affordable, adequate, suitable, resilient and climate-friendly.
We’re here today to talk about the decline in housing activity that we’re seeing across Canada, particularly in large urban centres.
Across much of Canada, home prices and rents have fallen in recent years, which is good news for affordability. For families that have spent years on the outside looking in, this is and should be welcome news. Yet affordability remains elusive. Home prices are still far beyond the reach of most middle-class households, while the cost of construction remains stubbornly high. In many markets, the total cost of building now exceeds what families can afford. This creates a paradoxical situation where homes are both unaffordable for buyers and also uneconomic to build.
The only sustainable path forward toward attainable prices and increased housing supply is to lower construction costs, which means, in part, lowering the taxes that drive those costs up.
Superficially, Canada’s housing starts appear stable, especially outside of Ontario, but this is misleading. Housing starts reflect projects that were financed and sold during the boom years of 2021 and 2022.
The real-time indicator we have is new home sales, and the picture there is grim. A report from the Missing Middle Initiative’s Jesse Helmer finds that new home sales across the Greater Toronto Area, or GTA, and the Greater Golden Horseshoe have declined by more than 80% from 2021 levels. This collapse extends beyond Toronto condos, affecting detached homes, townhomes and mid-rise apartments nationwide, including in Vancouver and a 40% decline in Calgary.
The Canada Mortgage and Housing Corporation warns that today’s drop in sales will translate into fewer housing starts tomorrow; its latest forecast projects 30,000 fewer starts between 2024 and 2027. Using Statistics Canada’s employment multipliers, this decline implies a loss of 100,000 jobs nationwide, including in skilled trades such as plumbers, framers and electricians, as well as the workers who supply everything from windows to lumber.
When 15,000 auto manufacturing jobs were at risk in 2008 during the financial crisis, governments took decisive action to preserve the sector. The stakes are higher now because housing isn’t just a consumer good — it’s essential infrastructure. If tens of thousands of skilled construction workers leave the industry, the goal of doubling home building becomes unattainable.
Governments claim to want more housing, yet their tax systems make it increasingly uneconomic to build. The combined burden of the GST, PST, development charges, land transfer taxes and fees can add hundreds of thousands of dollars to the cost of a new home.
When I bought a brand new home in London, Ontario, in 2004, the entire cost of the home was $168,000. All of those taxes and fees added up to around $16,000. Today, the taxes alone on a similar new home cost around $168,000 — what I paid for my entire house in 2004.
These costs directly determine whether a project can proceed. As prices fall while taxes stay high, we’re seeing more builders shelving projects, as we saw yesterday when the Toronto Star reported the Cloverdale mall project will not be going ahead in Toronto’s west end.
Some may argue cutting housing taxes would result in governments losing too much revenue. In reality, the opposite is true. Our estimates show the federal government will lose over $3 billion annually in forgone revenues from the GTA and Vancouver areas alone if construction continues to decline, which exceeds the entire budget of the Build Canada Homes agency.
Taxing new homes out of existence is not a fiscally prudent approach. Housing cannot be both a right and taxed like a luxury yacht. The federal government imposes a 10% luxury tax on yachts worth over $1 million, yet a middle-class family buying a semi-detached home in Scarborough pays the equivalent of 15% in development charges and land transfer taxes, plus the GST and PST on top of that.
If we want to make quality homes affordable again, we must stop taxing them out of existence. The choice is clear: We can cut the cost of home building now or face the double blow of fewer homes and 100,000 lost jobs.
Alex and I look forward to your questions.
[Translation]
The Chair: Thank you, Mr. Moffatt. Colleagues, we have approximately 50 minutes for this first panel. For our first round of questions, each senator will have five minutes. We will begin with the committee’s deputy chair, Senator Varone.
[English]
Senator Varone: Welcome, Dr. Moffatt and Mr. Beheshti.
My question relates to the taxes on taxes. It seems redundant when a house that is embedded with development charges then has the HST imposed on it at the final sale, which seems to be low-lying fruit for this government to act upon. On a $1-million house sale, what is the cumulative effect of taxes on taxes?
Mr. Moffatt: Yes, absolutely. If you had a million-dollar home in the 905 somewhere, the development charges on that could be around $150,000, depending on the type of home or location. Because those development charges are embedded into the final price, they have the GST, PST and land transfer taxes put on them. Again, let’s say for somewhere in York Region, it’s $150,000 in development charges, with an 8% PST on top of that, a 5% GST and a 2% land transfer tax, then that’s 15% on a $150,000 development charge, so you are working out to about $22,500. There are ways to address this.
If we change how development charges are assessed, if we adopt a model that has a direct-to-consumer approach to development charges and if we treat it the same way as the GST, we could eliminate that tax on tax and make development charges exempt from sales taxes. I think that would be the right thing to do. It’s one thing to say to a family buying a new home, “We want you to financially contribute to building a new library or park in the community.” That’s a reasonable thing to do, but then to charge them the GST for the privilege of their financial contributions to build a library doesn’t seem fair or right because they are not actually consuming anything. They are paying taxes to a municipality and then having to pay the GST on those taxes.
Senator Varone: Thank you. My supplementary question relates to the Development Charges Act in Ontario and similar acts across Canada, where in the act itself, it’s embedded that there should not be benefit to existing, meaning that the actual development charge is an impact charge of that development on the infrastructure of the city.
Mr. Beheshti, can you expand on what it means to have benefit to existing, the displacement of those development charges, which should really be the domain of the property tax regime versus the development charge regime?
Alex Beheshti, Senior Researcher Associate, Missing Middle Initiative: Thank you for that question, senator.
Within the Development Charges Act in Ontario, one of the requirements is that within the development charge background study — which is the analysis that has to go in before municipalities are legally allowed to create a bylaw and then charge development charges — they have to list all of their infrastructure under every specific service category, such as roads, water, waste water and so on. They get their gross capital cost. They deduct any grants that they get from other levels of government, and then they have to make a determination between what is growth-related and what is benefit to existing.
I need to emphasize that development charges are not based on science. There is no almighty calculator that determines what is benefit to existing and what is growth-related. What happens currently is there is a hodgepodge of different formulas and methodologies used to determine that. Some municipalities will use one way, and other municipalities will use another. It is based off of reasonableness. Where there is not reasonableness, there can be disputes to the Ontario Land Tribunal, which is the quasi-judicial forum in which we adjudicate our development charge disputes.
There are often many appeals based off of what we call the benefit to existing, or BTE, where a municipality has not gone through the process in a reasonable manner to make that determination. Where a municipality fails to do that, that means growth is subsidizing existing residences, and they are benefiting with lower property taxes because they are not paying their fair share. We have seen examples of municipalities having to, in some cases, reimburse hundreds of millions of dollars because they have failed to correctly calculate the BTE.
The problem with the development charge system in Ontario is that it is developer-led in terms of the appeal system. The province takes no oversight in any of the work. It’s only if developers have the funding and the availability and the experts — there is a very limited number of development charge experts within Ontario, which is also a problem — that they can then appeal these development charge background studies.
In that system, the future resident may or may not be represented, and their interests are certainly not represented directly by the province. It is a big issue. The province has passed Bill 17, which provides them regulation-making powers around determining how to determine the benefit to existing, but we have yet to see those regulations.
Senator Martin: Thank you to our witnesses this morning.
Professor Moffatt, you talked about how the cost of your home in 2004 is the same as what homeowners are facing 20 years later with a 600% increase in taxes and fees. Would you agree that the federal government has contributed to that cost escalation through its own policies, including the GST on new housing, carbon-related costs and higher borrowing costs from persistent deficits? In your view, what federal actions would most immediately reduce those input costs and spur new builds?
Mr. Moffatt: The GST, I think, is the biggest area. There is a GST housing rebate for homes priced under $450,000. Back in 2004, I got one of those rebates because my home was priced at $168,000, and I got back some of the GST I paid.
The rebate cut-off has never been adjusted for inflation. When the Mulroney government enacted this in 1991, then-finance minister Michael Wilson had committed to updating these thresholds every year or two to adjust for inflation. That has never happened. We have a system where in 1991, almost every home in Ontario received a partial GST rebate. Today, almost no homes do, outside of a few in northern Ontario. I do think that is the biggest direct area when it comes to taxation.
I would also suggest the next highest is probably immigration policy. We have seen the population grow quickly, and we have this idea in municipal finance where growth should pay for growth — the growth of housing should be paid by people who purchase new housing. But cities are growing due to increases in immigration targets and increases in non-permanent residency. It has forced municipalities to figure out how to finance those expenses of a growing population.
As Alex has pointed out, municipalities are reluctant to put those costs on existing homeowners and existing taxpayers, so it has caused municipalities to have to finance the costs of population growth on new homebuyers.
Senator Martin: Regarding the GST rebate to first-time homebuyers, you mentioned that many homeowners used to be able to get some rebate from paying the GST. At this time, it’s only for first-time homebuyers who face affordability challenges, but across the board, as you said, it’s becoming expensive for all buyers.
Do you think that expanding the rebate to all owner-occupied homes would do more to stimulate actual construction? Is that something that the government should consider?
Mr. Moffatt: Yes, absolutely. We have written a number of pieces on this at the Missing Middle Initiative.
We believe that the First-Time Home Buyers’ Tax Credit is helpful, but first-time homebuyers account for only about 20% of owner-occupied new home purchases, and that statistic comes from the Office of the Parliamentary Budget Officer. We believe that this should be expanded to all owner-occupiers because right there, that would take 5% off the cost of building a new home.
It could go even further than that. Premier Ford in Ontario has indicated that the province would match that if the federal government took the lead. If you add the 8% PST to that 5% reduction, overnight we could reduce the cost of a new home by 13% in Ontario. That would get a lot more homes built. You would have many people who are currently not able to qualify for a mortgage at today’s home prices now be able to do so if new home prices were 10% to 15% lower. Absolutely, at the stroke of a pen, we could go a long way in solving the cost‑of‑delivery crisis and the housing affordability crisis across the country, but particularly in Ontario.
Senator Loffreda: Mr. Moffatt and Mr. Beheshti, welcome to our Standing Senate Committee on Banking, Commerce and the Economy this morning.
I recently read your article in The Hub in which you argued that taxes — this question is for Mr. Moffatt, and maybe Mr. Beheshti can chip in — on new homes have effectively priced the middle class out of the market, and you call for Canada to cut these taxes. You shared your personal experience in the article and also this morning during your comments about the home you purchased in London in 2004. You do mention development charges: In 2004, the PST and GST totalled under $16,000 after rebates. Today, those same charges exceeded $110,000, which was close to a staggering 600% increase. This morning, you mentioned $168,000. It is trending that way and it is close to a 1,000% increase at this point — 950% to be exact — over 20 years. When factoring in additional fees like land transfer taxes, the interest on development charges and the tax burden on a new home now approach the entire cost of the home you purchased in 2004, topping $300,000.
Recognizing that cutting taxes is a complex challenge, especially for the federal government, it’s about balancing fiscal responsibility with revenue needs. I am certain that provincial governments are aware that cutting taxes will make homes more affordable. How do you suggest that we strike the right balance?
More specifically, what practical steps can the government take to help lower development charges and reduce the tax burden on new homebuyers?
Mr. Moffatt: Thank you for the question. When it comes to the GST and PST, updating those existing rebates for inflation is something that past governments have committed to because they recognized that home prices go up over time, and those thresholds should be adjusted for inflation.
We also recognize that with the reduction in home sales, the government’s already going to be taking billions of dollars in losses through lost sales.
In our view, governments should be cutting these taxes and making up that lost tax revenue through volume: through having more workers, more homes built and so on.
To the specific question around development charges, the federal government can sign or negotiate federal-provincial-territorial agreements with the provinces that would allow the federal government to compensate municipal governments for lost revenue on development charges, where in exchange you would need the provinces kicking in some cash as well but also changing development charge acts and things like that to ensure that cities aren’t accepting the money and raising some other forms of taxes or acting in another way.
The big picture as well is that we need to reform how we pay for things. For instance, the provincial government here in Ontario has looked at water and waste water reform. Right now, we currently put water and waste water infrastructure into development charges, and then those development charges are paid for by the homeowner and financed through mortgage rates because they are put on people’s mortgages.
If, instead, we treated those as we do with other forms of infrastructure where the government is financing those and assessing fees on water and waste water bills, because we are financing that infrastructure at government borrowing rates — which are significantly lower than household mortgage rates — the savings in interest costs could be enormous. It is not just a question of who pays, but given the way we do things now, we are not particularly efficient when it comes to interest costs.
There are all of these expenses in the system that add unnecessary costs. That is what we need to be looking at. These reforms do not need to be zero-sum. If we are more efficient in how we design these systems, we can lower costs across the board.
Senator Fridhandler: We focus a lot on home ownership. There are many jurisdictions around the world that do not focus on ownership but focus on providing housing at an affordable level, which leads to rental or other approaches, such as co-ops or what not. Can you comment briefly on affordability functionality relative to other forms of home occupancy?
Mr. Moffatt: Absolutely. The federal government has focused incredibly on rental over the last decade. If we break housing down into three components, one is condo ownership, and that has increased.
If we look at non-condo ownership, that has actually been in secular decline for the last 25 years — for that freehold ownership, those housing starts have fallen. They peaked around 2004 and have been in decline.
We have seen a significant increase in rental construction over the last 10 to 15 years. A lot of that is due to changes from the federal government, including the introduction of the Canada Mortgage and Housing Corporation’s Apartment Construction Loan Program, or ACLP. We have seen the federal government eliminate the GST on purpose-built rental construction for 10 years. We have seen them increase the accelerated capital cost allowance provisions.
The government’s election platform included a provision to reinstitute the 1970s-era MURB tax provision, which incentivizes small-scale investors to invest in rental construction.
We currently have a renaissance in rental construction. There are clearly more things that governments can do, but rental construction is trending in the correct direction. It is home ownership that we are seeing in decline.
Mr. Beheshti: I wish to add to that. To age myself a little bit here, I was born in 1989. I am 36 years old. I’m dead set in the middle of what, at one time, we called the echo boomers; they are now called millennials. We have a large cohort between the ages of 26 and 40 years old. They are moving from the time in their lives when they preferred rental and saving up money to now wanting to start families. The ownership option is a critical component of starting a family.
We at Missing Middle Initiative completely support rental options. It is not about being against rentals, but to say that we are going to be a nation of renters is a culture shock. That is not something that I was raised with. I’m totally fine with being a renter, but I can tell you that many of my friends and family are not.
The fact is that we need ground-oriented home ownership options there because it will affect our society and economy.
Senator Fridhandler: We talked about development costs and charges. The other side of the coin is ownership costs. I am just wondering if you can comment on some of the elements that might alleviate some pressures there, such as interest deductibility to some levels.
On the city side, they are trying to gain tax revenue from some of the costs they need to incur to support development, and there are interest-free municipal bonds — some elements on the credit side or deductibility side on the other side of the equation.
Mr. Moffatt: The lens I would look at this through is this: Do those things build more homes or do they just add demand?
For instance, we saw during the pandemic that interest rates hit near zero, which allowed people to go out and buy more homes and made it easier for them to qualify for a mortgage. In response, market prices went way up because you had more dollars chasing the same number of homes. Policies like interest deductibility, which really fuel demand, don’t really create sustainable affordability.
Policies like tax-free infrastructure bonds from municipalities can increase new housing, making it cheaper and easier for municipalities to build sewers, waste water infrastructure, parks and so on, as that housing-related infrastructure can help us build more homes. That’s the lens we have to look through. Are the policies that we’re suggesting just adding more demand to the system, or are they actually allowing us to build more homes on the supply side?
[Translation]
Senator Henkel: Welcome to the committee. There is a lot of talk about tax reductions. However, tax reductions also mean reduced revenues for provinces and municipalities, who depend on those revenues, since they are the ones funding the necessary infrastructure to take in newcomers — as you mentioned, things like schools, community centres, sports facilities and public systems. If development-related taxes are reduced, how can public actors make up for that loss in revenues?
[English]
Mr. Moffatt: I would look at it the opposite way: If home building declines, you’re going to lose more in revenue. We are seeing that reduction in 30,000 homes. At the Missing Middle Initiative, we project that is going to cost the federal government over $3 billion in lost GST and other revenue. We need to make this up in volume. The federal government has committed to doubling housing starts. If housing starts go up to that level or start to increase, then more workers are working and more window and door companies are selling products and employing people, generating income tax and corporate income tax and that sort of thing.
We need to be building more. One example we like to use at Missing Middle Initiative is that Coca-Cola doesn’t make more profit if they charge $10 a can because they wouldn’t sell any product. We have reached a point in taxation where taxes have become so high that they’re reducing housing starts, which ultimately reduces government tax revenue.
This is a call to kind of rationalize the system and also look at other ways of generating this revenue. When it came to water and waste water, we had mentioned, again, using a user-fee model, which would allow us to finance that infrastructure at government borrowing rates rather than mortgage rates. If we want to be fiscally prudent, we need to figure out how to pay for these things at the lowest cost available. If we are financing infrastructure at a 5.5% mortgage rate rather than a 4% government borrowing rate, we are spending hundreds of millions of dollars unnecessarily on these water and waste water plants.
[Translation]
Senator Henkel: Thank you. You recently appeared before the finance committee of the other place, where you said that taxes were stifling. Now, before the first brick is even laid, multiple actors seem to play a big role in housing costs, from land values, speculation and developer margins to intermediation and financing costs. Is it appropriate to focus solely on taxation without taking into consideration the margins of all the middle actors?
[English]
Mr. Moffatt: Taxation certainly plays a role. Again, for example, if you look at a project in, say, Vaughan, Ontario, development charges can be anywhere from about 10% to 15%. Then when you layer on a 5% GST and an 8% PST and a 2% land transfer tax, you’re looking at anywhere from about 25% to 30% of the cost of a project, and that’s not even including any kind of embedded taxes on income or corporate income. What that does is it renders a number of projects unviable. It just raises the cost to such a point that there’s no market for those projects.
By lowering those taxes, you can get projects that go from being marginally unviable to marginally viable. To be clear, we’re not suggesting for a moment that tax reform will solve everything. There are any number of issues that we also need to deal with. We need to deal with slow approval times. We need to deal with zoning issues and building code issues. We had an earlier question about rental in other countries. The types of apartments that families live in within Europe and parts of Asia are illegal to build in Canada, and we need to change that. There are a lot of things that we need to do, of which tax reform is one of many.
Senator McBean: Thank you, Mr. Moffatt. The federal government launched programs like the Housing Accelerator Fund with its agreements between the federal government and over 200 municipalities in part to lower development charges. It also launched the Apartment Construction Loan Program, or ACLP.
From your perspective, are these initiatives effectively supporting the creation of homes, or are they still favouring large-scale developments?
Mr. Moffatt: I don’t see those as mutually exclusive. Lots of families and individuals live in large-scale developments. I think the ACLP is one of the most transformative programs that any federal government has instituted on housing since the 1970s. It’s not a perfect program by any means, but just the number of new apartments that have been financed by this program that would not have been financed otherwise is just incredible.
One of the big benefits of the ACLP is it’s relatively low cost because it’s a loan program. Because those loans are made at higher interest rates than government borrowing, the interest differential pays for the cost of the program.
When it comes to the Housing Accelerator Fund, each one of those agreements has a number of conditions, including, in many cases, to freeze development charges. I think there have been implementation problems with that. We do see differences in those agreements across jurisdictions or across municipalities, but I think the bigger issue is the enforcement and transparency on those. We’ve seen in the City of Toronto, in their Housing Accelerator Fund agreements, they were supposed to legalize sixplexes across the entire city, which is something that hasn’t been done. It’s still unclear whether the federal government will deny the City of Toronto that funding, despite the fact that the city has not lived up to that agreement.
I would conclude that the ACLP has been a very large success, whereas I would characterize the Housing Accelerator Fund more as kind of a good idea in theory but something that’s been really struggling when it comes to implementation.
Senator McBean: Thank you. I live in Midtown Toronto. I’ve always been a fan of density. It’s really dense. Now there are signs all over the place around construction and development projects that say, “Welcome to the neighbourhood; there are no schools for you,” and then we look at the teacher strike in Alberta right now, where class sizes have 35-plus children.
If I look at what the Missing Middle Initiative has argued, which is that Canada’s housing crisis is fundamentally a supply issue rooted in planning, zoning and high development fees, what are the biggest barriers preventing municipalities from approving more missing middle housing? How can we encourage housing growth in areas that have existing infrastructure — schools, transit and services — without triggering local opposition?
Mr. Moffatt: I think that nails it exactly: Local opposition is a challenge. If I want to build a project at the edge of town, that’s a much easier thing to do because you don’t have that kind of local opposition.
As soon as you want to build infill, there’s a lengthy process, lots of community consultations and so on, even for things that are relatively small. There’s the ongoing Craven Road dispute in the City of Toronto around building garden suites.
The more we can see as-of-right construction certainly helps. That requires municipalities to be a little bit bold when it comes to zoning changes. We certainly need to see those reforms, because it is a problem.
A lot of what we have built over the last 20 to 25 years is either huge high-rise apartments — and there is absolutely a need for those — or single-family homes in smaller communities or greenfield sites. The reason for those is they’re the easiest thing to get through the system. They have the least amount of local opposition.
I should pass it along to Alex because he is our municipal expert. Is there anything I’ve missed, Alex?
Mr. Beheshti: That was pretty good, Mike.
In the case of Toronto, there’s been a bit of a mismatch between municipal housing policy and planning and local school planning, where at the municipal level, it was all about taking density and housing supply away from the established neighbourhoods, putting those in amber and not allowing anything to be built there. Those depopulated. They lost children.
The Toronto District School Board, or TDSB, was not allowed to close those schools by the province. Now where did all the children go? They went into those transit-oriented developments and the large apartment buildings; that’s where all the children have gone, which is far away from where those empty schools are.
There was a mismanagement between the housing planning and school planning, which is why you see in midtown, there are all these towers going up and they’re saying the local school has no capacity. There is capacity in the TDSB, but it’s just not local to that specific area.
Senator Yussuff: Thank you to both of our guests for being here this morning.
Dr. Moffatt, I’ll come back to you. You outlined the variance in municipality charges across the country. Before getting a handle on this, are there metrics we can use that give some consistent understanding of the complexity we’re dealing with?
Often, when we talk about these issues, we try to assume they are the same, whether it’s in Toronto or someplace else. More often, as we are discussing them, we realize they’re very different in each locale, but it causes a significant number of challenges in regard to how we make the affordability of housing in this country something we can tackle in a consistent way.
The government came up with policies, and the policy doesn’t have any variance in regard to how they may impact a municipality. They are taking a completely different approach or maybe a more aggressive approach in regard to local fees that they’re putting on a new-build home.
Mr. Moffatt: I’ll pass that question on to Alex, because I think he’s one of Canada’s leading experts when it comes to differences in development charges across provinces.
Alex, do you want to handle that?
Mr. Beheshti: Thank you, Mike.
The way any development charge system works is it is established by the province. The provinces all set their own frameworks in terms of what services they allow municipalities to charge for.
For example, in Ontario, we allow water, waste water and so forth. We allow public health and senior housing to be collected for. Some of these things other provinces allow for, while some of these things other provinces don’t allow for.
It should be emphasized these are an option. Municipalities are not required to charge development charges. There are sometimes municipalities that don’t charge development charges, such as Sault Ste. Marie or Thunder Bay.
Then the municipality sits down and looks at all the services they want to provide and how they want to fund them. Do they want to take on debt, use user fees or use development charges?
In different provinces, there is a different culture toward how to approach funding of infrastructure. In some places, they create what are called municipal service corporations. A great example is Edmonton’s EPCOR; it deals with electricity and many different services, and they outsource it to that corporation. That corporation deals with the long-term financial planning, taking on debt, charging user fees and so forth.
Here in Ontario, municipalities often take on providing services, and, therefore, they want to collect development charges. In Ontario, we have a culture of using development charges and not using tools like debt or user fees, because it’s seen as developers’ money or free money.
Senator Yussuff: Do we have a consistent way in how we measure that across the country? Based on Dr. Moffatt’s intervention, using Vaughan as an example, 26% of the cost that goes into a new-build home or a development has to do with fees. How is that going to help us in that municipality when, in a place like Edmonton, it could be maybe 10%?
Mr. Beheshti: There have been pan-Canadian studies — I have been part of those studies — where we’ve looked at development charges, off-site levies or development cost charges. We’ve looked at what they’ve charged on a per-unit level.
Sometimes you have to create a development scenario, because the way the fees are charged is by different measurement units. You have to create a scenario of a development — let’s say it’s 75 single-family homes and 75 townhouses. I’m going to apply this in Alberta, B.C. and Ontario on each individual municipal level. How much do I owe the municipalities? That’s how you come up with those fee charge numbers.
Mr. Moffatt: On top of that, when we look at it, different provinces have different property transfer taxes or land transfer rates or sales taxes. Obviously, Alberta does not have a sales tax at all. Ontario assesses a sales tax on new homes. They assess the HST on new homes with a rebate, whereas British Columbia, which does have a sales tax, exempts new homes from that tax.
Even when you go beyond development charges, there are substantial differences across provinces in all of these province‑wide new home taxes, where some provinces don’t assess certain types of taxes at all, and other provinces offer rebates or exemptions in certain circumstances. It does make this kind of apples-to-apples comparison challenging.
Senator Yussuff: Thank you.
The Chair: Before going to Senator Mohamed for the last question of the first round, as a former municipal councillor in Quebec, I can confirm it’s not only different from province to province but even from city to city inside the same province. In some cases, it’s a cash cow for some local municipalities, and others are different.
If you can share the study you referred to with us, it would be appreciated by the committee.
Senator Mohamed: Thank you to the witnesses.
I want to return to the conversation around the correlation between immigration and housing affordability and availability.
If you think about the data and the information you have, can you offer comments on what can be expected over what period of time in relation to the change in immigration policy, housing affordability and availability?
Mr. Moffatt: Absolutely. We saw this first-hand in southwestern Ontario where prior to 2015, housing was relatively affordable. Single-family homes were three to four times a middle-class income. I’m thinking of cities like Windsor, Brantford and so on.
Ontario’s population growth rate almost doubled overnight in 2016. We went from adding 100,000 people a year to 200,000 people a year. We started to see prices in these historically affordable markets increase significantly. Part of that was from international newcomers, but part of it was from prices in Toronto getting expensive and people moving to Brantford, London and so on. So the time series are close together.
I would suggest that had this population increase been given more time and more announcement, and if municipalities had more time to plan, they could have changed systems and could have accommodated this growth.
It’s not just the amount of population growth, but it’s also the amount of forewarning and the amount of planning, because you can’t build and finance an apartment overnight if the population starts growing quickly. I see Jon Love is on the line, and I’m sure he’ll be talking about that during the next panel.
That has a lot to do with it. It’s not just the fact that the population went up, but it did so in such a rapid, unplanned way that there were no ways for lower orders of government and the private sector to respond to such growth.
Senator Mohamed: Thank you. When I hear that, I think the challenge is that it is very easy for people to blame the additional immigrants. I think there are many other factors.
Are there municipalities that say, “We need the labour to come into our municipality to deal with things like health care shortages.” Is there a municipality we can look at that has found the right balance between immigration levels — immigrants coming in to deal with labour shortages — and the affordability and availability of housing?
Mr. Moffatt: Yes, there are a lot of municipalities, in fact smaller municipalities, that recognize the opportunity here. I would look at Mississippi Mills just outside the city of Ottawa that recognized the need for family-friendly housing and how an increase in families moving there from other parts of Canada or around the world could help deal with the labour market issues and issues around an aging population.
To be clear, it’s not the responsibility of an 18-year-old international student from Warsaw or Bangkok to make sure Canada has a functioning housing system. It’s the responsibility of our policy-makers. Municipal governments and provincial governments need to have some warning or idea of how fast the population is going to grow. If they don’t know if in 2030, Canada’s population is going to grow by 200,000 people or 2 million people, they can’t really plan for that. They need a level of certainty, which they haven’t been able to get historically from the federal government.
Senator Varone: I’m going to dive into something that you touched upon: Inasmuch as all housing is governed by the law of supply and demand, it just seems it’s been overtaken here by the law of diminishing returns. You talked about the cost of the HST, the dwindling market and the non-sales. What is the true cost to government for doing nothing in terms of the loss of the excise tax — meaning the HST and PST — the loss of the income tax from the laid-off workers, the loss of the land transfer tax to the provinces and the loss of the development charges? What is that cumulative effect for not helping the industry?
Mr. Moffatt: We studied this at the Missing Middle Initiative using sales data from Altus Group. In the GTA alone, we’re looking at reduced housing sales, which in the future will lead to reduced housing construction.
We found that all three orders of government — if this pace continues — will lose around $6 billion a year from all of those factors that you mentioned, and the federal government’s reduction will be approximately $2.4 billion.
When we add the reductions that we are seeing in the Vancouver market, the federal government’s reduction exceeds $3 billion a year, which we know is more than the entire annual expenditure on Build Canada Homes.
Senator Varone: Are you able to send us that information? I know you’ve written extensively, but we’d be the beneficiaries of those documents, if you could send them to us.
Mr. Moffatt: Absolutely. We’d be happy to.
Senator Varone: Thank you.
Senator Loffreda: Mr. Moffatt, as you know very well, taxes are obviously revenue generating for all levels of government and necessary for our healthy social safety net that we have here in Canada. You have answered a question previously, saying that if we build fewer homes, there’s less revenue. But if we look at the reason — because once we have the reason, the problem is easier to solve. Can we strictly blame taxes? We look at increasing interest costs. We look at the fact that immigration levels are being decreased. We look at the taxes on foreign buyers. To what extent do you feel it’s taxes? Some of the other issues also need resolving, but I’d like to have your take on that.
Mr. Moffatt: It’s a multitude of issues. It certainly isn’t one issue. We need to look at zoning. We need to look at building codes and slow approvals. We need to do all of these things.
Those things will take time. The advantage of tax reform is that it can be done very quickly. With the stroke of a pen, we could increase the generosity of GST rebates. There are advantages to focusing on taxes, but it needs to be all of the above. If the federal government is serious about hitting 500,000 homes per year, this is going to take a wartime-like effort. This is one of the things that’s missing from the discourse. The federal government’s ambition is to start an Apollo-like program for housing, but we have to understand that’s going to have an Apollo-like cost. The federal government’s ambitions have to be coupled with a financial contribution that meets the scope of the challenge.
Senator Loffreda: Thank you.
Senator Fridhandler: I’m reluctant to ask because I like to think of myself a little bit as a bleeding-heart, small-l liberal, but in the early 1980s, I lived through Armageddon in Calgary. I wasn’t a homeowner, but throughout the country, mortgage rates were high, and people lost their houses all over the place. It probably similarly happened elsewhere in the country.
How much government intervention in supports do we need versus allowing the market to take its course? You’ve indicated some of the costs, but I don’t know that we’re going to get out of the cycle if we keep on intervening and then not see some levelling out on costs and developers’ expected returns. The market needs to adjust sometime to not be artificially supported. Can you comment on that?
Mr. Moffatt: Certainly. We’re certainly not advocating for artificial stimulus. We are advocating for larger structural reforms.
When it comes to developers, there is a minimum profit they need to achieve in order to get financing from the Canada Mortgage and Housing Corporation. If the federal government wants developers to build at lower profit margins, they need to be calling up the Office of the Superintendent of Financial Institutions, or OSFI, and changing the regulation around that to make it easier for lenders to lend to developers on lower-margin projects.
Unless a developer is self-financing, they need to get a loan, and they are not going to be able to get a loan from a financial institution if the margins aren’t high enough on that loan. The loan is simply too risky. The last thing we want to do is to get a U.S.-style great financial crisis meltdown where financial institutions are making large loans on low-margin, largely unviable projects. We need to have a certain level of profit margin in the system for it to work.
[Translation]
The Chair: Thank you to our witnesses, Mr. Moffatt and Mr. Beheshti. I thought your comments were very interesting and went to the core of our study. They will be part of our report.
Colleagues, we will suspend as we bring in our next panel.
[English]
We are now ready for our second panel as we continue our study on Canada’s housing crisis and the challenges currently facing Canadian homebuyers.
Our second panel is, once again, by video conference. I wish to welcome our guest: Mr. Jon Love, Chief Executive Officer of KingSett Capital. Thank you, Mr. Love, for accepting our invitation. Welcome to the committee. You were a witness here two years ago. I remember your testimony was informative.
Since you are appearing before us by video conference today, if you have any technical challenges, please let our clerk know, and we will try to fix it. Mr. Love, please proceed. You have the floor.
Jon Love, Chief Executive Officer, KingSett Capital: Thank you. First, I would like to thank the committee for the opportunity to address the critical issue of the impact of elevated taxes on the state of housing in Canada, particularly felt in the high-tax and high-cost Toronto and Vancouver markets.
We struggle with housing that has become increasingly unaffordable to the point where now we have a largely frozen market, with housing starts, sales and resales at historically low levels. This lack of current activity is threatening the livelihood of some 600,000 Canadians who are employed in new home construction. In addition, the lack of new housing starts will create even greater problems in a year or two as the population increases and demand resumes, leading to an acute supply shortage. We are, indeed, in crisis.
Here’s the good news: The crisis has been caused by imperfect public policy, meaning the right policy pivot can make a meaningful impact to make housing more affordable and available to all Canadians.
Let’s break down the two major culprits: regulation and taxation. Over the past generation, regulation has grown exponentially in complexity, duplication and cost. Simple changes or approvals are often years in process, but let’s leave that for another discussion. I’m here to address the impact of taxes on affordability and housing supply issues.
First, let us remember that we tax what we do not want: cigarettes, alcohol, gasoline and, of course, housing. The results are predictable: scarcity and higher pricing.
Over the years, cities have been asked to do more and more, both by their residents and by senior levels of government. For funding, municipalities mostly rely on property taxes. In most cases, they have maximized charges to the commercial rate base and have been reluctant to increase taxes to the general residential base — i.e., their voters.
The decades-long housing expansion in Canada has thus been the target as a source of revenue, primarily — not exclusively — development charges, or DCs. In Toronto, DCs have gone up tenfold in just 10 years. In Toronto, for a home, a semi-detached home or a townhome, they’ve risen from $14,000 per home 10 years ago to $143,000 today.
The political calculation has been to convince the public that this is a tax on developers. As this gets passed on to the homebuyer or the renter, it has become a tax on the end user. The precise calculation of taxes, fees and levies is overly complex and unique to every project. In round terms, today in Toronto, for a new apartment or condominium complex, the HST is about 10%, development charges about the same and other fees and levies about another 5%, for a total of 25%. For the end buyer, you add a further 3% to 5% for the land transfer tax on closing, so the total tax load is approaching 30%.
To put this in perspective, a $340-million residential project we’re working on right now has DCs, taxes and fees totalling $88 million, which is 25% of the total cost and four times the cost of the land. In the end, the problem is it’s all about a municipal funding model.
There was once a motto that said to have growth pay for growth. This has morphed into having new homeowners subsidize existing homeowners. It’s not a sustainable model.
The excess level of taxation has now stopped new development in its tracks. We have several sites ready to go for rental housing, but with the elevated tax costs, it requires rents far above today’s market rents, so the projects are simply not viable. The industry slowdown is showing its impact.
In 2023, the City of Toronto collected development charges of $723 million — a record number. In 2025, their budget was $500 million. But year to date, it is only $59 million because it turns out a high tax rate on no activity is nothing.
There’s real opportunity costs for the city. The project I referenced above currently pays property taxes of $500,000 per year on the raw land site. If we could afford to develop those apartment buildings, the taxes to the city upon completion become $3 million per year, which is an additional $2.5 million of tax revenue to the city forever.
There is a simple solution. We need to change the municipal funding model. Our proposal is to remove all taxes, fees and levies from the creation of new housing, which would reduce new housing costs by 25% to 30% and kick-start the industry. To fill the municipal revenue gap, there are a number of options, and here are three:
Number one: tax increment financing, where the city finances a future increase in property tax, which is quite common in other countries.
Number two: expenditure constraint. In Toronto development charges, the budget runs some $500 million but within a $20‑billion operating and capital budget, so it is only 2.5% of total revenue.
Number three: property taxes. As of today’s development charges, roughly two thirds are allocated for general operating costs and not related to the new home.
To allow for a transition period, the federal government could play a key role by funding half of the forgone development charges on a 10-year declining basis as an investment in housing and then let cities manage the balance.
By eliminating these taxes, end-user costs would drop by around 25%, which would encourage housing providers — such as our business — to get going and reduce the cost of housing for Canadians. Critically, as lower-cost housing supply increases, home prices moderate and property tax revenues build. It is a win-win.
In closing, I have three recommendations:
Number one: It is time for bold action, no half measures or new, complicated programs.
Number two: Remove all taxation, levies and fees from all new housing and resist the creation of a policy to complicate a simple idea.
Number three: The federal government must match 50% of the development fees otherwise payable declining over a transition period.
Let’s get building for Canada’s future.
Thank you for your time today. I would be happy to take any questions.
The Chair: Thank you, Mr. Love. I allowed you to have more time for your opening remarks since you have some precise proposals. It was informative. Thank you.
We will start with our deputy chair, Senator Varone.
Senator Varone: Welcome, Mr. Love. I agree with 99.9% of what you said. There is one comment from two years ago that I feel obligated to raise and disagree with. The comment attributed to you was Canada must prioritize attracting immigrants to this country with skilled trades to develop a long-term strategy encouraging Canadians to take up skills.
I have been a home builder/developer for about 40 years; previous to that, my dad was a home builder/developer for 30 years. My father immigrated to this country with no skills — zero. He was accompanied by all of his uncles, cousins, relatives and friends.
After the Italian wave came the Portuguese. Again, no skills. What they learned, they learned here. They came with a work ethic.
Today, we have Syrians and Iraqis who work their tails off learning skills that contribute to the fabric of this society, and all their skills were learned in this country.
I needed to say that and put it on the record, because I feel strongly about how we choose our immigrants.
With respect to your comments, I have one question. I hate to use the U.S. as a starting point, but in cities like Houston, everything is as-of-right zoning. What it means is that as of right, you can build a 100-suite condo or a 15-unit townhouse block.
It seems that the as-of-right model does not apply in our urban centres. Everything is a fight. Everything is complicated.
When you look at land use planning, do you see — as a very starting point — encouraging municipalities to review their official plans and create as-of-right zoning?
Mr. Love: I wish to address the first comment on immigration first. I am very pro-immigrant. I totally share the view you espoused that they are hard-working and the backbone of our trades.
The issue I was trying to address in my 2023 submission was our industry has never been able to build more than 250,000 units a year. In fact, the peak deliveries were in 1976.
If we want to get to the aspirational 500,000, we are going to have a significant labour shortage. We have to target new Canadians or encourage our domestic Canadians to take up a tool because we are going to run out of labour. That was the narrow issue there.
With regard to zoning, I started my comments by saying the whole regulation issue is one of the two challenges for the housing industry. I’ll take it for another day, because it is massively complicated and it is politically fraught with intransigence.
On the taxation, though, the federal government could, with the stroke of a pen, make this happen. You would see immediately a decline in new housing prices by 25%, which would be amazing. We would see affordable housing projects get built, such as rental and others.
If we don’t make a change, everyone is talking about nibbling at the edges — another program for this, another program for that. We have three full-time people to interpret the various government programs. They sometimes overlap and conflict. For our affordable housing project, by the time we got it going, we had 50 different documents to get it going. The process is dysfunctional.
It would be so simple to simply say, “No taxes on new housing because we want new housing.” Of course, then it is how do you fill the municipal funding gap, which is what I also tried to address.
Senator Fridhandler: Mr. Love, thank you for your interesting proposal. We are going to have to spend some time thinking about it.
Let me go back to your opening comments when you referred to the crisis in Toronto and Vancouver as basically the two places it might exist in the country. I am thinking to myself, “What about Montreal?” It has been years since I have lived there. I recall it being a big rental market.
I live in Calgary now. Things are balancing out on affordability of rental. I will come back to the mindset and culture of rental versus ownership and how that impacts our taxing structure, generally speaking, in your mind.
Mr. Love: The reason I pick Toronto and Vancouver as the point of the spear is it is where you have the highest tax load and the highest municipal tax load. It is causing the greatest dislocation. Taxes have the same impact, whether it is for-sale housing or rental housing.
In the case of rental housing, you build the apartment building, but 25% or 30% of your costs are taxes. You have to raise your rents by that amount to cover the capital.
What is worse, the HST on rental housing — which at the moment is waived — has not been on the cost of the apartment building but on its market value on completion. In other words, you pay the HST on the land you already own. You pay the HST on whatever created value there might be. It was such a disincentive.
The tax issue flows through to homeowners and to renters in exactly the same model. You can simply think that 25% of their rent or 25% of the purchase of their home is because of municipal and federal taxes, levies and fees.
Senator Fridhandler: I have another question on the rental market. The benefits and the drive to push people to ownership versus rental, if they actually understood the ultimate economics, is the following: At the end of the day, an owner — however they might invest over the years — gets their primary residence sale tax-free, while the renter, who has paid rent over the years, never gets a tax benefit and is left with no inherent savings over their lifetime for living someplace.
Is there a way in our tax system to address that perceived inequity?
Mr. Love: My interpretation of the social contract with Canadians has been that you should be able to afford a house. You buy a house. Over time, it will be your retirement, and that is part of the significant wealth for Canadians.
I don’t think we should deduct interest payments or mortgage payments. I don’t think we should have capital gains. I quite encourage the government policy of we don’t tax — the CRA doesn’t come to your primary residence. That has been a great wealth stabilizer for Canadians generally.
There has been some talk about trying to level the playing field by making some rent tax deductible and so on and so forth. To be candid, I just don’t see that as a significant driver. The fact is that it’s more about how to make housing more affordable and more available. Canada has one of the highest home ownership rates in the G7, certainly much higher than our American friends. I think that is a policy I would encourage.
Senator Fridhandler: On affordability, Canadians don’t seem to be so willing to move across the country and leave their place of birth — their nests. They have to stay in Toronto if they are from Toronto, unlike some of our global citizens in other countries who are very mobile. For example, anecdotally, I hear about many people who move from lovely Vancouver to Calgary because they are willing to take a little hit on what they can earn because they can afford to have a backyard when buying a house around Calgary.
Similarly, I hear about people who have come from the Maritimes originally and worked in the oil patch, and now they see it as a good opportunity to sell and move back to Atlantic Canada where it’s cheaper.
Some of this movement should address the dynamic of affordability as well. You go where you can afford a house, but we seem reluctant and want to allow people to stay exactly where they grew up. Can you comment on that?
Mr. Love: I grew up in Edmonton. I have lived in Toronto for 45 years. Of course, my Edmonton friends still wonder when I’m coming back.
The lack of labour mobility here is reflected by the lack of business mobility. In the U.S., all the time, you see businesses moving from jurisdiction to jurisdiction for tax reasons, for competitive reasons and for a number of reasons. There is zero business mobility in Canada. It’s very uncommon to see major shifts. We have seen them. Over my 50 years, we saw the migration of financial firms from Montreal to Toronto in the late 1970s and early 1980s. We saw energy move from Toronto to Calgary also in the 1980s. We did see some of that. But because there is a lack of business mobility, there is not the same degree of labour mobility. Where there is a peak need, you see Maritimers working in the oil sands. You see all of that, but it’s not a general trend.
Senator Martin: Thank you for your testimony today. I wish it were as straightforward as the stroke of a pen to take bold action. You have given us some good recommendations.
Going back to one of your recommendations, which is to remove taxes, levies and fees at the municipal level — to reset the municipal funding model — what are the practical steps that the federal government should or could take to compel municipalities to lower their development charges and expedite permitting? Would you talk about what the federal government can practically do? How can we make this happen at the municipal level?
Mr. Love: To break it into two pieces, I would leave the whole permitting issue and regulatory issue in another bucket because it’s super complicated. At the end of the day, as dysfunctional as it is, to me, it’s not the source code.
To focus on taxation, if we look at the degree that the federal government transfers monies to both the provinces and the cities — the cities are just a creation of the provinces — it seems to me and it’s easy for me to say that there are significant levers around which to have an elevated negotiation and discussion.
It’s clear that politicians at every level agree that housing is a crisis. Politicians at every level understand they are vulnerable if they don’t take action on the housing file. The Prime Minister’s strategy with Build Canada Homes and so on, I think, is an interesting initiative, but it alone is not going to deliver what he needs. He needs to unleash what is arguably amongst the world’s most sophisticated residential development communities to deliver more affordable housing, and it all lies in the tax burden.
When I talk to my American friends and ask them about tax on capital, they look at me like I am from Mars because it doesn’t exist in other places. In fact, tax increment financing in the U.S. is used to give the money to the developer to incent them to build, because the municipality understands they want the long‑tail enhanced tax revenue after the building is built.
We need to have an adult discussion. It starts with the senior level of government who, at the end of the day, has the biggest chequebook and writes the most cheques. It seems to me it’s that level of government that has to take the leadership here and make something happen. Everybody is putting in new programs that require more people to decipher what they mean. Sometimes they overlap, or sometimes they conflict. None of it really moves the needle.
In the absence of doing something bold, I think Canadians are looking to this government to be bold. The Prime Minister was clear in his election campaign and afterwards that he wanted to build at a pace that Canadians haven’t seen in generations. I think that inspired many of us. Let’s get at it.
This legacy tax system of taxing new development is broken. If you think of just buying a million-dollar house, to buy the land to build the building, you give the developer a profit, which is $750,000, and $250,000 goes into taxes. It makes your head explode. At $750,000, many people would say, “Actually, I can afford that house, but I can’t afford a million.” So let’s figure that out.
Senator Martin: Maybe this is something you could submit to us because you didn’t talk about this specifically, but you have criticized recent capital gains tax increases, as it could drive capital away from Canadian markets and deter real estate development.
I wanted you to elaborate on that economic evidence for this concern. Since I’m out of time, maybe that’s something you can forward to the committee.
Mr. Love: Raising the inclusion rate to increase the capital gains rate just gives further incentive for capital to invest somewhere else. As you know, capital is very mobile, and had we seen that proposal of two years ago come to fruition, I think a lot of people would have just put their capital in other markets where they don’t have that.
Senator Loffreda: Mr. Love, thank you for joining us today. We appreciate your time. Thank you for responding so quickly when I reached out. It speaks volumes on your will to help us solve this crisis for Canadians.
Your testimony before this committee a couple of years ago played a key role in shaping our housing affordability report released in December 2023. As our committee now shifts focus toward some of the other challenges facing Canadian homebuyers, particularly government-imposed taxes, fees and other charges, I want to revisit a point you made during your last appearance and also this morning. You emphasized the need to waive or reduce municipal development charges to support the construction of higher-density rental buildings. Given the current fiscal pressures, governments may find it difficult to simply waive or lower these fees outright, even though you mentioned that a high tax rate on no activity is no revenue, obviously.
In that context, what would you recommend in terms of restructuring how municipalities apply development charges to better encourage affordable housing development? Can you elaborate on that?
Also, I want to mention that I remember in the 1980s, we had a similar housing crisis. Inflation was an issue. There weren’t incentives only for the buyers; there were also incentives for the investors. At the time, I remember the MURBs had to be concrete multi-unit residential buildings where you could deduct appreciation and create a loss because the rentals did not follow the costs of development.
How would you balance all of that: incentives for buyers, yes, by cutting taxes, but also incentives for the investors? I like what you mentioned: Tax what you do not want. A tax on capital was a good example that you answered to, as well as the imperfect public policy on regulation and taxation and your three recommendations which we will study in detail.
Mr. Love: Thank you. Let me break it down into two pieces.
First of all, the MURB legislation in the early 1980s was required because there was an absence of capital formation to invest in rental housing. Today, some 45 years later, with a well‑capitalized pension fund industry in Canada, which didn’t exist in 1980, there is an untold amount of capital that would build rental housing. I can raise as much money as you can imagine to build rental housing.
The MURB program would be addressing a problem that, in my view, doesn’t exist. It’s not about capital formation; it’s about whether you can invest in an apartment building and make money. The problem today is that the taxes are so high that you’re required to build it and charge your tenants rent that’s too high. You just don’t have that clarity on getting that income, so the risk is too high.
The other piece is that, clearly, every government is looking for revenue and always does. In Toronto, the development charges, which are the bulk of what Toronto charges, amount to only 2.5% of their overall budget. Again, if the federal government came in and said they would replace 50% of that lost funding on some declining basis over 10 years so that there would be a transition period for a municipality to adjust, then it has several choices: tax increment financing, expenditure constraint or raising city property taxes. A bit of a dirty secret is that Toronto has the lowest property taxes per dollar of value in North America.
As unpopular politically as that might be, there’s lots of tax room on housing because it’s been subsidized by development charges, which have now strangled new development. More than that, they’ve created an excess price model that has made housing unaffordable.
Senator Loffreda: Thank you, Mr. Love.
[Translation]
Senator Henkel: Thank you for being with us, Mr. Love, and thank you for those recommendations. The need for new housing is so great that we must fully mobilize all public and private actors. Your organization is an influential player in the Canadian housing market, particularly in large cities. Now, your economic model is based on high returns, while our study focuses on housing affordability. How do you balance the requirement for returns with the need for affordable and stable rents?
[English]
Mr. Love: Thank you. It’s a great question.
In order to mobilize capital at any scale, there has to be some economic return. Our Affordable Housing Fund, which is a large fund, actually targets a rate of return that is below what our standard rates of return are. Investors in that fund look at the return through two lenses: First, if it’s a reasonable economic return, and second, they have a view that there’s a social return, which we support.
Generally, you’ll find in residential development, developers build effectively to cost. In other words, there’s no development profit margin, and you develop the building because you want a long-term income stream. There’s not a large margin. If you look at the margin on condominium developers, they look to a 10% to 12% margin on cost, which is not a big margin, given all the risks they’re taking.
It’s sort of an urban myth that people are making large sums of money on the development, because that’s not the case. The market adjusts. It’s just not how that works. Again, you need some competitive return to scale capital, but there’s no excess return.
[Translation]
Senator Henkel: I have one more question, if I may. What is your evaluation process when purchasing an existing rental property, and how do you set the purchase price? Once you have acquired the property, what practices do you follow to increase rent for existing tenants?
[English]
Mr. Love: Most of the rental that we bought and own are subject to rent controls. If you look at the income in place and the cost of debt, you’re looking for a margin between the income in place and your cost of debt. Over time, you assume that rent will increase at the rent control rate, and then you have to make an estimate on the increase in utilities and property taxes, which typically rise faster than your rents rise. Over time, rent controls never caught up with expenses. It’s a relatively low-risk business, which is why they’re relatively low returns, but those are the metrics you look at.
Senator McBean: Mr. Love, thank you so much for your time. We always appreciate that everyone is busy. I feel a bit like an airline: We appreciate you choosing to be with us today.
I also like when witnesses come before us with clear recommendations in their testimony. I really appreciate that. Your second recommendation was to remove all taxes from new housing. If we look forward, Bill C-4 proposes to introduce a new GST rebate for first-time homebuyers. This bill will provide a rebate of 100% of the GST on new homes valued up to $1 million, with the maximum benefit linearly phased out between $1 million and $1.5 million. I’m sure you know this.
Can you please put on the record for us why this is or probably isn’t enough to be helpful?
Mr. Love: It’s the old story: It’s a step in the right direction. If you’re in Brandon, Manitoba, you’d be in great shape. But if you’re in downtown Toronto, you’re dealing with part of the market. The reality is if you’re in the missing middle category — where you have a family and you need a two-bedroom or three-bedroom semi-detached home or even a condominium — you probably don’t fall into those numbers.
Again, in Canada, I struggle with a fixed number because I don’t think you can find a house for over $1 million in Brandon or under $1 million in Toronto. I struggle to understand how that policy makes sense, which goes back to my position of let’s waive all these taxes and let’s not complicate it with a complicated policy. Let’s just make it simple.
Senator McBean: Thank you. I think you’ve addressed this, but I’ll drill into it again.
The federal government recently expanded financing programs for multi-unit housing. Are these tools effectively reaching developers and investors like KingSett, or are there regulatory or risk barriers that still limit their impact for you and investors like you?
Mr. Love: For the most sophisticated organizations — and I would, with respect, put us in that category — there is the ability to access some of the Canada Mortgage and Housing Corporation and other programs. It is expensive. It’s uncertain. It’s actually as difficult as the zoning process, and it’s time‑consuming. They are there.
If I were offering just a voice on that, the Canada Mortgage and Housing Corporation should not be a for-profit organization. The Canada Mortgage and Housing Corporation should be facilitating housing for Canadians. When they raised their credit spread and raised their rates in the middle of the summer, I thought that was odd. It’s a total disconnect from what the stated policy of the government is, which is seeking affordable housing. Even on our affordable housing file, the rates went up, and, of course, interest rates are your major cost in real estate.
Left to my own, I think they’re good people doing hard work under difficult circumstances, so there’s no criticism there. I think their mandate has to be revisited. What is the mandate of the Canada Mortgage and Housing Corporation? Is it to help Canadians to afford a home? If it is, there’s a whole list of things they could do differently.
Senator McBean: Thank you very much.
Senator Mohamed: Mr. Love, thank you very much for your testimony. I want to maybe pivot a little to a population that we should be talking a lot more about but we don’t seem to be, and that’s young people.
I live in Toronto. I’ve worked with young people across this country. Today, we see a lot of young people saying, “They told me to go to school, get an education and I would be able to afford a house,” and that’s simply not the case.
Given your extensive experience in real estate investment, what do you see as the key structural barriers, aside from reducing taxes, that are preventing young Canadians from accessing affordable housing? The first thing that comes to my mind, for example, is most young people don’t have money for the down payment. Forget about the taxes that come with buying the house. Are there things that you can reflect on with a young person’s lens to what you are saying? Thank you.
Mr. Love: I couldn’t agree with you more that this is a broken social construct with our youth. The Canadian promise or the Canadian dream or whatever phrase one wants to use is that you get a job, you have a family and you have a home — all of that. The greatest risk that we have as a society is that our young people lose hope, and I think housing is at the centre of this narrative.
There are a number of things that could be done. One is to reduce the cost of housing with taxation. If you take 25% of the cost of that house away, that’s a meaningful difference.
Second, the B-52 requirement on banks for who they can and cannot lend to is pretty restrictive. If you fit into the B-52 box, you’ll have the advantage of bank mortgage financing, which is the most competitive in the world. But if you don’t because you work for yourself, you’re a new Canadian or you’ve just started a new job — there’s a whole list of things — then you lie outside of that mortgage regime. Then for your mortgage rate, instead of it being 3.5% to 4%, it is 6% or 7%, so it shuts those people out.
With regard to the down payment issue, it again is a banking regulation issue that requires the banks to require individuals to put up a certain down payment. That certainly could be, I think, reviewed. But the B-52, which is ostensibly to protect the banks, has shut out a lot of people from the mortgage market into the alternative mortgage market, which is a very expensive place to be.
I’ll tell you a quick story. A hockey player comes to Toronto. His salary is $800,000 a year, but he doesn’t start until the hockey season. He wants to buy a condo. He’s unfinanceable because he hasn’t started the hockey season yet, even though he’s got a signed contract. So we took this individual to a super senior level at the bank, and they couldn’t be approved because it was a regulation. You couldn’t change it. It’s breathtaking, not that we care about hockey players. It’s baseball season, but I’ll just throw that out there.
[Translation]
The Chair: At the end of the month, we will be meeting with the Superintendent of Financial Institutions. We could ask him about the B52 rule, which some who are following our proceedings may be less familiar with.
[English]
Senator Yussuff: Mr. Love, thank you again for taking the time to be with us. I like when you come to the committee. You’re a rare voice because you come with such clarity with regard to what you’re thinking. We’re not confused after you leave about what you had to say.
I think if Canadians are watching today, I’m hoping they will learn a great deal about the practicality in which you’re proposing we could tackle the housing question.
I have a practical question. I raise it because if we were to do the things you’re suggesting with regard to knowing about the fees that impact the cost of owning a condo or a house, what certainty do we have that would reach the consumers — the people who are struggling to buy an affordable property? The government can say we can do all of that, and I hear you, but how do we know for certain that this is going to result in bringing down the cost for people who are struggling with cost in the first place?
Mr. Love: Great question. What happens in the marketplace, though, is that the market always settles to the same profit margin. Remember, we’re all competitors: us and the rest of the industry. No one gets an excess return. If we can build something and make our margin for a $750,000 house, for example, we’re going to build that house. We know the guy across the street can’t sell the same house for $775,000. There’s no price collusion and no ability to prop up prices. Everybody will drop to the marginal cost of production plus the same 10% to 12% margin. It will be a direct drive to changing the cost of housing.
Remember, it’s a big, diverse industry with literally tens of thousands of participants. There’s no monopolistic player, no player that has 1% of the market or anything like that. Everybody competes, and you reduce the cost of construction, which is going on right now. There’s no construction going on, so the cost of construction is falling. Everybody’s prices are falling. We just need taxes. If taxes came off, people would move ahead. Trust me, you’d price everything based on that revised cost basis. If you didn’t, your competitors across the street would.
Senator Yussuff: Coming back to what my colleague just asked you about young people in the marketplace, this is one of the biggest challenges in terms of affordability.
Besides the three recommendations you made that we should consider, what would you say more specifically would be of value in order to give young people some hope that what we’re trying to achieve is how we can get them into the marketplace? More importantly, how do we give them the belief — which was the thing we were all taught when we were young — that owning a home is something to be proud of?
More consistently, we’re seeing that young people are feeling a sense of hopelessness. They can’t get into the market because of the sheer increase in prices. I live in Toronto. In the 1990s, I bought my home, and when I look at the prices of what they’re selling for now, I’m literally shared shitless about where my daughter will live if her mom or dad doesn’t help her get into the marketplace. It’s truly astounding because I couldn’t even discuss the cost of buying one condo with her, given that nothing is less than $1 million.
Mr. Love: There are two broad issues there. One is the success of a great city is that its intensification in economic value rises. What happens is that, by definition, your daughter’s starting point for a house won’t be as much house as you bought, but that doesn’t mean she can’t participate in the market. If we take off this 25% surcharge on housing costs, there would be lots of product available in Toronto for under $1 million. That will make a big difference to young people.
I should add that it’s not just young people. We have many people of every age who feel shut out of the housing market, which is why it’s such a political imperative for the government to fix this. Supply is important, but the cost is also fundamental. This fundamental issue is we tax housing at a level that makes it unaffordable. It’s as simple as that. If we took off the taxes, levies and fees, and if you said to your daughter to just assume she can take 25% off of any new condo or whatever she looked at, she’d say, “Well, that’s totally different, Dad. I actually probably can do that.”
Senator Yussuff: Thank you.
Senator C. Deacon: Mr. Love, it’s such a pleasure to see you again, and the clarity of your insights is exactly as it was two years ago. I’m so grateful for your testimony to our committee. My apologies for being late. I had a previous commitment that couldn’t be avoided.
Mr. Love, I want to focus on the political burden that exists when you decide to move the cost of running our cities fully onto the boomers and Generation X owners of homes and off of the millennials and others who are buying homes and supporting our cities through all of these fees that are hugely problematic in the issue we’re talking about. Given who votes and whatever else, I just see the big political problem always being a barrier in the municipality and potentially at the federal level.
What’s your advice there? Why these development charges keep going up is because of what you describe. Toronto has got the cheapest tax rate per dollar of value in North America. To change the development fees, that’s going to go up quite a bit.
Mr. Love: I think we should put it in a bit of context. Remember that when the development industry is working, development charges amount to $500 million or 2.5% of Toronto’s total operating and capital budget. It’s $500 million out of a $20-billion budget. If the federal government were to participate in half of that on a transitional period, you’d raise your taxes by 1.25%. That’s not making the earth move for anyone.
The fact is that existing homeowners are taking advantage of prospective homeowners. It’s 1.25%. I’m not talking about 10%. It’s not a big number.
Now, in politics, a dime is a big number, but the reality is this problem is going to put a target on the back of every incumbent if they don’t make some progress. I think that’s where some bold action is needed. You can’t make an omelette unless you break some eggs.
Senator C. Deacon: Mr. Love, that’s what I love. You have the facts and the clarity. I really appreciate that.
As I close, I just want to thank you for the clarity around the Canada Mortgage and Housing Corporation’s mandate and the need to streamline and focus it on accelerating the ability for Canadians to become homeowners because that’s why it existed for so many years, and it seems to have really migrated. Again, thank you for being with us. You’re always so insightful and helpful.
Mr. Love: To speak to a previous questioner about what we could do for young people, the Canada Mortgage and Housing Corporation could have a role. They could give a guarantee on single-family home ownership, which they don’t do now. They only do that for multiples, which reduces the cost of your mortgage by one percentage point. It would take 20% or 25% off the cost of your mortgage. It would make a meaningful difference. You’d have to have that managed by the banks because you need the banks’ large distribution system.
The Canada Mortgage and Housing Corporation could also have a meaningful role in what I’ll call deeply affordable housing, and that’s a space where we would have a fund that’s focused on building just deeply affordable housing. That is another discussion. The opportunity for the Canada Mortgage and Housing Corporation to use the government’s balance sheet to make a meaningful difference is very real.
Senator C. Deacon: If you have a suggested answer on the deeply affordable housing that you could forward, Mr. Love, that would be gratefully received. You can forward it to our clerk.
The Chair: Thank you, Mr. Love. I wish to echo the remarks made by our colleagues, Senator Deacon and Senator Yussuff, regarding the fact that your testimony is very clear.
As the executive chair of a company that has over $20 billion in your portfolio, we appreciate your insight. It is pretty unusual that executive people accept to testify before us. It is useful. It is important that Canadians understand exactly what is going on. We appreciate that, Mr. Love. We thank you for that.
[Translation]
Before we wrap up this meeting, I would like to take a moment to thank and acknowledge our many staff members who support us in our work. I would especially like to mention our interpreters and professionals who keep rising to the challenge. On behalf of the committee members, I would like to thank them.
The next meeting will be on Wednesday, at 4:15 p.m.
(The committee adjourned.)