The Next Tax on New Home Buyers

Calculator, Calculation, Insurance, Finance, Accounting Many Ontario residents don’t realize that the main cause of today’s housing affordability problem is constantly increasing taxes. Over the past 25 years the tax bill on a new home has increased from 3% to about 25%.

As taxation continues to increase, a growing number of people are experiencing difficulty acquiring the funds for a down payment on a home purchase. Even when young couples have been able to acquire a starter home of some type they often find themselves ‘house poor’ where the monthly mortgage payments consume most of their disposable income. And that is with some of the lowest interest rates in modern times. These affordability challenges now include the vast majority of Ontario residents who would like to purchase a home. The problem is even impacting seniors, where one in four are reporting some form of financial distress from trying to help their children and/or grandchildren purchase a home.

Another powerful indicator of the problem has been a dramatic decrease in the number of people able to afford a single family home. Fourty-five years ago the unit split in Canada ran at about 70% single family homes and 30% multi-family units of some type. Today that split has completely reversed where only 30% of new homes being sold are single family units. People still want their own single family home, but they simply cannot afford it.

Because of this growing problem, the number of people requiring subsidized housing has also increased significantly and government is under increasing pressure to build new projects across the province.

In an ideal world, elected officials would get spending under control and reduce taxes on new homes across the board, thereby assisting all residents including a significant percentage of those who require public housing. But it now appears that the Ontario government may be getting ready to fall back on its age old solution of simply raising taxes on a small rapidly declining group who are new home buyers. In recent Bill 73 Hearings conducted by the Ontario government, municipalities across the province were demanding the implementation a new tax called ‘Inclusionary Zoning’ to fund massive new public housing projects.

What is Inclusionary Zoning?

  • Inclusionary zoning refers to municipal policies that require the provision of ‘subsidized housing’ as part of larger market value residential developments.
  • Subsidized housing required by such policies can take the form of land, housing units and/or cash-in-lieu depending on the design of the policy.
  • Some groups advocate for inclusionary zoning as a means to create “free affordable housing out of thin air”.
  • These units are anything but free.
  • The additional cost requirements would be passed onto the rest of the purchasers or tenants in the residential development through higher rents or purchase prices – thus, in effect, becoming less affordable;
  • Inclusionary zoning is a policy that creates affordable housing units by making the rest of the housing units in a given project less affordable by bearing the cost of a social subsidy.
  • Someone always pays, and this planning tool is essentially another hidden tax on new housing.

Of equal concern with this approach is that government has failed to learn from past mistakes. Previous generations built a range of subsidized housing projects and the results are well known by planners, sociologists and police. Public housing projects deteriorate very quickly because they require high on-going maintenance costs that government cannot afford over the project life. A very high percentage of subsidized housing projects are plagued with a wide variety of social problems and often indoctrinate children into a lifestyle where they never stand a chance of achieving their potential.

Einstein defined insanity as doing the same thing over and over again and expecting different results. If government is serious about helping those less fortunate amongst us with their housing needs, they must learn from their mistakes and change what they’re doing going forward. Specifically they should:

  • Stop pursuing new taxes such as ‘Inclusionary Zoning’ because they will only make the housing affordability crisis in Ontario worse for everyone. Subsidized housing should be paid for by all tax payers, not just new home buyers
  • Avoid the knee jerk reaction of building subsidized housing projects that will only fail, and use the funds more efficiently by providing housing vouchers to those in need. This would allow recipients to secure private sector housing units in locations and of a type that best suits their needs. It would integrate families into mainstream society using readily available market value units and avoid the creation of new stigmatized projects.
  • Stop having new home buyers pay such a disproportionately high share of municipal infrastructure costs and return to the previous practice of sharing them more appropriately with existing home owners.
  • Ensure that any future Federal Infrastructure Grants have conditions attached that require municipal government to use them to equally benefit existing home owners and new communities.

Canada’s housing affordability crisis can be solved in most markets but it will take leadership and the will to make tough political decisions. There are almost 200 new MPs that have been elected across Canada, largely on the promise of significant new infrastructure spending. You can bet your ‘house’ that they are being told by provincial and municipal politicians to “just give us the money and we’ll worry about how to spend it”.  Will the Federal Government attach conditions to infrastructure grants that require provincial and municipal officials to begin addressing the emerging housing affordability crisis or will they simply allow them to be used to finance the same old practices over and over again and expect different results?

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