High demand, delays and fees add up to expensive new GTA homes
“Why are new homes so expensive in the GTA?”
As president and CEO of one of the largest local home builders’ associations in North America, I am often asked this question.
And it seems like a simple question, but the answer is actually very complex.
When it comes to new housing, the GTA is an undersupplied market. Virtually every year since the introduction of the 2006 provincial Growth Plan for the region, the supply of new homes has fallen short of demand.
When federal immigration levels increased in 2015, the Growth Plan targets for the number of new homes were not updated and the supply deficit grew to nearly 10,000 units per year. In any market, including the housing market, when demand perennially exceeds supply, there’s inflationary pressure.
This naturally leads to the question: “Well, why don’t you bring more housing to market?” The industry’s goal and business objective is to supply the required housing.
However, because of the way new housing developments are regulated, it simply takes too long to bring new housing to market and for supply to catch up with demand.
From start to finish, it takes on average 10 years to complete a highrise project in the GTA and 11 years to complete a lowrise project.
A soon-to-be-released study, conducted by Altus Group for BILD, demonstrates that it can take three years or longer just to receive the required municipal approvals in some GTA municipalities — and this is for projects that municipalities agree with.
Projects that require appeals to the Local Planning Appeal Tribunal (LPAT) take a lot longer.
Lengthy approval timelines not only slow down new supply to market but also add costs. The same study identifies that each month of delay adds indirect costs of $2.21 per square foot for an apartment in a highrise building and $1.46 per square foot for a lowrise home. So, a delay of three years adds more than $100,000 to the cost of a typical, 2,000square-foot lowrise home.
Lastly, all levels of government add in fees, taxes and charges to the cost of a new home. From HST and land transfer tax, to development charges, educational development charges, parkland charges and planning fees, these costs add up to almost 25 per cent of the cost of a new home in the GTA. Another study conducted by Altus Group for BILD in 2019 found that the cumulative government fees, taxes and charges added to new homes in the GTA are among the highest in North America.
The present provincial government has taken positive steps to address many of these issues through its Housing Supply Action Plan and should rightly be applauded.
BILD looks forward to working with its municipal partners to see these changes implemented to the benefit of future generations of home buyers in the GTA.