Posted On: Wednesday, October 3, 2018
by Neil Sharma 03 Oct 2018
Homebuyers and investors have long groaned about escalating price points, attributing them to builder avarice. However, according to industry insiders, government fees and taxes are to blame.
Michael DiPasquale, a CPA and COO of Dunpar Homes, says builders are heavily taxed by all three levels of government and there’s little choice but to relay the cost onto consumers.
“Everyone thinks developers are big, greedy and make all this money—they make money, yes—but they’re not making close to what the government makes on these homes,” said DiPasquale. “People think builders push up the prices, but the prices have gone up because of the significant fees, charges and costs to operate. Most of the cost goes to the government.”
According to numbers compiled by Dunpar, on a three-bedroom, 1,950 square foot townhouse in Toronto that sells for a $1mln, the builder and shareholder profit amounts to $44,100, while the municipal, provincial and federal governments receive $258,540 in taxes paid.
The HST tax—which, alone, is $93,805 on the townhouse—introduced in 2010, combined with GST, brings the total up to 13%, added DiPasquale.
On a one-bedroom, 600 square foot Toronto condo selling for $500,000, taxes amount to $110,748, while the builder and shareholder profit, after income taxes, total $17,640.
In tandem with taxes, DiPasquale speculates that escalating construction costs are behind a string of cancelled condo developments, the latest of which is Icona Condos in Vaughan. Icona’s builder, The Gupta Group, claimed that it could not secure financing. The same reason was given by Liberty Development Corporation for cancelling a nearby high-rise condo only months ago.
“I think it’s a significant contributing factor,” said DiPasquale. “Costs have gone way up, not only the tax burden and the fees, but also construction costs. They’ve gone up significantly over the past three years. If you sold a condo in 2015-16 and you started building it this year, your construction costs are probably up 30-40%, plus your development charges and all these other items.”
The president of the Residential Construction Council of Ontario confirms DiPasquale’s assertion that government fees, levies and charges have contributed to housing’s astronomical price growth, which, combined with increases in construction costs, create a perfect storm for consumers.
“In certain situations, the hard construction costs almost equal the total quantum of taxes, levies and charges on new housing, which is crazy,” said Richard Lyall. “That’s just straight, hard construction costs. You have all these other costs like marketing, administration, site guys—there’s no question in my mind that you’re in at least $160,000 for condo taxes.”
Development charges have also been hiked a whopping 85%, and it will doubtless be passed onto consumers, too.
“That’s a lot of money, and how much have wages gone up?” asks Lyall. “There’s a proportionality issue here, as well. When the government jacks up costs, and you look at what people are making for a living, it’s scary. We have an affordability issue. We already know 59% of millennials are seriously considering moving from Toronto because they can’t live here, and if they’re thinking about having a family, how the hell are they going to do that?”