Let me preface this post with the fact that nothing I am writing about is new. Much of the content has been ‘on the table’ and available for consumption for over a year now (#worstprefaceever), however I thought I would attempt to cut through a lot of the fluff you would traditionally find in policy papers and government press releases and move straight to the elephant in the room: Taxes on housing are undercutting the ability to supply housing and the Federal Government’s appetite for those tax dollars is skyrocketing housing prices.
So, let’s start at the beginning – economic growth is vital for a country’s overall development and the well-being of its citizens. This growth brings along with it numerous benefits, including job opportunities, reduced unemployment, increased incomes, and an overall higher standard of living for all. Economic growth also leads to an increase in tax revenue for governments, which can then be reinvested in public services such as education, healthcare, etc.
However, Ontario finds itself in the position of having a rapidly aging population (cue thoughts of M. Night Shyamalan’s movie ‘Old’,…if you have not watched it, do yourself a favour and do so) along with declining birth rates which means maintaining economic growth and sustainability have become a tad challenging. As the population gets older, the workface shrinks which in turn leads to shortages of skilled workers. This problem is accelerated if those skilled jobs involve manual labour as members of those work forces leave even sooner. To combat this shortage and maintain a robust, functioning economy, immigration has become more and more critical for our communities to grow and feed the ever more increasing shortage in specific workforces. Immigration emerges as a key solution, providing a steady influx of diverse talents essential for bridging the labour gap and fueling economic vitality. But, we need housing to accommodate not only the existing population but also those who we need to attract in order to keep the economic engine firing (ie. immigrants).
In Canada, the responsibility for fostering growth falls on all levels of government. Constructing new homes stands out as a linchpin for population expansion, but it requires large investments in public infrastructure which are handled mostly by local (i.e. municipal) governments. Here is where we find the crux of the matter, municipal governments generally do not have access to the funds required to fund these large scale infrastructure spending.
And here is where this post may get a tad controversial,…cue the scary music! Despite receiving significant benefits from taxing new homes in Ontario, the federal government's contribution to public infrastructure investment remains meager at only 7.1%, while they receive a whopping 39% of the tax funds generated from each and every home built in the province. This imbalance strains local governments’ coffers and impedes economic growth. They, in turn, increase local level taxes to try and help fund the shortfall, which then leads to higher housing costs.
Think of it as if you had two roommates. Even though they each should pay their fair share of the grocery bill (i.e. 33.3%), they always seem to have an excuse as to why they can’t afford to pay for their portion of the Loblaw’s bill. However, after you take the time cook a lasagna using the groceries you paid the majority of, (lasagna - the delicious the dish that turns pasta into a savory architectural marvel, where each layer is a testament to culinary ingenuity and cheese induced happiness – CONCENTRATE Ian!),…your dear roommates still demand not only a 1/3 of the pan, but also want to take half of your piece (#roommatefail)!
The cold hard facts are:
Since 2010, Ontario has grappled with a housing affordability crisis, witnessing a staggering 58% surge in home unaffordability. The scarcity of new homes largely contributes to this pressing issue – it’s a supply vs. demand problem.
Ontario faces the challenge of an aging population which will require population growth to lessen its impacts. Without immigration, by 2050 the dependent population (those too young or too old to work) would surge by 40%, which would then outweigh the “working-age” population’s ability to support them. To better demonstrate this, with current projections, by 2050, Ontario's non-government workforce would be the same as it was in 2008 (without immigration) and without immigration-driven population growth, Ontario will face severe workforce shortages that will mean we will struggle to maintain basic social services (not to mention any sort of economic growth). (1) (2)
While new build construction is required for accommodating population growth, Ontario's capacity to construct new homes has waned. Despite a 68% surge in population since the 1970s, annual new housing completions in Ontario have dropped by over 23%. (3)
Investments in the types of infrastructure required to build/support new homes, at the required levels to support population growth, is almost 33% behind the required levels (according to very intelligent economists who I trust).
In Ontario, 31% of the purchase price of every new home is tax (municipal, provincial & federal). This is more than double of any other province or territory in Canada. If you dig down further, the federal government is the largest beneficiary, taking a 39% share of that pie (mmmmmmmm pie). If you match this up to the fact that the federal government contributes only 7.1% of the public infrastructure investment required for the construction of properties, you can see the massive inequity (i.e. the federal government is 9.7 times better off than the province and 6.9 times better off than Ontario municipalities each time a home is built). (3)
Understanding how much of each dollar of Ontario new build construction goes where
The breakdown of different types of taxes on new homes built in Ontario
Conclusions
I’ll be honest, sometimes when I write these posts and dig into numerous articles, papers and reports I get a tad lost, frustrated and discouraged. It is easy to lose focus on the problem when you let all the challenges smack you upside the head. So let’s not fall into this trap this time. The above clearly underscores a pressing need for the federal government to step up its funding of public infrastructure in Ontario. Provincial and municipal governments also need to look at cutting back on their portion of the tax burden problems but the federal government is by far the ‘plumpest pig’ eating at the overflowin’ tax trough.
This lack of federal support is the key factor fueling the province's worst-ever housing affordability crisis, hampering both population growth and economic development, and intensifying the challenge of building new homes. The current disparity between federal investments in infrastructure and the benefits reaped from housing development places Ontario’s provincial and local governments in a tough spot, with tax revenues from new home construction not proportionally allocated to necessary infrastructure investment.
An inequity in who benefits from taxes on housing
At the time of writing this article word has just broke that City of Ottawa is contemplating increasing development fees and if approved, the fees on a new single or semi-detached home would increase by approximately $12,000 (over 28% increase).
In order to drive consistent/sustainable economic growth, the federal government must review and correct the imbalance created by reaping 39% of the tax benefit while only providing 7.1% of the funds required to boost development in Ontario (pay for your share of the Lasagna!). Put plainly, ensuring growth in Ontario is not only required to support the future of those who have worked and will soon retire, but it will secure a brighter future for the country for everyone. (4)
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