Government Fees Fuel Housing Crisis as Municipal Hikes Undermine Affordability
Governments across Canada are finally acknowledging the severity of the housing crisis, with recent actions aimed at reducing the financial burden on new homebuyers. However, this progress is being undercut by contradictory policies at the municipal level, creating a frustrating cycle that exacerbates affordability issues.
Federal and Provincial Tax Relief Offers Hope
In a significant move, the Ontario and federal governments have temporarily eliminated the Harmonized Sales Tax (HST) on new homes priced under $1 million, providing a full rebate of the 13 percent tax. For homes valued between $1 million and $1.5 million, the rebate is capped at $130,000 and phased out entirely at $1.85 million. This policy is more than symbolic; it represents a tangible effort to stimulate housing supply and improve affordability by directly reducing taxes that inflate prices and suppress demand.
This smart approach acknowledges that government-imposed costs are a major driver of housing prices, accounting for 36 percent of the cost of a new home today, up from 30 percent in 2011, according to research by Will Dunning Inc. for the Residential Construction Council of Ontario (RESCON). By cutting these taxes, policymakers aim to provide immediate relief and encourage construction, which historically contributes significantly to Ontario's GDP and job creation.
Municipal Fee Hikes Threaten Progress
Despite these positive steps, some municipalities are moving in the opposite direction. For instance, Clarington has proposed dramatic increases to planning and development fees, with some hikes as high as 187 percent. Even after adjustments, fees for major official plan amendments could jump by 136 percent, and zoning bylaw amendments by 62 percent. Municipal officials argue these increases are necessary for full cost recovery, aiming to have growth pay for itself rather than burden existing taxpayers.
However, these costs do not disappear; they are passed directly onto the price of new homes. At a time when affordability is already stretched to the breaking point, adding such fees raises building costs, discourages new supply, and prices more buyers out of the market. A recent survey by the Ontario Real Estate Association found that 71 percent of respondents believe development charges make housing less affordable, with only a small minority expecting conditions to improve.
Policy Misalignment and Its Consequences
The disconnect extends beyond fee increases. In Markham, efforts to enable more missing middle housing, such as fourplexes in established neighborhoods, were vetoed using strong mayor powers, despite a narrow council vote in favor. Concerns about infrastructure, parking, and neighborhood character were cited, but these issues are not insurmountable and should not block gentle density outright. Increasing housing supply requires incremental intensification, and without it, cities will struggle to meet demand, regardless of high-rise approvals elsewhere.
This lack of alignment across government levels creates a policy tug-of-war, leaving homebuyers and builders caught in the middle. Worse, decisions like Markham's risk jeopardizing federal funding tied to housing supply targets, representing a self-inflicted setback. The broader issue is that while federal and provincial leaders work to reduce costs and encourage building, municipal policies often pull in the opposite direction, leading to reduced demand, slower construction, and economic drag.
A Path Forward Through Coordination
To address this crisis, governments at all levels must align around a shared objective: making it easier and more affordable to build new housing. This involves:
- Reducing taxes, fees, and levies rather than increasing them.
- Streamlining approvals processes to avoid layering on additional costs.
- Embracing sensible density, such as missing middle housing, to increase supply.
Municipalities, in particular, need to rethink infrastructure funding models. Relying heavily on upfront development charges places an outsized burden on new homebuyers. Alternative approaches, such as financing infrastructure over time or sharing costs more broadly, deserve serious consideration. The federal and Ontario governments have shown leadership; now municipalities must keep a lid on fees and facilitate building to avoid taking one step forward and two steps back in the fight for housing affordability.
