THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, October 23, 2025
The Standing Senate Committee on Banking, Commerce and the Economy met this day with videoconference 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. 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 listening to us online on our sencanada.ca website.
Before proceeding any further, I would kindly ask my fellow committee members to introduce themselves.
[English]
Senator Varone: Toni Varone, Ontario.
Senator Fridhandler: Daryl Fridhandler, Alberta.
Senator Loffreda: Senator Tony Loffreda, Montreal, Quebec.
[Translation]
Senator Ringuette: Good morning. Pierrette Ringuette from New Brunswick.
[English]
Senator McBean: Senator Marnie McBean, Ontario.
[Translation]
Senator Dalphond: Good morning. Pierre Dalphond, De Lorimier division, Quebec.
[English]
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wallin: Pamela Wallin, Saskatchewan.
Senator Martin: Yonah Martin, British Columbia.
The Chair: Today, we will continue our special study, examining and reporting on Canada’s housing crisis and the challenges currently facing Canadian home buyers, with a particular focus on government taxes, fees and levies.
I would like to welcome to this committee, joining us via video conference, our first guest, Robert Howe, Partner, Municipal and Land Development Group, Goodmans LLP.
Thank you for accepting our invitation. Welcome to the committee.
Since you are appearing via video conference, if any technical issues or problems arise, let us know and we will interrupt our session temporarily and start again.
I understand that you have prepared opening remarks, Mr. Howe. I encourage you to keep them to around five minutes in order to allow committee members to ask questions after.
Robert Howe, Partner, Municipal and Land Development Group, Goodmans LLP: Good morning, and thank you for inviting me to speak to the committee today.
My law practice is devoted to municipal and land use planning issues in the province of Ontario, with an emphasis on the financial aspects of land development. Specifically, a large part of my practice is focused on the calculation and application of development charges, as well as agreements between developers and municipalities relating to the funding and construction of municipal infrastructure required for development.
By way of background, when we are talking about the impact of municipal taxes, fees and charges on the cost of housing, it is important to understand that municipalities only have three sources of funding: first, property taxes that are levied against all landowners in a municipality; second, municipal fees and charges that are imposed for specific purposes, which include development charges; and finally, the third source of funding is grants and subsidies from the provincial or federal government.
The purpose of development charges is to pay for infrastructure that is required to service new development, such as new roads, transit systems, water services, sewage collection and treatment services and stormwater management services. This is hard infrastructure that is essential for development to proceed and to maintain the livability of communities.
Because they are a fee or charge and not a tax, municipalities are legally required to impose development charges on a strictly cost-recovery basis. Development charges are required to be calculated based on what it actually costs municipalities to provide new infrastructure that is required to service new development. That cost recovery restriction is built into the development charges legislation in Ontario.
Municipalities are not perfect in terms of how they calculate and spend development charges. Often they are too high, and improvements can be made to how they are calculated and spent. Discussions are ongoing at the provincial level in that regard to try to improve methodologies used.
I would also note that I am involved in many appeals of development charges to the Ontario Land Tribunal, which is the administrative body that reviews development charge bylaws in Ontario. However, in the context of those appeals, the Ontario Land Tribunal is not entitled to consider the impact of development charges on the price of housing.
Generally speaking, where an exemption or reduction in development charges is provided to a development, the shortfall to the municipality’s capital reserve funds from not collecting the full amount of development charges needs to be made up from other sources. Municipalities still require the funds to build that infrastructure. Understandably, municipalities are reluctant to make up these shortfalls through increased property taxes.
I would suggest two potential solutions that should be considered to address the impact of development charges on the price of housing.
First, increase the amount of hard infrastructure that is funded by the federal and provincial levels of government. However, in doing so, it is essential that the provision of grant funding is legally tied to commitments from municipalities to provide corresponding reductions in development charges.
Second, consider developing an alternative fees and charges model for funding major hard infrastructure, in particular, water and waste water infrastructure, which make up a large proportion of development charges.
Municipal service corporations or utility corporations can be established that can borrow the funds to finance this infrastructure through debt or debentures. That debt is then paid off over time by collecting user fees from homeowners. This avoids the need for homeowners to have to pay their share of the costs of the infrastructure in a lump sum up front through the payment of development charges, which they will generally need to finance through a mortgage.
This is a much more financially efficient way to fund infrastructure, since it avoids the need for both the municipality to incur debt to fund the construction of the infrastructure and then for the homeowner to also incur debt, on which they will pay interest, to pay their share of the principal and interest payments on the debt the municipality has incurred, through taking on a mortgage in order to pay development charges.
Those are my opening remarks. Thank you for allowing me to address the committee on this important topic, and I am very happy to answer any questions that members of the committee that I am qualified to address.
[Translation]
The Chair: Thank you for your suggestions, Mr. Howe.
[English]
Senator Varone: Thank you for your insights into the development charge regime in Ontario. My question relates to other charges through the land development process. I refer to an article by Peter Norman from Altus with respect to “the missing middle,” that is, the housing that is missing, and steered to a certain category of housing, and that is very small units, one-bedroom and studio apartments, whereas the market is now demanding two- and three-bedroom units. Developers have opted for the large projects because, to a certain extent, it was fee-based.
I wanted your comments regarding the cost municipalities charge with respect to an official plan amendment, whether it is 400 units or a 20-unit walk-up, which both require an official plan amendment, and the kind of regime that is instituted in municipalities across Canada with respect to those kinds of charges that have the ability to make a small project unprofitable from the get-go.
Mr. Howe: Those types of fees and charges can be very problematic. Certain municipalities in Ontario, for larger projects, charge millions of dollars for those types of applications, but then also substantial fees and charges for smaller applications.
Those fees and charges — again, because they are a fee and not a tax — are intended to be a cost recovery and to represent cost recovery only, but municipalities in certain circumstances go beyond that. It is a problem.
The solution is for the provincial government to establish stricter regulations on municipalities when they are establishing those types of fees and charges.
Senator Varone: My follow-up question is with respect to low-rise development, subdivision agreements, where developers are asked to sign a subdivision agreement and, within that context, they have to bond off or securitize the internal road network, sanitary sewers and water mains, and there is no development charge credit for that. The development charge is external to that.
Once upon a time in Ontario, any infrastructure built that had a revenue source for the municipality by way of fees had the ability to become a development charge credit. Now it seems it is the obligation of the builder/developer to put in all of that infrastructure and the development charge only relates to things outside that.
How do you get back to the point where you are offering some sanity to the builders and developers in this industry?
Mr. Howe: That is a significant issue. We are involved in many appeals of development charge bylaws where we are having a dispute with the municipality over what should be funded by development charges and what should be funded by developers as a local service.
Typically, from a legal perspective, if it is a local service the developer is going to build, it cannot be included in the calculation of the development charge.
The rules are there today to try to prevent that from happening, from the developers having to construct infrastructure as part of their subdivision and then also pay a development charge that includes that same cost.
The rules are there today, Senator. Again, it is a matter of enforcement.
Senator Varone: Is there provincial oversight for the enforcement?
Mr. Howe: The problem is the oversight is all in the hands of the developers. That is a major challenge.
Municipalities establish development charge bylaws based on the rules that are in place. If the municipalities do not follow the rules, it is up to the developers to come up with the resources to appeal the development charge bylaws to the Ontario Land Tribunal, which is a significant problem.
There are circumstances, senator, where municipalities have required developers to build infrastructure that is supposed to be funded by the development charge. That is a significant problem, particularly for major projects, like significant arterial roads that go through a plan of subdivision. Municipalities will now sometimes require developers to build them but not give them development charge credits in return. That is a particular issue that I think would require a legislative solution from the Province of Ontario.
Senator Fridhandler: On the premise of strict cost recovery, do you see a divergence of practice outside the Greater Toronto Area, or GTA? Are there instances where municipalities might undercharge on cost recovery because they are increasing their annualized tax base and, therefore, it is economically beneficial because they are trying to attract more development?
Mr. Howe: Well, there are some municipalities that are more willing to consider the impact of development charges on housing and the impact of development charges on the rate of development within their municipalities.
However, by and large, I’m not seeing a significant difference between the way municipalities within the Greater Toronto Area and maybe in some of the areas outside the GTA would approach how they impose development charges.
Senator Fridhandler: In the same vein, your suggestion for alternative funding models and the use of municipal finance, how do you see the inequity on the user-pay model diverging from the cost recovery for the development per se?
Often, pieces of infrastructure that are put into place are also servicing developments that had previously existed and are being upgraded into the new system. Is this an issue as you deal with the cost recovery direct to those benefiting from the new development?
Mr. Howe: There would be an issue in establishing through the user fees imposed by the municipal services corporation, or the utility corporation, in terms of those who benefit should pay for it. There are different ways to do it. They can be area-specific, if you are talking about development in a newly developing area, or they could apply municipality-wide.
There are various options for figuring out a fair way to impose those user fees so everyone who is benefiting from them pays. That is something that would need to be sorted out. I do not see it prohibiting that approach. It is an approach used, we understand, very successfully throughout the United States, for example. I don’t think there’s any reason why it can’t be used in Canada.
Senator Loffreda: Thank you, Mr. Howe, for being here with us this morning.
My question is about the elimination of the GST for first-time home buyers on units valued at $1 million or less, as proposed in Bill C-4, now before Parliament. Some have argued that the $1-million threshold is too low, particularly in the high-cost markets like the GTA and Vancouver.
Others suggest the exemption should also apply to current homeowners purchasing new builds, since first-time home buyers make up only a small share of new home sales.
What is your take on these two perspectives? Would you support expanding the policy? Are there any specific amendments to the bill that Parliament should consider?
Mr. Howe: Yes. I would absolutely support changes to what is proposed in that regard. It is great to give a break to new home buyers but, as you say, they only make up 20% or less of the entire market.
For example, take seniors who are downsizing from their existing homes; they are buying new units in new builds. They are not first-time home buyers. They presumably are not getting the advantage of that rebate if the new home they are buying doesn’t meet the financial criteria.
It is a problem. Housing affordability is an issue not just in respect of high-density, high-rise residential development in urban centres. It is an issue across the market. We would definitely support extending the reduction in the GST so it is not limited only to new home buyers.
You could consider putting a time limit on it if you wanted to really encourage new housing. So, initially, put a three- or four-year time limit on that program to try to kick-start some development. I do think it would make sense to extend it beyond what is proposed.
Senator Loffreda: Thank you.
Earlier this year the C.D. Howe Institute released a report suggesting that one way to improve housing affordability in Canada is by growing our smaller cities. You did talk about urban centres in smaller cities that can better compete with large urban centres for residents.
The report argues that strengthening these smaller communities could allow them to benefit from conglomeration effects, the economic advantages that come from people and industries clustering in urban centres, and supply housing at lower cost.
The authors do warn if we focus strictly on increasing supply in our major metropolitan areas, we risk seeing those gains offset by in-migration from other cities, leaving affordability largely unchanged.
Do you agree with that assessment? How important is it for smaller cities to attract more people as part of the broader effort for tackling the housing affordability crisis?
Mr. Howe: That is probably beyond my area of expertise as a lawyer. Based on what I observe from the housing market, obviously those smaller centres and the growth of those centres present opportunities. Certainly, in the Greater Toronto Area, growth has traditionally happened throughout the Greater Toronto Area including in our smaller urban municipalities.
I probably cannot say more than that on that topic, sir.
Senator Wallin: To follow up, Mr. Howe, on Senator Loffreda’s point, you are looking for some incentive to have seniors or boomers actually move out of their existing homes to create supply, perhaps for first-time buyers. We could change the regulations around the GST issue with first-time home buyers. What else could you do to incentivize that?
Mr. Howe: Again, as a lawyer, I am not sure that I am qualified to speak to that, senator.
Senator Wallin: We will see if we can come up with some other answers.
We have looked at this issue in a report we did a year or so ago. What we heard consistently — and you have said it again today — is that with development charges and environmental regulations, there are inconsistencies in rules. Even within a municipality, literally from one side of the street to the other, have different rules there.
What would be the most important roadblock you need to see removed, whether it is for reasonably priced homes, affordable homes or low-income homes? Is there one thing that could be done that would cover all of that?
Mr. Howe: Yes. Again, I think it is addressing the impact of development charges, which place a huge burden on the cost of a home. It is so substantial. They are going up every time we review the development charges bylaws, typically every five years. I am involved in many of those reviews. Every time, those development charges are going up typically 20% to 25% every five years. Those are massive increases, and it is unsustainable. We need to find a different and better way to fund that major infrastructure in particular.
Senator Wallin: That is the big one.
This is an age-related test we imposed yesterday on some of our witnesses. We are looking at the issue of multi-unit residential buildings, or MURBs. We have tried that before in this country.
What do you think the lessons learned from that are? Should we try it again?
Mr. Howe: The funny thing is, my father invested in MURBs and ended up with two MURBs units when the program was disbanded.
I am not that familiar with the details of how that worked. From what I have read about it, it is an innovative approach and did get housing built. That is what the statistics show — that when the program was implemented, it did get housing built. I certainly would support it.
Senator Wallin: What kind of housing? Do you agree the system was obviously abused for tax purposes?
Mr. Howe: That was the nature of the incentive that was given, I thought.
Senator Wallin: Maybe not the abuse part.
The Chair: Interesting.
Senator McBean: Thank you. It is always a problem when you are following excellent question askers; they are mowing your lawn. Between Senator Loffreda and Senator Wallin, who came in quite tight, I wanted to ask about what changes to federal financing programs or tax policies would make it easier for developers to bring new housing. I hear you saying to decrease the development charges. If you have a more fulsome answer on that, please go ahead.
Mr. Howe: From the federal government’s perspective, obviously the municipalities are creatures of the provincial government. The federal government has less ability to directly impact development charges.
The easiest way for the federal government to get involved is to assume some responsibility for funding major infrastructure, particularly transit, water and waste water infrastructure and perhaps roads and other major categories of infrastructure as well. In doing so, they should ensure that municipalities are legally required to reduce development charges in exchange for receiving those grants.
In the past, we have seen circumstances where municipalities have received grants but were not then required to adjust their development charges accordingly. I’m not talking about federal grants. I’m talking about some provincial grants that I am aware of. That is obviously a problem.
From the federal government’s perspective, the other thing we have talked about is the GST. That is an additional tax on new home ownership. That is the other obvious area where there would be a role for the federal government.
Senator McBean: Mr. Howe, do you think that the federal government should be playing a part in modernizing or harmonizing building codes to improve predictability and reduce costs for housing developers across the province? We had Mr. Norman here the other day talking about the regulatory burden on developers. I sit on another committee where we are talking about wildfires and how for the development of fire- and flood-safe homes, there is a requirement for increased regulation and bylaws.
Do you think that the federal government should be standardizing such things? Would it be helpful?
Mr. Howe: That is tricky. I am not an expert in the building code. I am not an expert in those sorts of issues that might be improved by a harmonization of building codes across the country.
I think in any instance where there are various jurisdictions that have differing regulations, it is always helpful to try to standardize and harmonize those. To the extent that the federal government can take a role in that, it would be helpful. Again, I’m not an expert in building code issues.
Senator Ringuette: Thank you for being here. I would like to tap into your deep experience in the legal field in response to the Ontario Development Charges Act, 1997. I have a portion of it in front of me. You mentioned two elements, which I believe testifies to the experience that you have in the field. You said, first, there is a problem of enforcement in regard to the act; and second, that Ontario needs to review its legislation in this regard.
On the enforcement part, how would you suggest that be done? On the legislation part, do you believe that there should be a cap on the fees? For instance, it could be a percentage of the value of the building or the residence.
Can I have your feedback on these two items?
Mr. Howe: Sure. In terms of enforcement, the current system allows appeals to the Ontario Land Tribunal. Improvements to the legislation could be made. The provincial government has been reviewing it and has made several amendments over the past few years, which have been helpful. They are considering additional amendments, which would also be helpful, because the clearer the rules are and the stricter the rules are set out on the face on the legislation, the easier it is for developers to ensure that what’s imposed on them is reasonable.
The problem is that the way the Development Charges Act, 1997, is currently set out, it provides almost a framework, a very high-level methodology for calculating development charges. The problem is that we get into disagreements with the municipality as to whether they’ve done it appropriately. Often, the test comes down to whether the municipality has acted reasonably. That’s a very high bar for the developers to address, and it’s also very expensive.
The other problem that developers have is that there is a financial incentive for them to move on, and if they’re fighting with the municipality over development charges, then maybe the municipality will not cooperate with them with respect to other applications that they have before the municipality. That’s just a practical consideration.
There is no perfect answer to that. I would like to say that we should have the provincial government come in and enforce it, but that may not be a realistic approach.
Senator Ringuette: Could my suggestion of a cap for the value not be an element of the solution?
Mr. Howe: It could be an element of the solution. It depends on what the cap is. You need to be careful for two reasons. First, the Province of Ontario imposed a separate fee three or four years ago called a community development charge. That’s paid on top of the development charge, and it was intended to replace another archaic system that was for additional services to be provided for high-density residential development in particular.
The provincial government said that you can establish what is called a community benefits charge on top of your development charge, and you have to do a study to establish what the needs are, but it’s capped at 4% of land value. So you still have to do the study, you still have to justify it and it’s capped at 4% of land value.
I would say that 95% of municipalities in Ontario then imposed a community benefits charge that was 4% of land value. So 4% was the cap, and every municipality basically said that they were just going to impose the cap. They came up with a study that justified it. Now there is simply a 4% tax on high-density residential development in most municipalities on top of the development charge. So that’s a problem with establishing a cap. I’m not saying it’s useless.
The other problem is that the municipalities do require the funding. The problem is that if you establish a cap that’s too low, there is a possibility that the municipalities won’t have the money they need to build the infrastructure. This is the problem; it’s this balance. Because if a waste water treatment plant expansion is required and the municipality can’t pay for it, then development just doesn’t happen. It’s absolutely required.
Senator Dalphond: My question is directed to a project that was just approved earlier this week. Build Canada Homes, or BCH, has announced that they will provide close to $300 million to improve the Black Creek sewer system. Are you aware if that is going to be in any way factored into the development costs that would be expected? I ask because it says that this is a project that will unlock up to 63,000 new homes. I imagine the infrastructure makes it possible to build new homes. Have you heard anything about whether it will decrease the development costs for the developers?
Mr. Howe: I’m not familiar with that particular project, but this is a good example of how, where grants or funding is provided, it has implications for the development charge. I don’t know about the City of Toronto’s development charge and whether this project is in that development charge, but it might be. If it is, the City of Toronto should be required then to reduce their development charge to account for the fact that it now has a new source of funding.
The city is not required to update its development charge bylaw for another five or six years under the legislation. So the problem is that developers could then be paying a development charge that’s too high for the next five or six years if the city is receiving another source of funding for that project.
Some municipalities do it right. The City of Barrie, for example, just received some grants from the provincial government under their water and waste water grant program that the province has established for encouraging new housing. When they received those grants, the City of Barrie immediately amended their development charge bylaw to reduce the development charge to account for that additional funding they were receiving. That’s the right way to do it, but not all municipalities do that. In my experience, in the past, the receipt of these grants has not been specifically tied to corresponding reductions in development charges, and it should be. I’m not suggesting this project in the City of Toronto is in the development charge. I’m saying in a general sense, yes.
Senator Dalphond: To come to your suggestions and proposals to have a user fee, what portion of the development cost goes to water systems and waste systems?
Mr. Howe: With most development charge bylaws, the water and waste water component of the development charge can be 50% or more. It’s very substantial. The three biggest categories are typically water, waste water and roads. Transit is often a fairly significant component. Those would be the top four. The others are what we would call softer services like parks, libraries and that type of thing. They’re not insignificant, but they’re not as significant as the others.
Senator Dalphond: Sorry. I have to interrupt. Time is running out. To come back to that, that would represent half of the development costs, which is a substantial part, because we’re told these costs can go up to $200,000. On average, it’s $82,000, according to an Altus study. That will represent a 50% reduction.
You said this system of user fees is widely used in the U.S., and the municipality will be financing by issuing bonds, and the bonds would be paid back with the user fees.
Mr. Howe: Yes, that’s the idea. Often, the municipality will establish a separate service corporation or utility to manage that, but it is typically done through the municipality.
Senator Dalphond: Thank you.
Senator C. Deacon: Thank you very much for being with us today. I’m just wondering about the intergenerational disparity that development charges create, such that new home buyers are supporting the new infrastructure. Jon Love, when he spoke with us, suggested that to replace all the development charges in Toronto, for example, with property taxes would cause about a 1% overall increase in property taxes. So, it’s disproportionately affecting those who are new home buyers, whether it’s a condo, a home, et cetera.
What are your thoughts on that subject? I ask because this is something the federal government needs to be concerned about. This is a harm to our democracy as far as I’m concerned, that those who already have a home are not helping to make it equally affordable to others.
When you hear that in Toronto, the cost of a condo goes up 50% when the development charges are added to it, that is a massive disparity.
Mr. Howe: Yes, I agree with that. You would have to be sensitive to what the impact would actually be on the tax. I was not aware of that figure you just shared with me, 1%. It doesn’t necessarily surprise me.
I think there was some testimony in previous sessions where you talked about the benefit-to-existing component or the benefit-to-existing test or consideration that’s given in establishing development charges. Under the legislation, to the extent that new infrastructure benefits existing development, the municipality has to fund that component through other sources, which would typically be property tax because they have limited resources to do that.
I would say the biggest or most significant disputes that we typically have with municipalities over how they calculate development charges is that they do not allocate enough of the services being funded through the development charge to that benefit-to-existing category.
Senator C. Deacon: You can see a lot of arbitrary decisions in that process.
Mr. Howe: Absolutely. They want to keep taxes low, and traditionally, they’ve said developers can afford to pay, essentially, a tax on development, but that is a significant problem. That is something the provincial government is currently looking at to try to establish new regulations under the legislation.
Senator C. Deacon: It’s also something the federal government could say: If we’re going to provide support, we’re going to ask for there to be some relief.
Mr. Howe: Right.
Senator C. Deacon: I gather most municipalities in this country, including Toronto, need more cars; there’s just not enough on the roads right now. I’m just wondering about the incentives around increased development around transit facilities for shopping, food and more jobs in those areas, as well as having transit fill both directions, not just one direction. Certainly when I started working in the early 1980s, it was all in one direction one time of the day and the other direction the other time of the day.
Mr. Howe: Right.
Senator C. Deacon: Those incentives to push development in areas where we can maximize transit can save families $6,000 to $8,000 a year by not having to own a car. It addresses the affordability issue quite well.
Mr. Howe: The Province of Ontario is trying to deal with that. They have established regulations or rules around what they call major transit station area development, encouraging high density and establishing minimum densities that municipalities have to allow within those areas. That is a very critical thing to do, to ensure that we are getting those higher densities in areas where we’re spending on the infrastructure —
Senator C. Deacon: How can the federal government help push that?
Mr. Howe: I guess to the extent that the federal government is providing funding, they could establish criteria around that. I think it would be more difficult for the federal government to get involved in the details of that, to be frank.
Just so we understand, you have transit stations, but it’s part of a system, and people don’t use it unless it’s convenient. Part of the reason why it was one way back in the day is because there wasn’t enough of it going into other areas, other places where people wanted to go. It’s about expanding that transit system as much as we can to make it a convenient system that people actually want to use.
Senator C. Deacon: Thank you very much.
Senator Martin: Thank you very much for your testimony and the expertise that you are bringing to the table today.
I know a foreman on a construction site who says every day the city rolls up, he’d rather just accept the penalty or the fee rather than the time that it takes to process all of that. There is the time piece, and there is the money.
If, as you say, one of the sources of revenue for a municipality is the fees and development charges, I’m just trying to understand how we can bring those down, other than, as you say, one of the solutions being to increase the number of grants from provinces.
With that, I know you’ve appeared before tribunals and councils on major land-use matters and you have a lot of insight. From a land-use planning and legal perspective, which specific, non-tax municipal fee or regulatory approval process imposes the highest non-recoverable financial cost due to delays on residential construction?
Mr. Howe: I think from a cost perspective, it’s the development charge. In terms of regulations that impose delay, I don’t think I could single out just one.
Senator Martin: What are those, when you say you can’t single one out? What are some of them?
Mr. Howe: The biggest issue with getting development approvals is the processing of applications. If you’re building a high-density residential development, you will first typically require a rezoning, and then you will require what is called site plan approval. Those processes can take years, and that’s the biggest problem. From start to finish, it might take three or four years to get a development approved, and then once you have that approval, you’re looking at getting your servicing plans approved. That can take additional time. It also depends on the nature of the development.
I have developments in urban suburban municipalities in the Greater Toronto Area where I opened my file in 2010. It’s 2025, and we don’t have shovels in the ground yet because we have literally been fighting with the municipality for the last 15 years. We’ve been to the Ontario Land Tribunal, and they’re just not getting it. They don’t see it as their role to facilitate development, and it’s a problem. They say they require all these things, but every time you turn around, there’s another layer of regulation that municipalities are attempting to impose. It’s a big problem.
Senator Martin: It’s a huge problem. It is so complex.
Mr. Howe: And there is not a simple solution to it.
Senator Martin: No, but thank goodness for the courage of the industry.
Mr. Howe: You can’t say there’s just one issue.
Senator Martin: The fact that the industry continues to try and develop and do what they do is very courageous of them, so thank goodness we have very hard-working developers and builders who will plow through no matter what.
What is the most effective federal policy lever to incentivize or compel municipalities to expedite these processes?
Mr. Howe: Money, I would say.
Senator Martin: I was thinking that’s probably it.
Mr. Howe: The federal government, constitutionally, is not directly involved in regulating municipalities. I would say, frankly, to the extent that the federal government is prepared to provide grants or funding to municipalities for the infrastructure they need, it needs to be tied to performance and reductions in fees and charges. Those are the types of things that need to be considered.
Senator Martin: Thank you.
The Chair: It would be an interesting conversation with the Quebec government if they wanted to tie things together with local municipalities.
Senator Yussuff: Mr. Howe, thank you for being here and sharing your thoughts. Obviously, it’s a very complex problem with different potential solutions for different parts of the ecosystem because it’s not all the same.
Even though we have big urban centres and smaller ones, it’s about recognizing that everyone charges a development fee and to a large extent it is revenue generated for the municipality. In some cases, yes, it is to provide infrastructure; in other cases, it is just revenue generation.
A major project in the greater part of downtown Toronto or, where I live, closer to the High Park area, you already have the infrastructure. All they are doing is building the condos. The land, subway, transit system and sewer system are there. Still, development charges will be imposed on the developer of that project.
The only way to look at it to make any sense is the municipality is going to generate revenue by imposing that, even though there is no new infrastructure required for that facility to be constructed. Yet the municipality would justify it by saying the offset is we will keep taxes low for other taxpayers in the city.
Is there any way we can have the same metrics for how we measure these things? The country is so complex. I understand rural communities where the sewer system is not there. They’re trying to figure out how to pay for that, and it is very costly. In other places where it already exists, should there be a rule that there shouldn’t be any development charges there? Because all you’re doing is forcing the first-time homeowners buying that condo to pay the additional money, which keeps them out of the market in the first place.
Mr. Howe: To say there would be no development charges is only the solution if you find another source of funding, because a lot of the infrastructure is needed. In terms of it being a revenue source for the municipality, again, I don’t think municipalities are perfect in terms of how they use their development charge funding. However, the rules — in Ontario, at least — are they have to put money they collect into a special reserve fund and use it only for the purposes for which they’ve collected it. They can’t take development charges and use it for general operating or capital expenses unrelated to the needs of growth. Those are the rules. Maybe they’re not always adhered to, but I think for the most part they probably are.
In terms of your example of development in areas that have services, and then development in areas that don’t have them, the way development charges work, it’s an averaging; it’s an average cost or an average price that everybody pays.
That developer in High Park, they are able to take advantage of infrastructure that someone else paid for. If you have a developer at the waterfront of Toronto where there isn’t infrastructure, that infrastructure has to be provided.
The solution, if you don’t charge the developer in High Park a development charge, is you have to charge a higher development charge to the person at the waterfront. Instead of their development charge being $175,000 a unit, it is $350,000 a unit. That makes development in those areas that don’t have any infrastructure absolutely prohibited.
There is a rationale for that system wherein, in areas of the municipality that have infrastructure, those developers still pay a development charge because you average the cost over all development. The fact is that they’re getting a benefit from infrastructure that somebody else paid for.
Senator Yussuff: Is there an approach to this somewhere else around the world you have looked at where maybe it is not ideal but is far better than the patchwork we have in this country, where it varies across jurisdictions?
Is there a better model somewhere else that we could look at as a country, one that might lead us to say that if we brought in this system, it would certainly provide a better way of dealing with development charges?
As much as we’re shining a light on it, I don’t know if we have the solution — unless we come up with more money — as to how we can help the municipalities do some of the things they want to do, which are important to get development.
Mr. Howe: Right. I have not studied that. I would defer. I know the next two witnesses well. I know those are issues they have considered. I would defer to them on that issue in terms of how things are done in other jurisdictions.
Senator Yussuff: Thank you.
The Chair: You presented two solutions. The first was to increase the share the provincial or federal governments pay for development costs. Could you elaborate on the second solution presented and what the impact on the debt ratio would be to those cities or municipalities who go that route?
Mr. Howe: The idea is the service corporation that provides the utility or service is not going to be subject to those same debt regulations that municipalities would be subject to. The debt those entities incur is not factored into the municipality’s debt ratio. They will issue debentures. It’s possible that some guarantees from levels of government may be required to facilitate that funding. That’s beyond the scope of my expertise.
I know Mr. Keleher, who is about to testify, is an expert. He is an economist. He has studied this issue more extensively.
The Chair: Thank you.
Mr. Howe: He would be able to answer those questions.
The Chair: It will be interesting.
Senator Loffreda: Mr. Howe, we’ve covered a lot of ground. Is there anything further you wish to discuss or leave with us? You gave us two solutions. In your view, what actions, policies or regulatory reforms could deliver the most immediate impact on the sector, and why?
Mr. Howe: In terms of the most immediate impact on the sector, unfortunately, the obvious solution is one that has its own challenges because there is a lot of competition for scarce resources, but it is having the higher levels of government fund this major infrastructure that development requires. From a development charges and municipal taxation perspective, that is the best and quickest solution to see real results.
The provincial government in Ontario has been providing relief. The City of Toronto has provided relief. We have seen projects, our own developer clients, now trying to make projects work. It has been having some impact.
To make the pro forma work, getting a reduction in development charges can and does make a difference. The only way to reduce the development charges is to replace them with another source of funding.
Senator Loffreda: Thank you.
Senator Varone: You can answer the question in written form if I go too far and it’s too complicated. The question goes to the regulatory burden in Ontario.
Specifically, I spent the summer in one instance with a round table of builder/developers who gave me the rule of thumb in Houston where they were developing. They are national builders. From cradle to grave, it was eight months, literally from the time they bought the land to the time they got the building permit; in Toronto, it’s eight-plus years. You alluded to the part in Toronto. Then the comment was that there was no appreciable difference to the outcome of the built form. Why is there this gap?
Mr. Howe: Sir, yes, I hear that from my own clients all the time. I can’t say I can answer that question because I’m not familiar enough with their experience in Houston.
My experience is in Toronto and the Greater Toronto Area mostly. It takes an incredibly long time. I don’t know what they do differently in Houston to make it more efficient. Maybe they have more staff or fewer regulations. I presume the difference is they don’t try to micromanage every single thing.
The Chair: Thank you, senators and colleagues, and to our witness, Mr. Howe, for your discipline this morning.
Mr. Howe, your testimony and contribution will be taken into consideration by this committee when we report this study to the Senate. Thank you for your time.
[Translation]
Honourable senators, we are now ready for our second panel of witnesses today as part of our study on the housing crisis.
Our second panel is, once more, appearing by video conference.
[English]
I wish to welcome our guests, David Wilkes, President and Chief Executive Officer, Building Industry and Land Development Association; and Daryl Keleher, Principal, Keleher Planning & Economic Consulting Inc. Thanks to both of you for accepting our invitation. Welcome to this committee.
Mr. Wilkes, I understand that you have an opening statement. That will be followed by questions. You have around five minutes.
David Wilkes, President and Chief Executive Officer, Building Industry and Land Development Association: Thank you very much, senator, and thank you for chairing the committee. I look forward to this conversation.
Good morning. Thank you for inviting me here today to share our organization’s thoughts on Canada’s housing crisis and the challenges facing Canadian home buyers.
While I will focus most of my comments on development charges, or DCs, today, 25% of the cost of a typical new home in the GTA is composed of government fees and taxes, and consequently I would be happy to answer any questions on those government-imposed housing charges.
As background for today’s topic, through our research group and in conjunction with some of the experts who are appearing before this committee, we have extensively researched and documented DCs and their impact on housing supply and affordability and identified solutions for reducing costs on new home buyers.
Before sharing our perspective on what solutions the committee should consider, I would like to provide three points of context.
Development charges are predominately used in two provinces, Ontario and British Columbia, where they are referred to as development cost charges. B.C. and Ontario also have the highest average home and new home prices. I would suggest that these two factors are not unrelated.
Referring to Ontario municipalities, as of 2025, they have over $12 billion of unspent development charge revenues in their collective DC reserves. The vast majority of this has been accumulated in the last decade and mostly in the major urban municipalities within the GTA, where growth is heavily focused.
Development charges have increased far faster than the cost of building and appreciation of property values. For example, in the City of Toronto, the DCs on a single-family home increased from $14,000 in 2011 to $138,000 today, or an 885% increase, with obvious effects on affordability.
I would mention that DCs do perform a vital function in supporting the services and infrastructure required to support growth and new housing. We cannot go back and we are not suggesting going back to a previous system of lot levies that preceded DCs, but we must — and this is critical, and I welcome the focus of this committee — find a way to stop loading so much cost on new home buyers in the way that the DC system currently does. Doing so not only distorts the housing market and erodes affordability, but it also creates barriers to entry into markets —
In this regard, I would like to offer four practical solutions for the committee’s consideration, some of which have already been discussed by the previous witness. Water and waste water infrastructure should not be funded up front via DCs paid at building permit, but over the life cycle of the home through a utility model. Almost 50%, as Mr. Howe mentioned, of the cost of a typical DC is water and waste water infrastructure. Like any heavy civil engineering project, it should be debt financed. This is how it is done in Quebec and many parts of the U.S.
Municipalities should be required to lower their DC reserves that are at that $12-billion mark I mentioned to a more appropriate level and spend the excess they have collected immediately on housing-supportive infrastructure.
Municipalities must ensure DC studies — which are on how those charges are defined — are focused on those areas uniquely required to support growth. A review of how growth funding tools are used across Canada and what are defined as acceptable charges should be undertaken to inform this discussion.
Finally, DCs must be made far more transparent to the end purchaser, by making them a separate bill directly paid by the new home buyer at the time of closing. The Globe and Mail recently called DCs the biggest tax you have never heard of. We make taxes visible in this country for a reason — it informs the consumer and promotes accountability. Why should DCs be any different?
I understand, of course, that DCs are the current focus of my comments and much of this committee’s discussion; however, I would be remiss if I did not mention GST on new homes as I close. When the GST was first introduced in 1991, it included a measure to rebate a portion of the GST so it didn’t affect affordability. At the time of the introduction, 95% of new home buyers would be eligible for the rebate to ensure that this measure did not affect affordability and the challenges that we’re currently funding. That measure was supposed to be indexed every two years to reflect current market conditions, and we’re still waiting for that indexing measure to take place some 36 years later.
As part of the November 4 federal budget and reflecting much of the discussion I heard earlier, we believe that the government should make these adjustments that are well overdue. In particular, for a minimum of three years, a GST exemption should be provided for the first million for the cost of a new home for new home purchasers of all types, not just limited to first-time buyers.
The intent of the program was never to bifurcate between types of buyers, but more to have a universal application and ensure that it didn’t affect affordability. That certainly is not the case now. Thank you for the opportunity to make my opening remarks. I look forward to the discussion and the questions on this very important topic.
The Chair: Thank you. Mr. Wilkes.
Mr. Keleher, I understand you have opening remarks as well. The floor is yours.
Daryl Keleher, Principal, Keleher Planning & Economic Consulting Inc.: I do, thank you. Thank you for having me here today.
My name is Daryl Keleher. I am an urban planner and land economist in private practice. My practice deals with economic issues related to urban planning matters but specializes in municipal finance, with a particular focus on the fees, charges and taxes that are imposed on new homes.
Over my nearly 20-year career, I have worked on matters involving municipal finance in nearly 90 Ontario municipalities and numerous others across Canada. I am a frequent expert witness at the Ontario Land Tribunal, and I have been involved in numerous large-scale redevelopment projects, helping clients understand and manage the financial aspects of capital infrastructure requirements on their development.
While the development charge system is a fundamental part of the legal structure underpinning the land-use planning system in Ontario, at the same time I’ve seen first-hand how these fees and charges can act as a constraint on the delivery of new housing.
Earlier this year, I authored a policy paper for the Ontario Home Builders Association, or OHBA, and the Building Industry and Land Development Association, or BILD, entitled “The State of DCs in Ontario.” My report analyzed the factors driving continued DC rate escalation and provided recommendations regarding how DCs can be simplified, standardized and right-sized, in terms of both how they are calculated and how they are imposed.
While the largest government-imposed charge on new homes is HST, municipal DCs are the largest cost imposed by municipalities on new housing development in Ontario. The Ontario DC system and the complete legal code it provides is the foundation used to establish funding models and related agreements for provision of capital works, or, on the municipal side, as the basis for incentive models that municipalities use to encourage and/or direct growth.
DCs pay for capital works needed by growth in nearly 20 different service categories, including roads, public transit, water, sanitary sewer, storm water, recreation, libraries, child care, waste diversion, planning studies, public health, long-term care and bylaw enforcement, as well as fire, police and paramedic services.
It’s a long list, and the capital costs to provide all of those services can be staggering. In most major municipalities, the majority of DC rates are collected for major hard infrastructure works, such as transit, roads and servicing water, waste water and sanitary. In the same way that municipalities offer DC reductions as incentives to encourage new housing, lowering DCs through structural change can be expected to spur development and make a broader range of housing developments feasible that may not be feasible otherwise.
While I have said in numerous public proceedings that DCs are often too high, the base legal system is too important and ingrained in Ontario’s planning regime to be eliminated entirely. Simply cutting DCs without ensuring that the housing-supportive infrastructure is funded would be counterproductive. Together with OHBA and BILD and support from the Association of Municipalities of Ontario, or AMO, I have helped guide an ongoing collaborative process involving both development industry and municipal experts, with that process resulting in detailed recommendations being provided to the Province of Ontario about how the DC system can be modernized.
Those detailed recommendations would see changes that would right-size DC rates by ensuring DCs are limited to the base objective of being a cost-recovery model by standardizing and simplifying the DC rate-setting process; reduce points of negotiation and subjectivity in how legislation is interpreted and applied; and eliminate the inflationary effects that escalating land values have had on DC rates. Second, it would reorient how costs are imposed for certain services, such as water and sanitary sewer, changing the current upfront DC payment model to a recurring payment model, as is done in many jurisdictions across Canada and North America.
Under the current DC model, the principal and interest costs associated with municipal debt used to finance capital works get embedded into DC rates. Those DCs are then paid by builders via the building permit, with those costs passed on through higher housing prices. This arrangement is highly inefficient and adds unnecessary risk to both municipal budgets by utilizing finite borrowing capacity and creates a burden should growth not occur as planned — also, individual mortgages, resulting in private mortgage holders paying principal and interest costs to pay for municipal principal and interest costs.
Beyond the recommended changes to modernize the DC system, there are other actions that I think would help achieve the necessary goals of reducing DCs and costs for development but ensure that capital works are funded. First, have federal and provincial governments take on much a larger share of capital funding responsibility for major region-building transportation infrastructure. Municipal DCs are the primary source of capital funding for works, such as new or extended subway lines, road/rail grade separations, LRT lines and so on. These are very expensive projects for a municipality to finance, fund, build, operate and maintain.
Second, have federal and provincial governments provide funding and/or financing for water and sewer infrastructure works and encourage more efficient cost recovery models that are based on recurring charges instead of upfront charges.
These changes would reduce the burden on both municipalities and new home buyers, reduce constraints to new housing supply and create servicing and transportation capacity for Canada to continue to grow.
Thank you for the honour of speaking to this committee today. I am happy to answer any questions you may have.
[Translation]
The Chair: Thank you, Mr. Keleher and Mr. Wilkes.
Colleagues, for the second panel of witnesses, I propose that we limit the questioning to four minutes each, and if there is time, we will do a second round of questions.
[English]
We will start with the deputy chair.
Senator Varone: My first question is to Mr. Wilkes, and I am referring to a Toronto Star article from July 23 that was written by Mark McQueen and in which you were quoted. The title of the article is “Toronto’s housing crisis is more about greedy governments than ‘market failure.’”
McQueen goes through the process of the origination of the HST on new homes. You alluded to it. The article talks about the escalator that was supposed to be part of this $450,000 cap. Where would you see that cap being today if it had been imposed back in 1991?
Mr. Wilkes: Thank you for the opportunity, senator.
You are right: I dug out the original Goods and Services Tax Technical Paper that was tabled then by the Honourable Michael Wilson. It looked at the program, which is where we quote the numbers from. It indicated that the GST/HST New Housing Rebate program, as I mentioned:
. . . will affect over 95 per cent of new house purchases. As a result, the GST will not pose a barrier to the affordability of new housing in Canada.
I’m quoting from the technical document that was published back then.
Looking at the inflation of the rebate threshold of that $350,000 it currently is, we’re suggesting that the $1-million mark I mentioned would be the appropriate one for the full rebate. We are in a unique time now, senator, where we have a tremendous housing crisis. Sales have stopped; we are literally 85% down from the 10-year average in the GTA. There are similar declines in Vancouver, and we’re also seeing declines now in Edmonton and Calgary. That is why we believe the recommendation that we put forward to the government for an exemption for a three-year period for the first $1 million of a purchase would be the measure required to address affordability and also bring people back to the market.
Without doing so — and I will limit my comments here — we are going to see a severe housing supply shortage; an increasing affordability shortage, since we aren’t bringing product to the market; tremendous job losses; and reduced economic activity. A $1-million threshold and complete exemption for three years are the recommendation.
Senator Varone: I read your report, Mr. Keleher, on the state of DCs in Ontario, which you just referred to. On page 17, you were very eloquent and diplomatic in your perspective, saying:
It is not uncommon for municipal DC studies to provide little explanation for the BTE allocations made for each project . . .
To verify that, I went back to the Hemson report. I needed to read it during waking hours; it was a tough report to get through, because I couldn’t understand what they were saying.
Can you elaborate upon the benefit to existing?
Mr. Keleher: Sure.
I was right in the report: There is not a lot of background information provided in the background studies. The background studies are usually, depending upon the municipality, 200 to 400 pages long. There is a lot of detail, but one of the areas where they generally tend to lack details is on that crucial split of capital cost responsibility between development charges and the growth sector and the existing taxpayer. Usually, it is a number provided in a table, and there might be a small bit of preamble explaining the general rationale, but what is generally required is someone like me, a peer reviewer, coming in and asking questions to find out why this is 5%, 10% or 50%.
Then, there are often disagreements about how to apply the general philosophy of how to apply a benefit to existing. There is a fundamental philosophical disagreement between some of the consultants in the industry, who do this work where growth may trigger a project. Even if growth didn’t occur, would this project have been required? If the answer is no, the project wouldn’t have been built if it weren’t for growth. That is the trigger.
Does growth trigger the project? That is a separate question. Based upon how I read the legislation, it is a separate question as to whether, even if the work is triggered by growth, existing development benefits from it. The example I will use is the City of Brampton. In their parks and recreation DC, there is a cricket stadium. It is not a cricket pitch in a park that might need to be expanded on pace with development or population growth, but a cricket stadium, to attract international tournaments and things like that — a tourist-attraction-type facility. That is in the City of Brampton’s background study with 0% benefit-to-existing allocation, so it is fully funded by development charges.
Senator Loffreda: Thank you to both of our panellists for being here today.
I will go through a little history. We’ve lived through similar crises in the past. In the 1960s, an average Toronto detached home was $20,000. By the end of the 1970s, it was $70,000. By the end of the 1980s, it was $274,000.
Way back, Canada introduced — and I’m familiar, as a CPA — the MURBs, the multi-unit residential buildings program. In the 1980s, during my accounting days, many investors owned MURBs across Canada. They offered tax incentives to private investors to build rental housing, and it significantly increased supply at the time. They were using depreciation, as you know, to create a rental loss and offset other sources of income. That was a tax incentive to bring capital into the market.
I now hear that, these days, we have sufficient capital. Here is my question: While the program was eventually phased out due to concerns of tax-shelter abuse, at the time, it did succeed in mobilizing private capital and stimulating construction, because you need incentives.
Given today’s housing crisis and the urgent need to build more rental units, should we consider reintroducing a modernized version of the MURB program to help address Canada’s current housing shortage? If not, what other tax incentives do you feel would have the most immediate impact?
Mr. Wilkes: Yes, we are supportive of the reintroduction of a MURB program. We believe that it was an effective tool, as you referred back to, when it was originally introduced, and we believe it would facilitate the construction of more rental housing. We are very supportive of that.
Senator, if I may, not a tax tool, but we do have a need for more capital in the market. Trillions of dollars will be required to build the housing that is needed for our country.
Another non-tax measure we would encourage the government to look at is the Foreign Buyers Ban that is currently in place. We certainly understand the reasons it was put into force. We believe that the Australian model, which allows foreign purchasers who are using the housing as a principal residence, is a much more elegant way of undertaking the goals the government has. We would also look at updating and modernizing that current ban in place in addition to reintroducing MURBs.
Senator Loffreda: Thank you. Mr. Keleher, do you have any thoughts on my questions?
Mr. Keleher: I do not have much to add. I’m not an expert on the MURB program, but I would say, generally, incentives on the cost side work. Municipalities offer a numerous range of incentive programs designed to incentivize development and keep costs down. Revenues are fairly fixed to what the market can afford, so the incentives generally work best on the cost side to make the development happen in the first place.
Senator C. Deacon: Thank you to our witnesses. You are both arguing compellingly for changes.
What independent voices are supporting the status quo, the arbitrary way of determining amounts of development charges and the utter and complete lack of transparency where the home buyer has no idea what this amount is — they are just paying for the house? What independent voices are supporting the status quo?
Mr. Wilkes: I am aware of none. It has been interesting, senator. I think the narrative really has changed, and there is recognition that we need a new model, that the government fees and taxes that are being put on housing are completely unsustainable and led to the affordability challenges we have today. The delays we referred to in discussion with Mr. Howe have to be addressed and timelines sped up.
I try to be a positive person, and we are seeing changes within the Government of Ontario that were referred to earlier. We are seeing a focus by the federal government on the need to build more housing and look at how to reduce DCs, as well as the changes that have been recommended for HST, although they are too limited, in our view.
I am not aware of anybody arguing for the status quo. Perhaps that is my own ignorance. What I am aware of is that the need for change is a recognizable one. What we’re encouraging right now, given the crisis that we have — which is deeper than it was in the early 1990s — is bold leadership to make substantive changes; otherwise, we will be in a difficult position in three to four years. Now is the time to make those changes. We can’t wait any longer.
Senator C. Deacon: Also, considering the opportunity for the federal government to be the one that drops the hammer here with any federal dollar that’s put into the system, what are your thoughts? Is anyone supporting the status quo that is an independent voice?
Mr. Keleher: I think the voices supporting the status quo have been reduced over time. Bill 23 from a few years ago in Ontario saw major reductions to DCs or exemptions to some DCs for certain types of development, including affordable housing. There was pushback, I would say, from the municipal sector about the cost of those incentives. Ultimately, they wanted to be kept whole for the cost of the infrastructure they were tasked to build. I think even that tone has changed. I think municipalities have come onboard, at least acknowledging that there is a need for reform and change and maybe standardizing some of the calculations that are embedded in DC rates that can be as high as they are.
Senator McBean: Thank you. Mr. Keleher, we have heard from a previous witness that the federal government hasn’t done a great job of collecting statistics and data on housing of different types and quality across the country. I wonder if that plays into anything.
Based on your research and your economic modelling, what structural factors are most responsible for Canada’s housing shortfall? Where can federal intervention have the greatest impact? Should we have seen this coming sooner and therefore have had an impact 5 or 10 years ago?
Mr. Keleher: I see this all the time in smaller municipalities across Ontario where they want to grow. They are lacking the servicing infrastructure and the debt capacity to afford to debt finance it. There are provincial rules limiting how much a municipality of a certain size can borrow. Even municipalities that want to grow are hamstrung by rules that limit their borrowing.
I think where the federal government can really come in and help. This includes major municipalities too on the transit side, in particular, but they can help smaller municipalities get over the hump of being able to afford major waste water treatment plants, water supply systems, et cetera. They really do cost a lot of money and can hamstring a municipality that wants to grow but literally can’t. They cannot afford to grow as a result of the capital costs being too high.
Senator McBean: Maybe this doesn’t help you at all, but do you think had the federal government kept better statistics on housing and community, we would have seen these opportunities and these areas where the federal government could have come in and helped sooner?
Mr. Keleher: Perhaps. As an economic researcher, I have always said to bring on more data. More data can always help improve the conversation and add facts to the dialogue.
I’m not sure what that would do to address the fundamental servicing of costs and the debt issue that may limit growth outside of the GTA, and may have for a long time. Certainly, I would welcome more data, and it can only improve the conversation for academics and researchers like myself.
Senator McBean: Mr. Wilkes, I appreciated when you said the $1-million threshold currently set for the GST rebate would be appropriate had it been indexed. But across the country, there is such a variation in what a new home costs. You could guess that what a new home costs in Charlottetown and what a new home costs in Vancouver or Toronto are quite different.
Is it appropriate to leave $1 million as a federal number, or should they look at the costs for different regions as a baseline?
Mr. Wilkes: That’s a very good question, senator. There is no such thing as a national housing market, as you just pointed out in part of your question. There are geographic differences. We believe that the $1-million mark does make sense. That’s why we are also saying it is not on housing below $1 million but on the first $1 million of the purchase. So if it’s a $1.2-million house, you would only pay GST on $200,000. That would reflect the indexing that had not taken place. It would provide benefit for most purchasers throughout the country. Certainly, high-cost markets like Vancouver and Toronto would not have the same advantage as other places like Charlottetown, but given the national program that the GST is, it is the approach that we would support.
We would also support in those provinces where PST is applied on housing — as you know, it’s not all — that there be a matching exemption to ensure we fully address the affordability challenges that we have.
Senator McBean: Thank you.
Senator Fridhandler: Mr. Wilkes, I believe you spoke about a top priority of removing water and waste water charges from the DC bucket and putting it into a financed life cycle bucket. Because it’s so significant to the whole bucket of development charges, I could see that as a place where the federal government could focus with their stick or their carrot.
I believe that to some extent the Canada Infrastructure Bank has already funded some municipal water projects, but I’m not sure. Can you expand on that? It is a big piece of what we are talking about here.
Mr. Wilkes: I agree, senator. It is a substantial opportunity. I also agree that the federal government — and, I would argue, matched by provincial governments — could have a huge role in achieving that. Water and waste water, as mentioned, account for about 50% of DCs, so if you remove that, you are immediately reducing that cost to build, which would be reflected in the cost to buy.
The federal commitment to reduce DCs by 50% is in the current government’s series of commitments. We believe this is where it should be focused. Take off water, waste water and, in some cases, transit. Remove those from the responsibility of municipal governments funding them through DCs, upload them to senior levels of government and debt finance them in the way that — as Mr. Keleher outlined in his research paper — has been done in the United States and other parts of Canada.
We think that is a huge opportunity, but it must come with — to use the stick phrase — an expectation, if not a requirement, that those charges are removed from the DCs and we see those costs reduced by municipalities. They can’t just be just diverted, and they can’t be reallocated, if you will, for other types of funding.
The short answer is yes, and the short answer is that it must come with guardrails.
Senator Fridhandler: We wouldn’t try to segregate those on new activity. We would just put it all into the same utility pool and not try to play around with different segments of financing. It just goes into the regular utility financing charges that get levied on everybody in the municipality.
Mr. Wilkes: If I may, senator, though Mr. Keleher may have more specific answers, the utility model would be applied to those who are benefiting from that infrastructure.
If you purchase a house and own it for five years, you pay for that share of the water and waste water investment that’s made. The next person owns it for 10 years and pays that, and so on.
We believe it should be tied to the purchase, much like other utility models are, and that would be the approach. But I would defer to Mr. Keleher, who has greater expertise.
Senator Fridhandler: Mr. Keleher, do you want to add to that?
Mr. Keleher: Sure. To Mr. Wilkes’s point, we could do the calculations of development charges in the same way we do today, maybe with some more rigour on the benefit-to-existing, or BTE, side of things. That way you know what the overall cost per unit is for water and waste water infrastructure. Then taking that amount and amortizing that over 25 years, only placing that burden on the new home and having that paid down over 20 or 25 years, ensures that existing homes are unaffected and not paying for more than what their nominal taxpayer share should or would be.
It also allows us to correct course over time for actual costs. Right now, with the upfront model, you’re estimating what the costs will be over a 20- or 25-year span. The amortized model allows the accountants and engineers to go back and see what the costs actually were and right-size that charge that is imposed on new homes.
I think that would also fundamentally come out of the price, because the home buyer is going to have to substitute mortgage room for the surcharge of this additional recurring cost that is on their water rate and sewer bill.
Senator Ringuette: Thank you very much. Your testimony is bringing clarity.
I’ve observed in the Ottawa region for many years now that when there is a residential development, the developer is in charge of doing the local infrastructure. From the conversation I’ve been hearing, it seems that Toronto is doing things differently. Is that the case? If the developer is doing — under supervision, I’m supposing — the infrastructure required, then where should a fee be registered or charged? It’s not logical, from my perspective.
Mr. Keleher, you nodded. Do you understand what I’m saying?
Mr. Keleher: Yes, I do a lot of work on this type of issue in the city of Ottawa on local service matters, as you spoke about.
There is a fundamental difference between what is happening in Ottawa and what you might be seeing there and in Toronto. Ottawa has more greenfield developments, where you have a subdivision plan. The works generally inside that subdivision plan will be what we call local services, and it is the responsibility of the developer to fund, in addition to the development charge. The development charge is meant to fund off-site works, generally, so arterial roads, the transit network, major recreation centres and things like that.
There are no greenfield lands in the city of Toronto. It is all individual applications and infill sites, and there is no mechanism under the Development Charges Act and the Planning Act to lever — all of these local works have to be acquired through a condition of subdivision, which is section 51 of the Planning Act.
If you’re not in a subdivision type of situation, and you’re just building on an existing parcel and redeveloping an existing parcel, there is no mechanism to recover those local services. They kind of don’t exist in the city of Toronto in the same way that they would in the city of Ottawa.
Senator Ringuette: Exactly. If you’re building on a parcel of land in downtown Toronto that is already being serviced in regard to all the required infrastructure, why should there be a development fee at all? At least it should be a minimal one.
Could you expand? Or, Mr. Wilkes, if you want to add your opinion on that one.
Mr. Wilkes: I would agree with what Mr. Keleher said. Without repetition, I have nothing to add.
Senator Ringuette: Thank you.
Senator Dalphond: Thank you for being with us this morning.
I read with great interest your report of July of this year, called The Pathway for Rental Housing Stock. I found it very interesting. On Part 3 of that report, you had a series of federal recommendations that you have referred to today; through the questions and answers and your presentations, you covered all of them.
My question is this: Have you heard back from the government on these recommendations?
Mr. Wilkes: There are a number of recommendations in that report dealing with how to incentivize rental housing and make the pro formas work. Chief among them, for example, was a reduction in property tax and allowing the HST exemption to be backdated to ensure more projects and allow them to be brought to market. We haven’t heard back with specificity at this point. We’re all waiting to see what the November 4 budget will provide, but those recommendations remain tabled as they were.
Senator Dalphond: One of your recommendations, under the heading “Capital Attraction Strategy,” was to “Lift the foreign buyer ban.”
Could you expand on that? Because it also says that in Vancouver, the housing problem is partly created by foreign buyers who don’t use their apartments and just have a foothold there just in case.
Mr. Wilkes: As I mentioned earlier in one of my answers to your colleague, senator, we believe that there is a different approach that can be taken to a complete ban on foreign buyers, which is the Australian model. As we understand it, it’s worked very well in that country to allow those who are looking to purchase a home as a primary residence or to have it rented. It makes sense.
We need to attract trillions of dollars of capital to the market in order to get the housing that we need built. We believe the current ban is too blunt an instrument, and we need to have the refinements that we recommended.
Senator Dalphond: One other recommendation was to “Reposition the Build Canada Homes (BCH) initiative.” Did you have discussions with BCH? Because I think the new chief executive officer is from Toronto. She knows the city of Toronto very well. She was a city councillor for over 10 years.
Mr. Wilkes: She was a chair of the planning committee, and she was actually also an employee of one of our members. We know Ms. Bailão very well. We’re very pleased with her employment, and we think that she is going to do great work there.
The chief concern that we had was making sure that the BCH was a partnership model, that the government didn’t get into the direct job of building housing but leaned on those within the industry who have the expertise to do so. And we understand that that is, indeed, the commitment that has been made through BCH.
I will also caution, with respect to BCH, it can’t be the only solution. BCH will be part of the solution. It will undertake the investments that it’s making — I think by memory $13 billion — but we need much more investment in the housing market.
It can’t be a distraction to the core problem that I believe we have, which is the cost to build, which is the focus of this committee’s deliberations. That’s why we’re calling so strongly and consistently for the changes around HST; meaningful changes around DCs; and meaningful changes on the way those costs are calculated by municipalities through the investments that the federal and, hopefully, provincial governments make.
So I believe the partnership model is the right way to proceed with BCH, but it is only part of the solution.
Senator Dalphond: Thank you.
Senator Yussuff: Thank you both for being here. You’re making some very concrete recommendations in the context of the affordability question. Given the obvious jurisdictional challenges we face in this country and a lot of the work that provinces have to do with municipalities to I guess get a better and more consistent approach as to how we deal with some of these matters and the crisis we’re dealing with, in your engagement, trying to provide some guidance to provincial governments, whether it be in Ontario or other places across the country, are you getting a sense that some of the recommendations you’re making are being looked at in a concrete way to figure out how we can really make a difference in lowering the cost of housing, especially for young people? But equally, how do we kick-start this market that seems to be heading in the wrong direction based on the data we’re seeing right now? That is to both our witnesses, if you can, based on your engagement.
Mr. Wilkes: Daryl, did you want to go first?
Mr. Keleher: I can only speak for Ontario on the legislative change. Ontario has made new changes recently through Bill 17 with the promise of more regulatory changes to come. I think some of those regulatory changes echo, perhaps, what was in my white paper earlier this year about standardizing some of the calculations about taxpayer benefit and growth benefit and some of the local service questions other senators raised earlier about the subdivider in Ottawa and what works they’re responsible for and clarifying those.
Often both of those elements are heavily negotiated through the development process and the development approval process, to the point where some of my clients are seeking an approval, and I have heard first-hand from them that they feel forced to provide some of this infrastructure out of their pocket rather than getting development charge credits through city building type works.
I hope the province is looking at some regulatory change to hopefully streamline and standardize and make some of those approaches much more objective rather than subjective, as they are in a lot of cases today.
Mr. Wilkes: Senator, I would build on Mr. Keleher’s remarks that we are seeing change. And as I commented earlier, the discussion really has shifted; we do need to reduce the cost to build. I too am limited by my experience to the province of Ontario.
But I would add to what Mr. Keleher said: We are seeing municipalities also recognize this. We’ve seen places like Mississauga and Vaughan reduce their DCs because they recognize that the current regime is not sustainable. They’ve done so with support from the provincial government through investments to ensure that the necessary infrastructure can go forward.
We’ve also, as Mr. Keleher said, seen the Province of Ontario, through a series of legislative steps, try to streamline what is eligible under a DC regime, whether that is benefit to existing, looking at the utility model for water and waste water or other areas.
So we are seeing progress. More progress needs to be made. You rightly pointed out we are in an extreme crisis, of a sort that we haven’t seen for over 40 years. And we cannot miss this — I will probably use the word inappropriately — opportunity to create necessary change around the way we tax and regulate housing.
The Chair: Before moving to the second round, I find it interesting that both our witnesses here and even Mr. Howe in the previous panel have the same recommendation, that maybe the water and waste water infrastructure not be funded up front but over the life cycle through the utility model.
I’m from Quebec. I’m a former municipal councillor as well. Could you explain why other provinces have not been inspired by that model since it’s working in Quebec? In fact, the DCs are much less significant than in Ontario and B.C. Is it legal? Is it because it is a distinct society? What is the reason for that?
Mr. Keleher: It’s a big question, and academics have studied this one for a long time. I think maybe in Ontario, knowing a bit of the history, lot levies were the system before development charges. They were informal and negotiated case by case. That caused a move to a formalized system where people pay up front. I think maybe when development charges started in Ontario in 1989, and 1997 with the updated act, the charges were $4,000 a unit and $5,000 a unit — maybe not the major burden that they are today, where they are $137,000 a unit in some cases. It may not have been something needed to be thought about until maybe the last 5 or 10 years, when DCs have really ramped up and I think people are finding the model is not working.
Why they have not looked more seriously at some of the other models like Quebec, Texas or Florida is a bit of a mystery to me, because it seems very obvious to me as an economist that it is the preferred, more efficient solution. I’m sure a number of academics would agree with me on that — maybe not all, but that’s the general consensus around where economists would land.
The Chair: Mr. Wilkes, we can explain that, in fact, it’s guaranteed by the Quebec government, because otherwise each municipality would have a cost of borrowing much higher depending. It’s a pool, basically.
Mr. Wilkes: That’s where I think the federal government has an opportunity with its commitment, senator and chair, to reduce DCs as they have, providing those funds for infrastructure, providing that opportunity for development financing as other large civil engineering projects are done. The model definitely needs to change. Mr. Keleher had a paper that argued very persuasively for that.
Once again, to be hopeful, I am seeing recognition that we need to look at different ways to fund water, waste water and transit. But we need to act with the urgency that we’ve been talking about.
The Chair: Thank you. Before going to the second round, I have to apologize to my colleagues in Ottawa. I think you have a question.
Senator Wallin: I am a latecomer to the question. I know you have been focused a lot on Toronto and Ontario and that’s your area of specialty, but my colleague Senator Deacon raised this yesterday in our discussions: We’re seeing a lot of pressures on smaller towns. I see it in Western Canada in terms of the immigration flow. It’s moving west because the cities can’t accommodate it anymore. There are really fundamental problems there about housing supply, really fundamental problems on infrastructure — literally the pipes in the ground to move the water. That problem existed; it’s now being exacerbated. Are we putting this in the context of these discussions that we have to look at this issue nationally?
Mr. Wilkes: If I may, senator, I think we have a need for investment and infrastructure throughout the country. I would certainly agree. But I’m going to take your question in a different way, and I think part of the pressure we’re seeing on smaller communities, those communities where land values are somewhat less than they are in larger urban centres, where 50% of the building occurs — you can’t address one without the other. I think the fundamental opportunity that we have, from my perspective or with my knowledge, is to address the affordability challenges that are causing people to leave our large urban centres. That comes with consequences of not only not being able to afford housing, but the economic engine of the country is being affected as people have to look elsewhere for affordable places to live.
So I think it has to be both the components. But we cannot solve one without the other in addressing the affordability challenges we’re facing in large urban centres.
Senator Wallin: Do you have a word, Mr. Keleher?
Mr. Keleher: I would echo some of what Mr. Wilkes said in that a substantial proportion of the migration that is coming into places like Alberta and Saskatchewan and the Western provinces is coming from Ontario because the affordability crisis is so severe here and we’re not able to meet demand with the appropriate supply.
So I think if you solve the issues in Ontario, and even Vancouver, perhaps, as well, some of the problem gets mitigated, because you will have people living in their current locations rather than seeking housing and jobs where housing might be cheaper.
The Chair: Colleagues, we have 10 minutes left. I have two senators who want to be on second round. Okay, so perhaps four minutes each.
Senator Loffreda: Daryl, I have a question for you. You wrote extensively about development charges in Ontario in your report earlier this year, and you spoke passionately about them today. Many of your recommendations will need to be addressed at the provincial level, as you know. What role do you think the federal government can play in taxing some of these development charges, if you can elaborate on that?
And how should we balance the fact that many municipalities rely on these fees as an important source of revenue? I mean, it would be a huge cut in revenue for a lot of these municipalities, and so we know it’s an issue. How do you draw that line? And, David, if you want to chime in on that, you’re welcome to.
Mr. Keleher: To echo one of Mr. Howe’s responses, it ultimately comes down to money on the federal government’s side. That way, you can have the biggest bang for the buck on development charges and housing supply.
To use one example, 42% of the development charge in the city of Toronto is transit, for subway extensions, streetcar rolling stock and all of the elements that come under their capital purview for transit. It’s 32% in Ottawa and 22% in York Region.
So in these major urban municipalities where the province is saying they want growth, that’s where the development charges are the highest. It is for numerous reasons, but chief among them is the cost of building transit.
So that would be the biggest impact that could happen today. Municipalities are still the primary funding source, and development charges and the property tax base are still the primary funding source for public transit system expansion in Ontario, which is a heavy burden for municipalities to carry given the limited revenue sources.
Senator Loffreda: David, would you have anything to add on that?
Mr. Wilkes: I think the funding model is wrong, if I may be so bold. We’re placing too much responsibility on new homeowners through DCs charged by municipalities.
Regarding the opportunity that Mr. Keleher, myself and, earlier, Mr. Howe have been talking about, we need to redefine who pays for what and the responsibility for things like transit, as Mr. Keleher just said, and water and waste water. To me, that is the solution. And the way you unburden municipalities from costs they can’t absorb is by removing those costs and having them paid by different levels of government.
Senator Varone: My question, and I’m going to pivot to the private sector rental residential market. Glaringly, we’re in a housing crisis, but I’m seeing signs from newly built rental residential in the private market that say “for rent.” They’re not renting, and there is a glut of rentals in that market.
Can you tell me the impact of both HST and development charges on the private side of the rental market? The BCH is not building with the HST burden and the development charge burden, but the private market is, and now they’ve built these and they’re empty. What are your opinions?
Mr. Wilkes: I think with the rental market, there are a number of things, and one of my colleagues referred to them earlier in the research paper they undertook. HST has been relieved on new purpose-built rental buildings, so that was an important incentive. Pro formas are still not working for purpose-built rental incentives because of the cost structure we referred to. Removing property tax or treating it differently is a key component that we would recommend.
But, senator, you’re also right, the secondary rental market was often facilitated by condos, and it was a large source of rental accommodations that we shouldn’t be ignoring and can’t be ignoring.
So looking at a different structure for HST on those condo buildings, looking at revamping the foreign buyer exemption, looking at lowering those DEC charges, it is all within an ecosystem. We can’t isolate any one component if we’re going to build the 500,000 homes that the federal government believes we need in the next 10 years.
So I would suggest that HST treatment — there is a particular opportunity right now around inventory units that are built but not sold. Perhaps relieving the HST on those units temporarily, if they’re brought into the rental market, and having that HST only paid when they’re actually sold so it frees those up is another opportunity.
Also, taking a hard look at the pro formas, the property tax and the impact property tax would have with purpose-built rental. That was a bit of a rambling answer, but there are a number of solutions we need to look at to ensure that the rental market is viable.
Also, if I may use this opportunity to say so, I really think it’s vital that if infrastructure is removed from the responsibility of the municipalities, we need to ensure that those costs are taken out of those DC background studies. There are two fundamental opportunities, and we believe that is one of them and HST is the other.
Senator Varone: Thank you.
The Chair: Thank you to both our witnesses. It was very informative this morning. I was delighted. I like the fact that we have different business models in Canada, from coast to coast. That could no doubt inspire our report.
[Translation]
Before we adjourn, I would like to take a moment to thank our staff, that is, the interpreters, stenographers, the broadcasting team and, of course, our analysts and our clerk.
Our next meeting will be on Wednesday, at 4:30 p.m.
(The committee adjourned.)