The Real Cost Of Development Charges

[00:00:00] Welcome to the Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio.

[00:00:12] Welcome back to the Canadian Real Estate Investor Podcast. My name is Nick Hill. I'm a real estate investor and a mortgage agent.

[00:00:21] My name is Daniel Foch. I'm a real estate investor and a broker with Valerie.ca.

[00:00:26] And today we are going to do a deep dive into something that has come up on the show a number of times. A lot of people have asked about it, asked us to clarify our position on it.

[00:00:36] Yes, this is a contentious, complex and overall quite a pressing issue here in Canada, especially in the development and real estate investor space.

[00:00:49] We're diving into the issue of development charges, often touted as the backbone of municipal growth funding, but increasingly seen as a double-edged sword.

[00:01:01] As the growth pays for growth model struggles under the weight of exorbitant fees, cities like Toronto have seen development charges skyrocket nearly 1000% since the year 2010,

[00:01:17] casting a long shadow over housing affordability.

[00:01:21] These charges, while vital for funding infrastructure like roads, parks and schools, are being blamed for rising housing costs and declining home sales as evidenced by the dip in housing starts across major Canadian cities.

[00:01:38] So join us as we look at how development charges work across different regions, what changes could be made to make them better and how these fees impact everyone from buying homes to those renting them.

[00:01:54] We'll explore how these charges impact the housing market and the economy overall.

[00:02:01] And in the second half of the show today, we will be joined by a developer who is both an expert, but also an advocate for change when it comes to development charges.

[00:02:11] So stick around for that and stick around for what I would call one of the most innovative marketing campaigns in Canada right now.

[00:02:19] It's really cool.

[00:02:20] Talk about guerrilla marketing.

[00:02:21] These guys killed it.

[00:02:23] But let's start off at the most sensible place at the beginning.

[00:02:28] Let's give a little bit of a history lesson in some context.

[00:02:31] What are development charges and why do they exist?

[00:02:35] So development charges are fees collected from developers, usually at the time a building permit is submitted or during the early stages of that process.

[00:02:46] These fees, as you mentioned, Dan, they help to pay for the cost of infrastructure required to provide municipal services to that new development.

[00:02:56] They're used to fund essential things and infrastructure like roads, water, sewer, community centers, and even things like fire and police facilities.

[00:03:07] So the thought is you're adding more people to a certain area.

[00:03:10] That'll put an increased strain on existing services and infrastructure.

[00:03:13] So you will need to spend money to update or increase the capacity of said services and infrastructure.

[00:03:21] And DCs is ideally where that money comes from.

[00:03:24] Yeah, exactly.

[00:03:26] And in a lot of cases, development charges really serve as a municipality's primary financial tool for funding capital infrastructure projects.

[00:03:37] But isn't there another way municipalities and government make money to support these costs?

[00:03:41] I believe it is one of the two certainties in life, one being death and the other being taxes.

[00:03:47] Yes, you are correct, sir.

[00:03:49] And outside of all the more standard taxes that we pay here in Canada, the government has imposed many different taxes and policies over the years that make specifically targeted on housing, all seemingly with the intention of making housing more affordable.

[00:04:07] Some of the lists of this policy measures include a land transfer tax, which everyone pays, a foreign buyers tax, empty homes tax, a speculation tax, increased property transfer tax on luxury homes.

[00:04:21] That's another land transfer tax.

[00:04:23] In Toronto, there's a municipal land transfer tax on top of their provincial one, increased property tax on luxury homes, a foreign buyer ban, and a mortgage stress test, although maybe not a tax, but just to name a few.

[00:04:35] Okay, yeah.

[00:04:36] So just to name a few indeed.

[00:04:38] So Canadians, I'm sure we are all aware at this point that we get taxed.

[00:04:43] And most of these policies and taxes have done very little to actually help with affordability, or I believe, Dan, the new politically correct term is attainability.

[00:04:56] Yeah, I don't think you're allowed to say affordable anymore.

[00:04:59] Now, before we start to get into some of the numbers, which are crazy, by the way, how are DCs calculated?

[00:05:05] Yeah.

[00:05:05] So every few years, city staff hire consultants to calculate municipal infrastructure costs using things like the infrastructure master plan, the transportation master plan, parks and recreation master plan.

[00:05:20] Great TV show, Parks and Recreation.

[00:05:22] Yeah.

[00:05:23] Some Leslie Note vibes there.

[00:05:26] They didn't seem – yeah.

[00:05:27] And, you know, owed to the mustaches as well, if you've ever watched Parks and Rec.

[00:05:31] You know what I'm talking about.

[00:05:32] Anyways, so basically they get consultants come in, analyze several different community master plans as well as other key documents.

[00:05:40] Then they start to compare these costs with population and growth projections from the official plan and from census data.

[00:05:51] Now, they also follow formulas outlined in the Development Charges Act formally put in in 1997.

[00:05:58] And then they determine a flat fee for each new unit.

[00:06:02] And new units are new homes, new apartments, commercial developments, industrial facilities.

[00:06:07] And those differ from city to city and region to region.

[00:06:11] Yeah.

[00:06:12] So let's actually quantify this.

[00:06:14] Let's just look at some of these fees.

[00:06:15] In Toronto, DCs for single detached homes have increased from $12,910 in 2010 to $141,139 in 2024.

[00:06:27] Man, I wish I could get those kind of returns.

[00:06:30] That would be amazing.

[00:06:31] A whopping 993% ROI.

[00:06:34] I mean, really, they figured it out, the municipalities.

[00:06:38] They didn't have to invest in NVIDIA or meme coins or micro strategy.

[00:06:44] They just turn up a dial, I guess.

[00:06:47] Say you got to spend more money.

[00:06:48] I guess when a development charge, which is kind of the bedrock of housing, one of the bedrocks of housing here is directly comparable to returns on a meme coin.

[00:07:02] It's probably not a good thing.

[00:07:04] Yeah.

[00:07:05] So, Dan, as you said, right?

[00:07:06] Toronto, notoriously bad for all this data that always comes out, but up almost 1,000% is insane.

[00:07:13] Now, development charges, also known as development cost levies, so DCLs in Vancouver, British Columbia.

[00:07:21] Now, fees will vary slightly within the region there.

[00:07:24] However, one townhouse in Vancouver, for example, will be charged $30,861 by 2027.

[00:07:31] That's up from just over $10,000 today.

[00:07:35] Yeah.

[00:07:36] In the township of Langley, developers must soon pay City Hall just shy of $60,000 for each townhome they build.

[00:07:44] Across the Fraser River and Pitt Meadows, developers only pay a third of that for a similar townhouse.

[00:07:49] Now, friend of the show, real estate aficionado and fellow podcaster Steve Saretsky tweeted,

[00:07:56] The city of Burnaby raised their development fees for high density by nearly $50,000 per unit this year on a one-bedroom condo.

[00:08:05] That's nearly 10% of the price.

[00:08:08] He goes on to say that next time a politician promises housing affordability, just know that you are being lied to.

[00:08:13] By comparison, development charges on a comparable home in Calgary are just $22,000.

[00:08:19] So, this disparity across the country is crazy.

[00:08:22] Ontario really does seem to be the worst, though, as per usual.

[00:08:26] Dan, let's look at some of the comparative markets here.

[00:08:29] We'll start with Vaughn, and we will return to Vaughn closer to the end of this segment and chat about them again because they just did make some major changes.

[00:08:38] But, Dan, run me through this list here.

[00:08:41] Yeah.

[00:08:42] So, you've got Vaughn with $100,000.

[00:08:45] This is a really small image.

[00:08:48] $145,000.

[00:08:49] $145,000.

[00:08:49] You've got Markham with $132,000.

[00:08:54] You've got Brampton with $124,000.

[00:08:57] Mississauga, $118,000.

[00:08:59] Toronto, just under $100,000.

[00:09:01] Barrie, $90,000-ish.

[00:09:04] Hamilton, $67,000.

[00:09:07] But there's a separated sewer, I think, because they've given their water and sewers to Electra or something like that.

[00:09:12] Ottawa outside the Greenbelt is $55,000.

[00:09:15] Ottawa inside the Greenbelt is $46,000.

[00:09:17] I don't know why it's cheaper to develop in the Greenbelt, but anyway.

[00:09:22] London, Ontario, $45,000.

[00:09:25] And I guess you said you wanted to return to Vaughn.

[00:09:28] Do you want to do that now?

[00:09:29] No.

[00:09:30] We'll save the best for last year with Vaughn.

[00:09:32] Yeah.

[00:09:32] So the average unweighted for GTA is up 274%.

[00:09:40] And it would be $136,000 in the GTA on average for those municipalities.

[00:09:47] So a few things to remember.

[00:09:49] We are still in a housing crisis.

[00:09:50] We need millions more homes to be built to get back to affordability or attainability or whatever it is.

[00:09:56] And it may actually be getting worse.

[00:09:58] Yeah.

[00:09:59] Yeah.

[00:09:59] And we look at some data to see if it's getting worse.

[00:10:02] For instance, the number of cranes.

[00:10:03] And Dan, you and I have been covering the RLB Crane Index here in Toronto for years now.

[00:10:07] The number of cranes in the GTA is down roughly 22% this year.

[00:10:11] Each crane in the sky represents employment for minimum 50 people.

[00:10:16] So that's a lot of workers that are unemployed.

[00:10:19] And also in the GTA in the past year, condo sales alone are 81% below the 10-year average.

[00:10:27] Purpose-built rental apartments starts are down 30% from 2023 and still falling.

[00:10:34] Sorry, still falling.

[00:10:36] And home prices, meanwhile, are four or five times higher than they were 20 years ago.

[00:10:41] Over the same period, the price of land has also gone up 10 to 11 times.

[00:10:47] And to top it all off, Cherry on top of that Housing Sunday, development charges are 30% higher.

[00:10:55] Gotta love it.

[00:10:56] Do you?

[00:10:57] Do you though?

[00:10:58] Yeah, no, I don't.

[00:10:59] But I guess I kind of do because I did mention a while ago that a lot of this stuff would happen and it is coming true.

[00:11:05] So that makes me look good, I guess.

[00:11:08] Everyone is complaining how negative I was and I was just like, look guys, I'm sorry.

[00:11:13] I don't know what to say other than I wish I was wrong, but I wasn't.

[00:11:17] So you've got increased prices, shortages in labor, along with increased prices in materials.

[00:11:22] They were being blamed for making housing less affordable.

[00:11:26] But taxes, fees, and charges also made up an estimated 31% of the purchase of a new home in Ontario.

[00:11:34] So you're telling me it's not the big, bad, greedy developers?

[00:11:39] It's actually funny because there was a report by the City of Toronto that talks about how they were modeling.

[00:11:49] I think it was their Major Streets report.

[00:11:50] What they were expecting developers to make as part of their economic model of how Major Streets would improve this.

[00:12:00] Anyway, they assumed that developers would be happy with a 15% return, total project return over, I don't know, I mean, how many years does it take really, right?

[00:12:11] Five to 10 years.

[00:12:12] So you know that it was actually Carlo from Capital Developments who told me that.

[00:12:17] But, you know, it's funny from my perspective that they're like, oh yeah, the developers should just be happy with 15%, whereas the government is the largest beneficiary of a new home's construction, accounting for 31% of the purchase price of a new home.

[00:12:34] Three times more than the residential construction builders and housing material suppliers.

[00:12:38] So this is why all levels of government should be examining how to reduce these costs while still paying for vital infrastructure and programs that make complete communities.

[00:12:47] And I would say that the first order of business probably would be spending it a little bit better.

[00:12:52] But anyway, we can set that one aside for now.

[00:12:54] Yeah, it's a whole different story.

[00:12:56] Now, Dan, you mentioned, you know, labor and materials, but it's not just those, it's high and rising land costs that have also contributed to the lack of affordability.

[00:13:06] And the price of a residential development land has increased by nearly 1,000%.

[00:13:12] This is the second time I've said 1,000% in this episode, and we've only been talking for a couple minutes.

[00:13:17] And that 1,000%, that was in London, Ontario.

[00:13:20] Okay, so you can only imagine places where land was already high and is now even more expensive.

[00:13:26] And that's been over the last 20 years now.

[00:13:28] This land cost escalation coupled with municipal development charges that have increased from 5,000 to almost 50,000 for a single or semi-detached home period has, again, just exacerbated and contributed to this severe lack of affordability.

[00:13:47] Yeah, so it really comes back to supply and demand.

[00:13:49] Again, the supply is too expensive to build, while at the same time we have seen the demand drastically increase due to factors such as immigration.

[00:13:57] Since 2010, Ontario has been in a housing affordability crisis with the unaffordability of homes having increased by 58%.

[00:14:05] Much of the problem has to do with the affordability and availability of new homes.

[00:14:09] So the question remains, what are the effects of development charges on new housing supply?

[00:14:14] Yeah, well, I mean, by the sounds of it, they are more of a disincentive for builders than an incentive.

[00:14:21] Yeah, I mean, essentially developers, whether you're building five units or 500, take all the risk and get very little reward.

[00:14:28] I mean, the municipality doesn't really take on a lot of risk here, right?

[00:14:31] Yeah, I mean, it kind of goes against the old saying, you know, no risk, no reward, or hey, big risk potential for big reward.

[00:14:38] How about this new one? Most of the risk and very little reward. It's a little less sexy.

[00:14:43] Yeah, it's gonna be a tough one to sell for sure.

[00:14:45] Yeah. So anyways, let's talk about development charges and the actual impact they have on affordability, Dan.

[00:14:52] Yeah, for sure. I will say a lot of developers did make a lot of money.

[00:14:55] So like, you know, it probably was, they were happy with the risk-reward trade-off for a while.

[00:14:59] They no longer are because they're not building houses anymore.

[00:15:01] So that's what you get.

[00:15:03] DCs add to the cost of new housing.

[00:15:06] So they do affect affordability, right?

[00:15:09] New homeowners carry the fees on their mortgages for years, and they're factored into the rents of new apartments over the long term.

[00:15:14] The impacts are seen by new homeowners, renters, and those are, it kind of disproportionately impacts younger people, right?

[00:15:22] Or new Canadians.

[00:15:24] Yeah, exactly.

[00:15:25] It really all is downstream from DCs, right?

[00:15:28] For a project to even be viable with these astronomical development charges, plus the other fees and studies, plus the taxes, plus the increased costs and labor and materials, who ends up paying for all these things?

[00:15:42] Well, you do.

[00:15:44] Not you, Dan, but you listening.

[00:15:46] Actually, you as well, Dan.

[00:15:47] You do, we do, we all do.

[00:15:48] The consumer, the end user, the small cap investor and developer, we all end up paying.

[00:15:54] And who wins?

[00:15:55] Well, the government.

[00:15:56] You know, the construction of new homes is so vital to support the rapid population growth that we've experienced and will likely continue to experience.

[00:16:03] But the ability of Ontario to build new homes have been decreasing due to all the things I just mentioned.

[00:16:09] Well, the population has grown 68% since the 1970s.

[00:16:14] The number of annual new housing completions has actually dropped by 23%.

[00:16:19] Yeah, it's, hopefully, hopefully this has given people the excitement that they require to, to, to want to listen and want to do something about it.

[00:16:33] Because I think we're going to give you an opportunity to do that.

[00:16:36] Matt didn't really get to the pitch, but the website that they've put together is an opportunity for you to email your MPs, email your politicians, email your municipal government.

[00:16:46] So hopefully now you have a better understanding of what development charges are, why they exist, and how out of control they've gotten in certain parts of the country.

[00:16:54] And the impact they're having on housing supply and affordability.

[00:16:58] Because we did have, like, I've actually had a couple of people message me and ask why specifically we're always advocating for development charges to be reduced.

[00:17:05] This is why.

[00:17:05] I hope we've made it clear.

[00:17:07] And so I want to, I want to finish this off with some good news before we bring on our guest, Matt.

[00:17:14] Ooh, we, we have good news.

[00:17:15] I love, I love when we can deliver some good news.

[00:17:18] Yeah.

[00:17:18] So Nick, remember Vaughn, who had the worst development charges and we're, and, and, and to be fair, we're shamed for having the worst development charges in Ontario by, by Mike Moffitt.

[00:17:27] Publicly shamed.

[00:17:28] Yeah.

[00:17:29] I mean, you know, you ever seen like those memes where it's like bring back bullying and it's like a picture of the Prius, you know, you know what I'm talking about?

[00:17:35] Have you seen that?

[00:17:36] Of course.

[00:17:37] Yeah.

[00:17:37] Yeah.

[00:17:38] So I, look, I'm not a fan of bullying.

[00:17:40] I don't think it's, I'm not saying, but I'm just saying as a me.

[00:17:42] And you drive a Prius, right?

[00:17:44] I do.

[00:17:44] Big Prius guy.

[00:17:46] So, so they, you know, they, they, they, they, people were really putting the pressure on Vaughn, man.

[00:17:52] And anyway, let's talk about what they did, Nick.

[00:17:55] Yeah.

[00:17:55] I mean, how could I forget Vaughn, Dan?

[00:17:57] You, you, they were at the top of the list, right?

[00:17:59] The city where it costs between 90 and basically $150,000 in development charges to bring a single unit to market, depending on what type of unit that is.

[00:18:09] Yes.

[00:18:09] That one.

[00:18:10] And, and you did say costs, but I should say costed because they just made the news for something much more positive.

[00:18:16] Can you maybe read me this tweet from friend of the show, Dr. Mike Moffitt?

[00:18:20] Yes, of course.

[00:18:22] Mike Moffitt, shout out to Vaughn, Ontario, which once had the highest development charges in the province.

[00:18:28] Today, they cut them by over 44,000 for single and semi-detached, 36,000 for multiple unit, 28,000 for larger apartment units, and 20,000 plus for smaller apartment units.

[00:18:42] This is leadership.

[00:18:43] He finishes with an exclamation mark.

[00:18:46] And not a big exclamation mark guy either.

[00:18:49] Very reserved.

[00:18:50] Very calculated.

[00:18:51] So this, you can tell he's fired up.

[00:18:53] Four or five of those a year for sure.

[00:18:55] This is huge news.

[00:18:57] Like I, and, and I honestly do think that it is going to start a trend that other municipalities will follow.

[00:19:03] I think that this is a leadership in the space, in a space that we really need that.

[00:19:07] And you have, you have developers basically saying if X city does this, we will match the reductions dollar for dollar, which means that new condo prices will come down.

[00:19:16] That sucks for all the pre-con buyers who bought over the last couple of years,

[00:19:19] but it's good for the outcome of our country that needs housing affordability really badly and more supply really badly.

[00:19:24] So from mayor Steven Del Duca, who you've probably heard of, he's a pretty, pretty prominent dude in Canadian politics.

[00:19:31] To many of our residents in particular young families in our community, they've seen their dream of buying a home close to where they grew up disappear completely as housing prices have spiral out of control.

[00:19:42] We have a housing affordability crisis and it's time for us to get real about the solutions needed to solve it.

[00:19:47] A lot of people, a lot of people I've heard saying like, oh, I was president of honor like a million bucks.

[00:19:51] You know, what's, what's 40 grand going to do?

[00:19:54] I'm like, you know what?

[00:19:55] You're right.

[00:19:55] We should have left them.

[00:19:56] Let's just, you know what I mean?

[00:19:59] Come on.

[00:20:00] Like, anyway.

[00:20:02] Yeah.

[00:20:02] Let's take zero steps in the right direction.

[00:20:04] Yeah.

[00:20:04] So, I mean, look, shout out to the mayor of Vaughan there, Mr. Del Duca.

[00:20:10] And look, the move is not being just praised by two lowly guys in a podcast here, Dan.

[00:20:15] It was praised by Build.

[00:20:16] That's the Building Industry and Land Development Association.

[00:20:18] I mean, Build was on the podcast too.

[00:20:20] They were.

[00:20:21] Hey, and, you know, friends of the show.

[00:20:23] We're lucky enough to call them that.

[00:20:25] Developer Lobby Group, one of the leaders of that developer lobby group will be joining us here in the next few minutes.

[00:20:31] And these groups have been calling for an overhaul of fees for quite some time.

[00:20:37] I quote from Dave Wilkes, president of Build, who has been a guest on the show.

[00:20:42] This will enhance the financial viability of future projects, unlocking potential investment and stimulating supply.

[00:20:49] So, this isn't just like a one-time thing.

[00:20:51] Okay, 40 grand, whatever.

[00:20:52] This is a change in the tide, hopefully, right?

[00:20:56] The first of many steps in the right direction.

[00:20:59] 100%.

[00:20:59] You love to see it.

[00:21:01] And hopefully, we will see more of it in the GTA.

[00:21:05] I'm looking at you, everyone else in the GTA.

[00:21:08] I know you're listening.

[00:21:09] I know you guys listen to this podcast.

[00:21:11] So, start cutting those DCs.

[00:21:13] Maybe it's a good time to introduce and bring in our expert, a real live developer.

[00:21:18] Wow.

[00:21:19] A real live developer.

[00:21:20] Yeah, we had to drag him out of his pile of cash because developers are all so greedy these days, apparently.

[00:21:29] No, I mean, you know what?

[00:21:31] Developers got a lot of time on their hands right now because everyone's busy demonizing them for doing stuff or for making too much money.

[00:21:38] And now, they're not selling any houses.

[00:21:41] Not developing.

[00:21:42] Not hard to find a developer.

[00:21:43] But this guy's definitely tough to get his time because he's out doing some serious advocacy work.

[00:21:52] I think he's been on every podcast in the country in the last couple of weeks.

[00:21:55] And hopefully, you'll enjoy our interview with him.

[00:21:59] Yeah.

[00:21:59] Mr. Matt Young.

[00:22:00] Matt founded Republic Developments back in 2019 after a 10-year career helping grow some of Canada's largest firms.

[00:22:08] 14 years of experience.

[00:22:10] He's built a track record of executional excellence.

[00:22:14] Managed over the development over 15,000 units.

[00:22:18] You know, approximately 12.2 million square feet and valued over $13.5 billion.

[00:22:24] This guy knows what he is talking about and focuses on residential and mixed-use real estate development here in the GTA.

[00:22:33] He has also become an outspoken advocate for changing the industry and is an expert when it comes to development charges.

[00:22:40] So, without further ado, let's bring Matt in.

[00:22:44] So, we're joined here by Matt Young, who is a developer in the Toronto market.

[00:22:50] And Matt, you've also started an advocacy group in the real estate space called Can't.

[00:22:57] Can you tell us a little bit about what you're doing with that and what you're aiming to achieve?

[00:23:02] Yeah, sure.

[00:23:03] So, kind of started, I would say, pretty much about a year ago.

[00:23:08] We were gearing up to launch one of our projects and starting to just feel the sentiment in the market.

[00:23:14] People weren't feeling a lot of confidence.

[00:23:16] And we were having a lot of conversations with brokers and with buyers and getting a sense from them, you know, how they were feeling.

[00:23:23] And I think the overall sentiment was that people didn't see the value in buying pre-construction real estate anymore.

[00:23:30] They thought the costs were too high.

[00:23:32] And, you know, I think that coming off of what was a lot of irrational exuberance through the COVID period, I think, you know, as interest rates went up, people were feeling the pinch.

[00:23:44] They were seeing how it was affecting their lives.

[00:23:46] And they were also losing confidence that prices would continue to go up over time or at least over the kind of short to medium term.

[00:23:54] And so, you know, we kind of took some stock into that and started looking at, okay, well, if you don't believe prices are at the right place and they need to be lower, how do we get them lower?

[00:24:07] Because it's not as simple as just dropping prices.

[00:24:10] These projects are generally underwritten to pencil to a certain return.

[00:24:14] There's been a lot of efficiency in the market.

[00:24:17] And so you can't just drop the prices without removing costs as well.

[00:24:21] And so we ended up going through this long exercise of figuring out, okay, what costs can be removed from a performa?

[00:24:27] What costs can't be removed from a performa?

[00:24:29] You know, you can't just get rid of steel and concrete.

[00:24:31] You know, you need to still build a good quality building.

[00:24:34] And it became really clear to us after going through a long exercise with our finance team that the number one thing that's changed in the last 15 years has been taxes.

[00:24:44] Taxes went from 12% of the cost of a typical condo in 2009 when I started in the business.

[00:24:50] To roughly 30% of the cost of a condo today.

[00:24:54] And more importantly, the cost of that building has tripled or the cost of that condo unit has tripled in price over that same, you know, roughly 15 year period.

[00:25:02] So it became really clear to us that we've got a taxation problem in this business.

[00:25:07] And we started thinking a little bit more about how we could raise awareness around this issue because it wasn't really being talked about.

[00:25:17] For the last, you know, I'd say before we started this, I would say over the last two or three years, all of the conversation was around supply.

[00:25:24] And that is a really important conversation to have.

[00:25:26] We definitely are undersupplied in this market.

[00:25:30] But the only way to build new supply is to make sure that the economics are such that you can build it and that people can buy those homes and feel good about buying those homes and build rental homes and everything else we need to do.

[00:25:42] But you have to build new stuff.

[00:25:44] And if people aren't willing to buy any new housing, you're not going to build any new supply.

[00:25:47] And so we have to get to the root cause of the problem, which is costs.

[00:25:50] And so we started this whole initiative really with the intention of changing the narrative in the country to be more tax focused, because we think that's the easiest way to bring costs in line and to get people buying homes again.

[00:26:07] And Matt, you did that by revolutionizing a certain board game to a certain extent.

[00:26:13] Yeah, I should have framed it better because this is one of the most brilliant marketing campaigns that I've ever seen.

[00:26:19] I'm actually going to share your website for those people watching.

[00:26:22] But yeah, can you tell us a little bit?

[00:26:24] Yeah, so that was actually phase two of the campaign.

[00:26:27] The first phase of the campaign was we got a group of 20 builders together and we all signed a pledge.

[00:26:35] And the pledge was that for every dollar of tax cut from the cost of delivering housing, we'll drop our prices dollar for dollar.

[00:26:42] Because we wanted to really show the market that, you know, nobody's looking for a handout here.

[00:26:47] We all want to do the right thing.

[00:26:49] We all just want to build housing.

[00:26:50] And we know that the prices need to come down based on what we're hearing from people.

[00:26:54] So the easiest way to do that is to pass those savings on to purchasers, make it so they feel good about buying housing again, that they see the opportunity again.

[00:27:02] And we can start putting shovels in the ground and building housing.

[00:27:05] So that was really phase one that launched in August.

[00:27:07] And then, you know, we started having discussions with government and I'd say we had some productive discussions with government and some unproductive discussions with government, quite frankly.

[00:27:18] And so we said, OK, we're not really going to go away quietly here.

[00:27:22] And so we came out with a phase two of the campaign, which was, I'd say, a little bit more vocal and a little bit more highlighting the issue in a way that the average person would understand.

[00:27:36] And so the geniuses at Blackjet, who's a creative agency in Toronto, they really came up with this idea, which is let's make a board game that is unwinnable after three or four.

[00:27:46] It's a playable board game, by the way.

[00:27:48] And I know you got sent one, Dan.

[00:27:50] So I don't know if you've had a chance to play it.

[00:27:52] I'm going to be playing it with everybody over Christmas for sure.

[00:27:56] It'll be a short game, I promise you.

[00:27:57] If Monopoly wasn't frustrating and a long game already, Taxopoly, I can assure you, will increase that frustration.

[00:28:05] You know what the beauty of this game is, though?

[00:28:07] You're equally frustrated together.

[00:28:09] And so you're kind of all miserable together, which is, I think, the sentiment we all feel in Canada right now.

[00:28:14] It feels like just everything is not going in the right direction.

[00:28:19] It feels like everything is too expensive.

[00:28:21] I think overall, our governments generally have this scarcity mindset where they're all trying to take a bigger piece of a dwindling pie.

[00:28:32] And, you know, I think that's a failure in policy.

[00:28:36] And I think we have to get back to an abundance mindset, which is let's focus on growing the pie.

[00:28:41] And if we grow the pie, then everybody will do well.

[00:28:43] But if we can't grow the pie, then we've got a big problem.

[00:28:46] And, you know, I think it's evident that, you know, Dan, you constantly post really good charts and stuff online.

[00:28:53] And so you've seen the chart going around, you know, what's happened, you know, nine years ago compared to GDP in Canada compared to the U.S.

[00:29:02] And I think we all know what happened nine years ago.

[00:29:04] So I'm not trying to be political here, but I'm just saying like policies are not working.

[00:29:09] And so I think people need to be objective about what's not working, what is working and start to change course because really people in government, their job is to be a public servant.

[00:29:20] Their job is to serve, you know, the will of the people and to make it as good for as many people in Canada as possible.

[00:29:26] And I don't think if you ask very, very few Canadians today would say that things are better today than they were, you know, five years ago, seven years ago.

[00:29:33] Well, it is funny, right? Because, you know, you mentioned earlier on like the supply discussion, right?

[00:29:39] And the way that our housing market is formatted, at least in the GTA, is such that you can't have supply without demand.

[00:29:46] Like excess demand in the resale housing market spills over into the pre-construction market.

[00:29:51] So, for example, if I'm an investor and I want to buy units and I don't want to pay X price to compete with the marginal buyer,

[00:29:57] I can go buy a pre-sale unit and that deposit goes towards the creation of a new housing unit, either in the ground-based or high-rise market.

[00:30:05] And now we're seeing data come out from Altus, Urban Nation and Build basically saying that, you know, Toronto new home prices are down and condo sales are down like, you know,

[00:30:18] depending on the month that we're using, down like 70, 80%, right? Off peak, not from the average.

[00:30:24] And so this to me is going to be, it's going to become a long-term supply constriction.

[00:30:29] It's also going to become a huge drag on GDP growth and construction, given how much of our GDP is dependent on this.

[00:30:37] You mentioned another thing in there that I wanted to talk about because you had a very interesting answer to it in our conversation prior.

[00:30:46] So, the thing is you said, we'll match the reductions in tax dollar for dollar.

[00:30:53] And we know that Vaughn has already actually committed already to doing this.

[00:30:56] And I commend you and the folks that you're working with for putting the pressure on them.

[00:31:00] I really think that's probably played a big role.

[00:31:02] But people are going to say, well, at least the biggest criticism I've seen is,

[00:31:06] why are the greedy developers going to match this dollar for dollar reduction in development charges?

[00:31:15] And my answer to the question when people ask me that is, well, right now we know that units aren't selling at the price that they're at.

[00:31:22] And so the easiest way to sell a unit is to drop the price of that unit, right?

[00:31:26] I mean, you go walk by a store, you're more likely to buy something if it's on sale, right?

[00:31:30] And so if developers do that, they can now get a sale, which is how they make money and how they have a viable business.

[00:31:37] It's not really rocket science.

[00:31:39] The other part is it's money they never would have saw to begin with, right?

[00:31:42] Like, you know, all that DC money would have just went to the municipality.

[00:31:48] So they don't really care whether or not it's reflected in the price.

[00:31:51] There's no sense in trying to capture any portion of it because if it impedes in the ability to get a sale,

[00:31:57] then it impedes in their ability to collect revenue.

[00:31:59] But you had another interesting thought on kind of like reputationally what it means for you

[00:32:05] and for the development community to be stepping up and doing this.

[00:32:07] And I'm just wondering if you could discuss that, like why else might a developer beyond the sort of economic incentive I just explained,

[00:32:14] why else might a developer be incentivized to do what you guys are all doing?

[00:32:18] Yeah.

[00:32:19] I mean, if you look at the development industry deeply, you're going to notice a few things,

[00:32:24] one of which is there's a lot of long-term players in this business.

[00:32:30] There are families who've been building here for 80 years, 70 years, 50 years.

[00:32:34] You see a lot of them on their logos, you know, they've been in business for 50 years.

[00:32:38] Reputation is everything in this business.

[00:32:40] It is everything.

[00:32:41] And so by us doing this public coalition and this public pledge, putting our names, putting our logos,

[00:32:49] putting our signatures on it, we wanted to show people that we had skin in the game.

[00:32:53] We were putting our reputations on the line because I knew that this was going to be a criticism.

[00:32:59] This is always the criticism.

[00:33:00] Oh, developers are just going to pocket the profit.

[00:33:02] Everybody seems to think that, you know, it's developer greed is the problem.

[00:33:06] And I think that's driven by, you know, uninformed or politicians who have purposely tried to kind of

[00:33:15] sow these seeds of doubt within the industry that, you know, we're the bad guys.

[00:33:20] And, you know, I've been in this business for 15 years.

[00:33:23] I've worked for multiple developers.

[00:33:25] I've partnered with many others.

[00:33:26] Never met bad guys like that.

[00:33:28] I've never, I've never dealt with anyone who's been so greedy and they care nothing about their customer.

[00:33:35] They care nothing about anyone else.

[00:33:36] They only care about, you know, making a profit.

[00:33:39] I've never met a single person like that yet.

[00:33:41] You know, there's, there's certainly a spectrum, but there's a lot of people love building in the city.

[00:33:46] They feel it's a responsibility to build in the city.

[00:33:49] They feel it's a privilege to build in the city.

[00:33:51] And so when you're putting your reputation on the line there, you're really saying like, if we don't do the right thing, you know, there's an opportunity for the public to challenge us and call into question our reputations.

[00:34:04] And when, when you value that with your life, I think that's a meaningful amount of skin in the game to show people we're serious.

[00:34:13] So we wanted to do something like that.

[00:34:15] And the people who signed the pledge, because they all believe it, were very, very open about making this a public thing.

[00:34:23] So, you know, and look, people can believe us or not, but when the, you know, I don't have a project in Vaughan, unfortunately, so I can't show those savings yet.

[00:34:32] But the second is savings in Toronto.

[00:34:34] I promise you, you can come into one of my sales offices and you'll be able to see immediately the price difference.

[00:34:41] And we're actually working on kind of a formatting and a document that we can show buyers.

[00:34:46] Here was the previous price.

[00:34:48] Here's the new price, you know, and thank your government for that.

[00:34:50] Your government were the ones who stepped up and made the difficult choices that were necessary to bring this market back.

[00:34:56] And so they should get the credit, you know, if, if they do the right thing and we will happily give them the credit.

[00:35:03] Yeah.

[00:35:03] You know, I just want to jump in on the, on the misconception there for a second.

[00:35:07] And I think it's such a common misconception, right?

[00:35:09] The greedy developer, the wealthy developer, but really, I think that has kind of perpetuated and almost spiraled out of control over the last couple of years.

[00:35:18] And I think the, that misconception comes from housing in general, just being so expensive, right?

[00:35:24] To do a renovation, to put a basement suite in, the cost has jumped, you know, five, 10 X in the past number of years.

[00:35:31] So when you exacerbate that and think, okay, well, you know, it's this much to put a pool in or put a basement in or to even buy a house.

[00:35:38] Now I can only imagine the people at, you know, the, the top, which would be the developers who are doing this on a, on a large scale.

[00:35:46] Well, they must be taking home all the profits, but it really isn't the case.

[00:35:50] Is it Matt, right? I mean, you know, I think you've mentioned already and, and we spoke about this before that the government really is, is the main breadwinner when it comes to any form of development, especially here in Ontario.

[00:36:04] Absolutely. And that, that's been our, our, our position all along since we started this, you know, we looked at when I started in the business in 2009, I talked about, it was 12% of the cost of a home were, were taxes.

[00:36:17] And I pull, I dusted off an old performer from way back then and, and normalized it.

[00:36:23] So it was apples to apples with a project today.

[00:36:27] And, and 12% was the numbers, roughly 36,000 on average per condo.

[00:36:33] So that's like a blend between one bedroom is probably a little bit less and two bedrooms, a little bit more, but blended on average about $36,000 in total tax today.

[00:36:42] It's over $240,000.

[00:36:44] So there's over $200,000 in straight tax that is being charged on a home to the same home today as what was charged 15 years ago.

[00:36:54] So that $700,000 condo that you're looking at, starter condo could cost $500,000 today if the governments were willing to pull back on some of these taxes.

[00:37:06] And I think that's a meaningful difference in terms of affordability.

[00:37:10] Now it's not just government, there has been construction cost increases and other things, but you got to remember that labor costs have gone up.

[00:37:18] Supply of materials has gone up.

[00:37:20] You know, there's a whole bunch of things and, you know, all at the end of the day, every cost input that goes into a project has to be absorbed by the end buyer, every single one of them.

[00:37:30] So when labor rates go up, they're absorbing those costs.

[00:37:35] When the supply of concrete and steel goes up, they're absorbing those costs.

[00:37:38] When my appliances get more expensive, they're absorbing those costs.

[00:37:42] And when the taxes go up, they're absorbing those costs.

[00:37:44] You know, I think developers do a really good job of trying to manage costs and trying to, you know, negotiate hard and, you know, try and keep things in line.

[00:37:54] But it's really been like a battle of attrition, I'd say, over the last 15 years that we've been losing.

[00:38:01] And we're now at the point where the system's broken and we don't have another option other than to get really vocal about this issue.

[00:38:08] And thankfully, I think everybody across the country is starting to recognize this issue because all of the public sentiment I see online when, you know, Pierre Paglia, for example, came out with his proposal on GST or Stephen Del Duca, who was the first, you know, it's a big city mayor who did something meaningful in terms of dropping development charges.

[00:38:31] They're getting praise for these policies.

[00:38:33] People like these policies.

[00:38:34] So, I think, you know, I think it's only a matter of time, hopefully, until, you know, cities like Toronto do their part and the province of Ontario steps up and does their part.

[00:38:44] And hopefully, the current federal government does their part.

[00:38:48] Yeah, I completely agree.

[00:38:49] I think, I guess the big question from my perspective is like, what happens when this happens?

[00:38:56] Like, I think Vaughn set the precedent and I think that they'll likely see the results.

[00:39:02] So, we try and educate our investors to model decisions based on what the most likely outcome, right?

[00:39:10] And I would say, I think it's plausible that we will start seeing reductions in development charges.

[00:39:16] I think municipalities have been pushed by the feds, by the provincial governments who have both made concessions as much as they can on the tax side, I think.

[00:39:24] Like, I think it's municipalities time to step up and the city of Toronto or Mississauga or any other neighbor of Vaughn is going to look and be like, oh, wow, they are getting units built because the cost structure makes sense and the economics of the units make sense.

[00:39:40] So, you know, fast forward to two years from now, what happens?

[00:39:45] If your efforts succeed, what does this look like in a couple of years?

[00:39:53] I think what it looks like, first of all, it'll hopefully happen sooner than later, but governments at their own paces will trickle in some of these removal of some of these taxes.

[00:40:08] And as they happen, builders who are looking to sell units that are out on the market that they can't sell today are going to immediately drop their prices.

[00:40:17] We're going to drop our coalition will drop them dollar for dollar.

[00:40:20] Builders who haven't signed our pledge are probably going to be forced to drop them dollar for dollar anyway, because you're going to have 30 plus builders who are in the market with product that has dropped them dollar for dollar.

[00:40:30] So, if you want to compete, you're going to have to, you know, follow suit.

[00:40:35] And eventually over time, coupled with interest rates and hopefully some improvements, you know, on the macro economic side, people will start to feel confidence in buying housing again.

[00:40:47] The pricing will make more sense to them.

[00:40:51] And I think you're going to start to see people come back into the market slowly.

[00:40:55] And as more savings come in, they'll come back a little bit quicker.

[00:40:59] And eventually what we'll see, I think, is a normalizing of the market.

[00:41:02] In my opinion, you need pre-construction prices to be in line or very close to in line with resale prices.

[00:41:11] And so today, I think pre-construction prices are give or take on average, you know, changes by the market, but probably 30% higher than resale.

[00:41:19] And we probably need to see, you know, 20 to 25% drop in pre-construction prices in order for buyers to see the value in buying a new home instead of, you know, an older home.

[00:41:34] So that's how I think it plays out.

[00:41:36] But I will say, the longer it takes for this to play out, the more damaging it is, the more incentive governments are going to have to eventually do.

[00:41:46] And the lowering of capacity we're going to have to build homes in this country.

[00:41:52] There are a lot of jobs being lost silently right now.

[00:41:56] Some of them are public and I'm seeing job reports now.

[00:41:59] You know, the latest data in Ontario, I think we lost 36,000 jobs over the last, I don't, don't quote me on this, could be the last quarter or what.

[00:42:07] But I know we're losing jobs.

[00:42:09] Anecdotally speaking, the trades who have laid off a lot of people, you know, I've told this before, but just as we were launching the first campaign, we spoke to one of our construction guys who said one of their farm workers laid off 400 men.

[00:42:20] You know, this is, these are really well-paying jobs.

[00:42:23] These are really important jobs to be keeping.

[00:42:25] And we're already in an industry which is an aging industry.

[00:42:29] So people who are in the construction trades are generally getting older.

[00:42:34] There's not as many younger people coming into those trades.

[00:42:36] And so if you're a 55-year-old farm worker and you've lost your job and you don't really know when the market's going to come back, I don't think you're going to sit around and wait for it.

[00:42:46] I think you're probably going to go find another job.

[00:42:48] And when you find that job, when the market does come back, you're probably not just going to turn around right away and go to the industry that left you behind.

[00:42:56] You're going to carry on in the job you're at.

[00:42:58] So, and you might see some people retire early and other things like that.

[00:43:02] So I think it's going to remove capacity from the market, which means when we need to ramp back up to sell more homes, it's going to take time.

[00:43:10] You can't just turn the taps on and have things start up again.

[00:43:13] So I think that's the message we're trying to send to government right now is you need to act quickly.

[00:43:19] You're not anticipating or appreciating the scale of this issue and all of the knock-on effects that's going to happen if you don't address this quickly.

[00:43:28] Yeah, I completely agree.

[00:43:30] I'll save our listeners the headache of listening to me talk about how bad this is going to impact the construction industry one more time.

[00:43:36] I think you've been very, very helpful in explaining it from a obviously very credible perspective.

[00:43:42] And I appreciate the work that you've been doing in this space.

[00:43:44] Is there anything you want to leave our listeners with before we wrap up here?

[00:43:48] Yeah, look, you know, the one thing I'll say if I'm going to plug anything here is that the only way I think governments are going to act is if they have pressure on them.

[00:43:58] That's one of the reasons we're ramping up pressure.

[00:44:01] And, you know, we've launched phase two of the campaign.

[00:44:03] We will have a phase three of the campaign and we will have a phase four of the campaign.

[00:44:06] And each campaign is going to ramp up pressure a little bit more and a little bit more.

[00:44:10] But what we really need is people across the country talking about this issue, emailing their representatives, letting them know that this is an important issue for them.

[00:44:20] The latest that I saw was that 49 percent of Canadians think housing affordability is the number one election issue.

[00:44:27] And so people already care about this, but I think they need to understand what housing affordability means, that taxes are a critical component of that.

[00:44:34] And that governments are the ones who actually have to act on that and push to fix things.

[00:44:38] Until politicians feel the pressure from the public, you know, they generally are going to act in what they believe is their best interest and their best interest is getting voted back in.

[00:44:48] So until they start to feel that, you know, from polling and other things that this is the issue that people care about, it's going to be slow, slow action, I think.

[00:44:57] So anything you can do, if you go on our website, there's a section there where you can email representatives across the country.

[00:45:04] Go there, send an email, forward it to your friends, get them to send an email.

[00:45:08] Whatever you can do to help put pressure on, I think that's going to make the difference.

[00:45:13] Awesome.

[00:45:13] Thanks a lot, Matt.

[00:45:14] Really appreciate your time.

[00:45:15] Anytime.

[00:45:15] Thank you guys.

[00:45:16] The Canadian Real Estate Investor Podcast is for entertainment purposes only and it is not financial advice.

[00:45:23] Nick Hill is a mortgage agent with Premier Mortgage Center and a partner in the G&H Mortgage Group.

[00:45:30] License number 10317.

[00:45:33] Agent license M21004037.

[00:45:38] Daniel Foch is a real estate broker licensed with Rare Real Estate, a member of the Canadian Real Estate Association,

[00:45:46] the Toronto Real Estate Board and the Ontario Real Estate Association.

[00:45:50] Thank you.

[00:45:50] Thank you.

[00:45:50] We'll be right back.