The growth of development cost charges will be one of the most critical challenges to confront Canada's homebuilding industry, says the new president of the Canadian Home Builders' Association (CHBA).
Quoting the CHBA's most recent Pulse Survey of its members, in which most identified such charges as among the industry's top problems, Edmonton builder John Hrynkow called for a reversal of these municipally imposed costs.
"The arithmetic is clear - new homebuyers are paying far too much," Hrynkow told the CHBA's 2008 national conference held recently in Whistler, B.C.
Development cost charges are fees that municipalities make builders pay to finance new subdivision infrastructure such as roads and sewers.
"Growth should pay for growth," Pat Vanini, executive director of the Toronto-based Association of Municipalities of Ontario, said in an interview.
"It's unfair to expect a long-term resident to subsidize new growth."
The CHBA quoted 2006 Canada Mortgage and Housing Corp.
statistics on how much municipal charges for subdivision services add to the price of a home. (See chart.)
Total municipal charges per single detached dwelling in Surrey, B.C., for instance, were $38,742. In Vaughan, Ont., they were $39,821.
"Some of them are quite astronomical," added John Kenward, CEO of the CHBA, which is the national voice of the residential construction industry representing more than 8,000 member-businesses across Canada.
Putting it another way, the CHBA points out that municipal, provincial and federal government-imposed charges totalled more than 10 per cent of the price of a new house in most municipalities.
In some, the charges accounted for 17 per cent or more of the price of a new house.
In recent years, municipalities and the associations that represent them have amassed large volumes of research that show how out-of-control infrastructure requirements have stretched municipal resources far beyond their limits.
In its June 2006 paper, Building Prosperity from the Ground Up: Restoring Municipal Fiscal Balance, the Ottawa-based Federation of Canadian Municipalities (FCM) points out that the old municipal revenue standby - property tax - cannot keep up with rising costs.
Other FCM research shows that Canada's municipal infrastructure deficit is about $123 billion and growing. During the past 20 years, municipalities have been squeezed by increasing responsibilities and reduced transfer payments from other levels of government.
To add to the woes, population growth has placed greater strain on existing infrastructure, putting municipal resources at the breaking point.
"Cities and communities clearly need a greater diversity of revenues to fund the wide range and types of services they deliver," the paper says.
"The fiscal imbalance discussions provide the venue for all governments, in partnership, to determine the appropriate mechanisms to achieve this objective."
As far as CHBA is concerned, municipalities can look to sources other than homebuilders and their customers to pay for their infrastructure needs.
"They can ... make more effective use of the revenue sources they have, including property taxes, user fees and various debt instruments," Hrynkow told the CHBA conference.
Alternatively, the incoming president added in his inaugural address, "they will see a continuing erosion of housing affordability and choice, and an ever-larger portion of their community locked out of the housing market."
"Development cost charges are fundamentally unfair."
In a 2005 research paper, Uses of Development Cost Charges, the CMHC noted that many municipalities, including Vaughan, outside Toronto, have been making builders pay high development fees since at least as far back as 1996.
CMHC, which studied government-imposed costs on new housing in 26 municipalities, found that development cost charges are the largest component of government-imposed costs, accounting for about 32 per cent of all levies, fees and taxes such as GST and land-transfer taxes.
"Municipalities rationalize (that) development cost charges, as 'user pay' or 'growth', should pay for itself," the CMHC paper says. "Yet the connection is limited because municipalities calculate development cost charges at the municipal - not the subdivision - level."
Provincial legislation gives municipalities the authority to levy development cost charges through municipal bylaws. Legislative approaches to this issue vary, and B.C. and Ontario give municipalities the strongest power.
Some of the variations reflect differences in the ways infrastructure is provided.
Some municipalities do not charge development cost fees, but instead require developments to cover the cost of installing infrastructure through special agreements.
"Housing affordability is usually not taken into account by municipalities," the CMHC report says.
In a winter 2008 CHBA Pulse Survey of 412 new-home builders and renovators, 37 per cent of Ontario builders saw serviced lot prices as a "critical" problem, while 50 per cent of their colleagues in Manitoba and Saskatchewan, 25 per cent in Alberta and 29 per cent in B.C. responded to this issue in a similar manner.
"The effect is to push people outside the realm of housing affordability," Kenward said.
Adds the CHBA's November 2007 pre-budget submission to the federal government: "Sustaining housing activity requires that systemic barriers to housing affordability - such as rising levies, fees, charges and taxes - be addressed."
In his speech, the CHBA's Hrynkow applauded the federal government for recent action in addressing financial hurdles to homebuying.
The decrease in the GST to five per cent will save homebuyers and renovators an estimated $2 billion this year, he noted.
And Ottawa has committed more than $33 billion to infrastructure investment - clean water, air and land and efficient transportation.
Municipal Charges per Single Detached Dwelling
Vaughan, Ont. $39,821.
Colwood (near Victoria) $20,586.
Calgary $11,736 .
Source: Government-Imposed Charges on New Housing, CMHC, September 2007