BRITISH COLUMBIA – Government charges can account for over 20 per cent of the construction costs of a dwelling unit in some Canadian cities, a report released by the Canada Mortgage & Housing Corporation (CMHC) indicates.
The CMHC “Housing Market Insight Canada” report, released in July, states that the review’s goal is to generate discussions around best practices for delivering housing units in a timely and cost-effective manner. Data was gathered from the Altus Group, and included Vancouver and the municipalities of Vancouver, North Vancouver, Burnaby and the Township of Langley.
“In addition to land and construction costs, some input costs include fees levied by governments,” the study indicates. “The collection and administration of such fees introduces two main challenges. First, they add a direct cost to the production of housing. Second, government fees may introduce complexity and a level of uncertainty to the development process as construction timelines hinge upon the successful collection of fees.”
While housing costs include the cost of land, hard construction, hard construction and developer profit, government charges – usually levied by municipal governments for things like development and building permits, zoning and other fees and taxes – is a significant contributor to the eventual price of a dwelling unit.
Those include taxes, warranty fees, municipal fees, development cost charges, density payments and permit fees.
The report notes that the charges represent one of the few limited channels for municipalities to raise revenues. Lowering input costs, and specifically government charges, would require broader changes by municipalities in order to maintain the current level of municipal services.
According to estimates of approval timelines provided by Altus Group, the presence of more government fees was associated with longer development timelines, a relationship we will explore further in future work. This may be attributable to additional administrative processes adhered to as the number of charges rise. The type of charges being levied may also contribute to the lengthening of the development process.
Lengthier development timelines ultimately delays the provision of supply to market. Lengthy approvals also impose additional costs on development (i.e., interest on loans, equipment rentals and labour, unforeseen material cost increases, contingency costs, and opportunity costs). Such costs may get passed on to the end buyer and may limit the number of developers participating in the market to those who can bear them.
The average government charge per square foot in Toronto is highest at $86, with Vancouver second highest at $70.
In Vancouver, various charges account for 7 per cent to 20 per cent of the cost of building a home (except for single-detached homes). Condominiums are the housing type for which charges increase total construction costs the most (20 per cent).
The Township of Langley also has high development charges relative to the cost of construction, but one of the lowest density payments. This allows Langley to be one of the municipalities where total government charges add the least to construction costs.
The City of Vancouver’s government fees per square foot range between $12 and $143, the lowest being for single-detached, and the highest being for high-rise condominium apartments. Density payments and development charges make up the largest share of the government fees per square foot in the latter. At the opposite end, Langley has the lowest government fees per square foot (between $12 and $33).
The study identifies several points for discussion to improve housing affordability. They include:
- Increasing certainty around the number, timing, and magnitude of government fees could improve housing affordability by decreasing other development costs, such as those for construction (e.g., labour, equipment) and financing.
- Further aligning government fees on development with other housing policy goals. It shared examples where municipalities had lower fees for rental apartment development, which aligned well with what those governments wanted to promote. These efforts could be reinforced by making fees higher for less dense development, such as single-detached homes, or ensuring that denser housing forms that could be built on the same lot carried lower fees.
- Eliminating density payments payable upon spot rezoning. These payments can be subject to negotiation, which introduces complexity and uncertainty. The amount levied is often linked to the change in the value of the site pending rezoning or additional density being permitted on a site.
- Eliminating some steps of the development process, such as spot rezoning, would decrease the time and cost of delivering new housing. For example, in areas with an Official Community Plan, sites could be pre-zoned to permit the density and typologies consistent with the plan.
- Exploring alternate tools for municipalities to raise revenue to fund municipal services and capital projects. Where infrastructure is largely funded through means other than development charges, government fees on residential development tend to be comparatively lower. This may result in new housing being delivered at a lower cost.