The Coalition Against New-Home Taxes (or CANT) is a group of home builders, led by Matt Young of Republic Developments, who are asking all levels of government in Canada to lower the taxes on new homes. In some cities, these taxes -- which include everything from development charges to HST -- can account for up to 30% of the cost of a new home. This is bad for housing affordability and runs counter to our publicly stated goals. So to drive this point home, the group created a cheeky game called Taxopoly: The Unwinnable Game of Canadian Homeownership. (Credit to Blackjet for the idea and design.) I don't think that the average buyer understands what kind of taxes are being levied on new homes, and so kudos to CANT for being a loud advocate for positive change. To learn more, sign their pledge, and/or email your representative, here's their website.

The big news this week for Toronto city builders is that the city has put forward a proposal to substantially increase development charges. Here's a tweet storm that I published earlier today on the topic, and here's a summary of what the new fees might look like:

To translate this into a specific example, let's assume that you're building a 300 unit apartment building with 180 one bedroom suites and 120 two bedroom suites.

Under these proposed DC rates, this would translate into charges of about $9.6mm for the one bedroom suites and $9.8mm for the two bedroom suites, totaling over $19.4mm in DCs alone. But keep in mind that there would be other charges on top of this for parkland dedication, community benefits, and a bunch of other things.

When our cost consultant ran the numbers back in 2019, the estimate was that about a quarter of the price of a new condominium in Toronto was going to government fees and taxes. But with the above increase and with the introduction of policies like inclusionary zoning, I am sure that the number is higher today.

These are easy fees to hide. Most people don't know they exist. And a lot of people don't seem to like new development and new housing. Property taxes on the other hand are highly visible and highly sensitive. So that tax tends to be left alone, especially by comparison.

But these increases are hugely impactful. It means that developers across the city will now need to start looking at increasing rents and prices in order to try and offset it. If they can't, they won't build. And if they can, it will mean that the housing that does ultimately get built will be that much more expensive.

Every year my friends at Urban Capital publish an annual magazine called Site. And every year it contains some great articles about the real estate development industry across Canada. (Some of you may also remember that I've written a few articles for it in previous years.)

Well this year's issue is out and there are a few featured articles that I'd like to draw your attention to:

• What happens when 175 (mostly) women get together to design a condominium? Link

• How (not) to build a public park Link

• Why have Toronto condos become so %@$#$! expensive? Link

This last one is a topic that we have talked about many times before on the blog. But here, UC has provided a quantitative comparison between a project they did in 2005 and a project that they're doing today in 2020. Here's what they found:

Average condo prices in the City of Toronto are up about 150%. But...

Land costs are up 160%.

Soft costs are up 118%.

Construction and related costs are up 91%.

Financing costs are up 93%.

Government fees, charges, and taxes are up 413%.

And development charges (a subset of the above) are up 3,244%!

At the same time, the profit margin over costs is down about 45%.

(As a point of comparison, CPI only increased by about 26.5% during this same time period.)

The point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost bucket.

If you're developing new housing in Toronto, you have no choice but to accept these rising costs. You have to pay development charges and you have to pay them when you're told, even if that means swallowing some new massive increase.

So by necessity, end prices get continually pushed as a way to try and absorb these costs. You figure out what your costs are going to be and then you price accordingly. But of course, you also have to ask yourself: Can people actually afford this kind of pricing and can this neighborhood support it?

Sometimes the answer is yes, which is why development continues. But sometimes the answer is no. In this case, the next step is simple: you don't build.