Senate Report Reveals $200,000 Cost Gap in Homebuilding Fees

A recent report from the Standing Senate Committee on Banking, Commerce and the Economy highlights a striking disparity in municipal fees for new home construction in Canada. The report, titled Out of Reach: Unlocking Canada’s Housing Affordability Crisis, reveals that the average municipal fees for a single-family home in Toronto stand at approximately $200,000, while in cities like Moncton and Charlottetown, they are less than $10,000. This substantial difference contributes to a growing housing affordability crisis across the country.

The Senate committee argues that such wide variations in municipal charges, along with prolonged approval timelines and outdated federal tax policies, are inflating home prices and limiting supply in many of Canada’s major markets. Mike Moffat, a housing economist, noted that these costs significantly influence whether housing projects can move forward. “Those costs end up getting passed along to home buyers and renters,” he explained. “If people cannot afford that price, the home doesn’t get built.”

At the core of this issue are development charges, which are levies imposed by municipalities to fund infrastructure and services related to growth. In Ontario, these charges encompass a variety of services, including roads, transit, water systems, and emergency services. While municipalities defend these fees as necessary for funding growth, economists argue that builders have a limited capacity to absorb them without jeopardizing project financing.

Moffat pointed out that developers must demonstrate profitability to secure financing. As a result, these costs are typically passed on to home buyers or renters. He emphasized that the exact extent of this transfer of costs is challenging to quantify due to inadequate data. “Canada has awful data when it comes to development charges,” he stated, noting that municipalities establish fees differently, complicating comparisons.

The report also identified approval delays as a significant factor driving up housing costs. The time it takes to approve development applications can range from five to 31 months, depending on the municipality. In certain areas of the Greater Toronto Area, the entire development process, from initial consultations to completed homes, can take as long as 11 years. Such lengthy timelines increase risk and costs for builders, making them more cautious about undertaking new projects.

Moffat explained that the uncertainty surrounding approvals adds to the financial burden. Legal fees, repeated design adjustments, and interest costs on land financing all contribute to increased expenses, prompting developers to pursue only those projects that promise sufficiently high returns. While there is more tracking of approval times than development charges, the impact on costs is clear. Streamlining these processes could lower expenses, with potential savings benefiting both renters and buyers.

To mitigate affordability challenges, the Senate has recommended expanding the federal GST/HST New Housing Rebate and indexing it to inflation. Currently, the rebate applies only to homes valued at up to $350,000 and has not been updated since its introduction in 1991. Given that many new homes today exceed this price point, expanding the rebate could significantly affect new home prices. Moffat estimated that if Ontario matched the proposed changes, it could reduce home prices by about 10 to 15 percent.

Looking to the future, Moffat cautioned that the long-term effects of such reforms could be complex. Without accompanying supply-side reforms, he warned, there is a risk that benefits could be absorbed elsewhere in the housing market. “If you don’t couple it with other supply changes,” he said, “over time, a lot of that benefit gets captured by landowners rather than buyers.”

The committee’s findings indicate that no single aspect—whether fees, taxes, or approval timelines—dominates the housing affordability issue across all markets. “They both matter,” Moffat noted, emphasizing that the balance varies by city. Nonetheless, he argued that addressing approval delays may yield the most immediate efficiency gains. Unlike development charges, which redistribute costs, prolonged approval processes impose unnecessary burdens on both builders and municipalities. “Approval timelines are often pure waste,” he stated. “They cost everybody.”

This Senate report sheds light on the complex factors affecting housing affordability in Canada, underlining the urgent need for reform to ensure that homeownership remains accessible for all Canadians.