Urban Development Institute Taxing Growth: Analyzing the Taxes and Fees on New Housing Development
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Taxing Growth:
Analysing the Taxes
and Fees on New
Housing Development
Across British Columbia (B.C.), developers of new
housing navigate taxes, fees, and the policies that
drive them, generated by all levels of government.
These taxes and fees are levied to fund services
and amenities that support complete communities.
However, these same taxes and fees make it more
costly to build the housing that communities need,
and can ultimately restrict the amount of new housing
that is built. We are already failing to build enough
new housing in B.C. and homes remain unaffordable
for many British Columbians. In a June 2022 report,
CMHC calculated that 570,000 new homes would
need to be built in the province to restore affordability.1
There are high barriers to new development and one
of these obstacles is the layers of government taxes
and fees charged on housing. This is an impact seen
across jurisdictions and housing types, from a new
condo development in Kelowna to a purpose-built
rental building in Vancouver.
In this report, UDI examines the taxes and fees
associated with building new housing in British
Columbia. UDI has engaged experienced multi-
family developers and tax experts to analyse three
hypothetical condo project budgets from Vancouver,
Kelowna and Saanich, and a purpose-built rental
project from Vancouver. The tables for each of these
examples are included in the appendix. Each analysis
uses current cost estimates that would be calculated
by builders in their budgeting process.
Introduction
Introduction
Taxing Growth
in government charges. The updated Vancouver condo
analysis demonstrates a project that is not viable in
today’s environment if the purchase price for a 700
sq. ft. one bedroom unit were set at $980,000. The
estimated hard costs and contingency, land costs, and
government taxes and fees nearly exceed the total
market value revenue for the project. The project is
facing viability challenges even before the estimates
of soft costs, financing, and the margin for risk is
factored in. This renders the project unviable and
would likely not be financeable.
The market-driven cost increases,
in combination with higher taxes
and fees, has led to a significantly
more risky environment for
builders to provide much-needed
housing in British Columbia.
The condo example from Saanich illustrates that
between 8.66% and 10.32% of the cost of housing
is attributed to taxes and fees, while a comparable
project in Vancouver could have government charges
nearly three times as high.In the condo example from
Kelowna, 12.97% to 14.63% of the potential purchase
price is attributed to taxes and fees. Both the Saanich
and Kelowna examples demonstrate that despite the
lower percentage of taxes and fees relative to the
price of a new unit, there are still challenges in both
regions. The layering of these charges along with other
costs will still impact project budgets. Jurisdictions
across B.C. are seeing supply unable to keep up with
demand, putting pressure on home prices of all types
and the availability and affordability of housing.
In the City of Vancouver, there are additional taxes
and fees on new housing development such as the
recently increased Empty Homes Tax (EHT) and the
Public Art fee. There are also regional charges such
as the TransLink DCC, the newly increased Greater
Vancouver Sewer DCC, and the Water DCC, which
is pending approval from the Province. These line
Taxing Growth
Summary Analysis
Summary Analysis
The analysis in this report of four mid-rise housing
projects in B.C. shows that the layering of taxes and fees
can create cost barriers and added risk for builders.
For a new condo unit in Vancouver, the value of the taxes
and fees paid by the builder as part of the development
process can total over $250,000, not including taxes the
buyer pays at the time of purchase. These costs form
part of the purchase price paid by the buyer, along
with the additional taxes paid at time of sale. In total,
these taxes equate to 29% of the potential purchase
price in our example. The developer must determine
whether the market can bear this cost burden when
considering whether to undertake the project.
It has been argued that rising costs do not directly
impact housing costs because they assume increasing
fees and taxes come out of the price of the land and
unit prices and rents are driven by the market, as
are land values. However, it is not guaranteed that
a land vendor will be willing to reduce their selling
price to reflect rising costs. They can and have taken
their sites off the market, which reduces the amount
of land available for development and fewer homes
available to rent or buy. In a Province with severe land
constraints and increasing demand due to immigration
and other factors, this leads to and widens the gap
between supply and demand, indirectly resulting in
higher prices overall.
There are also instances when taxes and fees rise after
land is purchased by a builder. If these cost increases
exceed the project risk margin, it may be delayed (until
prices/rents increase) or not built at all; both would
undermine affordability.
In 2018, UDI conducted a similar analysis, where it
was identified that the purchaser of a new condo unit
in Vancouver could be paying up to 26% of the cost of
their unit in taxes and fees. Between 2018 and today,
builders have seen unprecedented cost increases
in all budget areas, including construction costs,
insurance, and financing, alongside dramatic increases
Municipalities and the Province need to mitigate these
risks in order to support new housing development,
especially purpose-built rental. This report examines
one of the key development risks and drivers of
new housing costs - taxes and fees - and provides
recommendations for governing bodies to reduce
barriers to new housing delivery.
Taxing Growth
Summary Analysis
items impact the costs associated with new housing.
The layers of taxes and fees on projects often coincide
with communities where housing is greatly needed.
The current analysis also examines a purpose-built
rental development in Vancouver. For the renter of
a new unit at $2,698 per month, it is estimated that
approximately one-third of their monthly rent, or
$882.70, could be paid towards the government taxes
and fees which were incurred during the development
process. The challenges associated with rising costs
and uncertainty are especially significant for rental
housing. Rental housing projects are viewed as long-
term investments, with tight budgeting processes.
If there are unexpected changes in government
charges, projects can quickly be rendered unviable.
In addition, builders may not be willing to take on
the risk of additional charges and will look for other
investment opportunities that provide more certainty.
This has a significant impact on the ability to deliver
new rental housing to an underserved market, creating
additional pressure on rents for existing homes.
In CMHC’s most recent Rental Market Report, it was
identified that vacancy rates in Vancouver’s Census
Metropolitan Area (CMA) dropped from an already-
low 1.2% in 2021 to 0.9% in 2022. There has been an
uptick in supply in the past year, however, demand
continues to outpace the creation of new rental housing.
This has led to decreased vacancy rates and higher rents
for the units that are available on the market.2
Rental developments have significantly higher equity
requirements than condo developments, contributing
to the cost sensitivities in the initial budgeting process.
Rental developments, unlike strata and condo projects,
cannot gather equity from presales. Rents can only be
charged once the units are occupied, and initial rents
are generally determined by the market at the time,
regardless of the additional cost pressures which may
occur during the permitting and construction process.
As policies change, often resulting in increased
costs, the development process becomes riskier.
Breaking Down the Taxes & Fees
The critical challenges associated with the cost of
building new homes are rarely caused by individual
taxes and fees. This report outlines several
government charges analysed in the examples,
however there are many other government-driven
costs that affect new housing. For example,
inclusionary zoning requires builders to incorporate
a fixed percentage of below-market housing into their
projects. These homes are typically restricted to rental
use and generally have a value that is significantly
less than the cost to construct them. As a result, this
shortfall must be distributed across all of the other
units within a development unless this cost is offset
through density or a public program. If more density
is provided, enough to offset the costs of building
below-market units, this results in more housing
supply added to the overall housing continuum.
If the additional costs on these units exceed market
values, it could undermine the project.
Similarly, green building requirements for new
buildings add to the construction cost, as high
efficiency materials and systems are incorporated into
the building design. While this cost is not paid directly
to governments, it is generated by government policy,
and unexpected changes can impact project viability.
While we support the addition of below-market rental
housing and green building practices in new buildings,
both of these requirements add to the collective
burden of charges and costs imposed by all levels of
government that put strain on project finances. Any
of these policies and charges can change throughout
the development process, making housing delivery
less certain. In addition to this, separate levels of
government rarely coordinate policies and charges,
resulting in a piling-on effect.
Empty Homes Tax (EHT),
Speculation and Vacancy Tax (SVT)
& Additional School Tax (AST)
The applicability of taxes and fees on new housing
can be difficult for builders to navigate. Taxes such
as Vancouver’s Empty Homes Tax (EHT) and British
Columbia’s Speculation and Vacancy Tax (SVT)
are intended to target similar market issues at two
different jurisdictional levels. Both taxes are collected
on vacant homes to generate funds for affordable
housing while incentivizing owners to contribute to the
secondary rental market. The Additional School Tax
(AST), applied to the amount of a property’s residential
value over $3 million, is an annual charge factored into
a builder’s budget as part of the residential property tax.
The evaluation of these taxes during the development
process is made more complicated by their differing
applicability and exemption criteria. The SVT requires
Building Activity criteria to be met in order for a project
to be exempt. For Vancouver’s EHT, the exemption is
defined by a Letter of Enquiry (LOE), which differs from
the AST exemption of Construction Activity.
In Vancouver, if developments do not meet the
necessary exemptions, they could attract both the
SVT and EHT, and end up paying increased AST
depending on the length of the approvals process.
For example, a project may meet the Building Activity
exemption thresholds for the provincial SVT, but
still be required to pay the EHT in Vancouver if the
project has not submitted an LOE. The LOE process
was initially intended as a high-level application to
understand the merits of a project, however in recent
years it has grown into a more detailed application,
adding time to the process and making it more difficult
to meet the EHT exemption threshold. In addition,
the longer a property is in the approvals process, the
more property tax is paid on the land. AST adds to
this burden, as it is charged alongside property tax.
Taxing Growth
Breaking Down the Taxes & Fees
Aligning exemptions for similarly focused tax measures
would streamline the budgeting process for new housing.
Funds collected through both the EHT and SVT are
intended to increase the availability and affordability
of housing within Vancouver and the province, but
can ultimately pose as a barrier to the delivery of new
homes. For the AST, development sites that have
a high residential value when they are assembled
can attract this tax while the developer is awaiting
permit approvals. As AST is charged annually, it is
dependent on approvals timelines to determine the
overall cost burden on the project budget. Exemptions
for new developments would eliminate the impact
of the AST on the cost of new housing. In addition,
faster permitting timelines would mitigate the impacts
of annual property taxes in general. Applying the
exemptions allowed in the SVT legislation to the AST
and EHT would improve the complicated application
of these taxes on new housing developments.
Federal Goods and Services Tax (GST)
The Federal Goods and Services Tax (GST) is not a
new cost, but it has substantial impacts on the ability
to deliver much-needed rental housing. For purpose-
built rental builders, it is often the most impactful tax
or fee that is charged on a project. GST rebates were
introduced to incentivize rental development; however,
they are no longer effective in many urban centres.
The qualification thresholds are set at a national level
and the unit values do not vary based on jurisdiction.
Compounding their ineffectiveness, these thresholds
have not been updated since they were introduced
nearly two decades ago.
For rental housing, GST rebates are available for new
residential rental units with a fair market value below
$350,000 and partial rebates for units valued up to
$450,000. There are no rebates available for new rental
housing exceeding $450,000 in value. This is an issue
in jurisdictions that cannot meet the rebate thresholds.
In an estimate completed by a rental housing
developer, a 430 sq. ft. studio unit in a new rental
building in downtown Vancouver could be valued at
approximately $554,000 based on current market
rents in new buildings. Even a studio exceeds the
rebate threshold value and therefore would not meet
the rebate eligibility criteria, larger units in Vancouver
would almost certainly be required to pay the full GST
amount. The GST rebate criteria is a substantial barrier
in areas where demand for rental housing far exceeds
supply and market values are high. This results in a
situation where markets that are most in need of new
rental housing are least likely to receive a GST rebate.
While all levels of government
acknowledge the need to increase
the supply of rental housing, the
way in which the GST is applied is
counter-productive to that goal.
GST is the largest single tax or fee
in a rental project budget.
There has been a substantial increase in market values
over the past 20 years, and the rebate thresholds
for rental development should be revised to reflect
inflation and the rise in housing prices. The GST
rebate should also be varied by local CMA. This
would incentivize rental housing development in
the jurisdictions with some of the greatest housing
availability challenges, such as in Vancouver, the
Capital Region or Okanagan. In the Vancouver rental
analysis, GST could account for nearly 10%, or
$250.60, of the average unit starting rent paid per
month. Removing this charge or offering a rebate
would eliminate one of the most significant barriers to
delivering new rental homes.
Taxing Growth
Monthly Rent
GST
Size
675
Per unit
$2,698
$250.60
GST Allocation in the Vancouver Rental Budget Example
Breaking Down the Taxes & Fees
Development Cost Charges (DCCs)
and Development Cost Levies (DCLs)
Development Cost Charges (DCCs) and Development
Cost Levies (DCLs) can be set at both the local and regional
level. These fees are levied on new developments
to fund infrastructure-related expenses that support
growth, such as water and sewer services or parks.
It is understood that growth needs to pay for growth,
however, increasing DCC and DCL rates with
inadequate notice and the layering of both local and
regional charges adds to project costs, which become
a component of the purchase price or monthly rent.
When the budgeting stage of the development process is
complete, the project viability is based-on what policies
are in place at the time. While DCCs are intended to
undergo a comprehensive review at least every five years
and can be indexed to inflation, there are a number of
municipalities that do not follow these best practices.
DCCs can increase intermittently and without a fixed
schedule. DCC and DCL changes with inadequate
notice can result in builders paying higher fees
after purchase commitments have been made and
significant redevelopment costs have been incurred.
This can impact whether the project can be built at all.
The Provincial DCC and DCL framework allows
for some in-stream protections to guard against
this challenge. Outlined in Sections 568 and 511
of the Local Government Act (LGA), a “pre-curser
application” must be in-stream, meaning a building
permit, development permit, rezoning or subdivision
application. This would satisfy the first stage of an “in-
stream” application, and the second stage would be
met if a building permit is issued within 12 months of
the adoption of the increased rates.3 These protections
set by provincial legislation were introduced over 10
years ago. Since then, the municipal approval process
has increased in complexity and staffing shortages
within municipalities have put strain on the ability to
process applications.
In the 2022 Municipal Supply and Benchmarking Study
released by the Canadian Home Builders’ Association
of B.C. (CHBA BC), it is identified that the average
municipal approval timelines in B.C. are 14.2 months for
a rezoning approval, and 13.6 months for a development
permit. In the project budgets analysed, a building
permit can take anywhere between 6-12 months for
approval. In municipalities facing staffing shortages,
permits can take even longer. The CHBA BC’s report
states that, “Shorter timelines can help improve the
responsiveness of housing supply to demand.” 4
Shorter approval timelines would provide greater
certainty that projects could qualify for in-stream
protections if DCC or DCL rate changes occurred
during the approval process. This would avoid the
builder paying higher fees than they had previously
budgeted for. In addition, phasing-in substantial DCC
or DCL increases over a multi-year period would
mitigate the budgetary impact for projects that are
in-stream but unable to receive their building permit
within the first year after the new rates are approved.
In-stream cost increases are a risk when combined
with the overall burden of taxes and fees, and make
it more challenging to develop new housing.
Developers are often required to deliver cash or in-kind
contributions for infrastructure. In Metro Vancouver,
a housing project will pay DCCs to fund infrastructure
Taxing Growth
Regional DCC Infrastructure Categories
Transportation
Water
Sewer
Municipal DCC Infrastructure Categories
Road
Sewer
Water
Drainage
Parkland Acquisition and Improvements
City of Vancouver DCL Infrastructure Categories
Road
Sewer
Water
Drainage
Parkland Acquisition and Improvements
Child Care Facilities
Replacement Housing (Social/Non-Profit Housing)
Breaking Down the Taxes & Fees
that facilitates the provision of regional utilities like
water and sewer delivery. The project will also pay
municipal DCCs or DCLs for new or upgraded systems
within their local community. In the Vancouver condo
example, the Regional DCCs and Municipal DCCs
charged on the development of an average unit total
$31,910. This amount will increase by a further $4,261
with the anticipated addition of Metro Vancouver’s new
Water DCC in 2023.
DCC rebates can be available, but developers are
not always able to access these rebates after the
infrastructure has been financed. This creates a
level of risk associated with paying for, or directly
building, growth-related infrastructure as part of the
development process. The issue is compounded in an
inflationary environment, when financing requirements
are increased and more difficult to achieve. Increases
can occur to multiple types of government charges
in a short time period, emphasizing the need for
coordination across levels of government. This can
result in developers paying up to three separate
charges for various parts of new service. This type of
layering of taxes and fees contributes to the overall
burden of taxes on a new housing project.
Community Amenity Contributions (CACs)
Community Amenity Contributions (CACs) can be a
very unpredictable cost in the delivery of new housing.
A CAC is another fee levied by some municipalities,
outside of the legislative framework provided by the
Local Government Act and Community Charter (or
Vancouver Charter). CACs are commonly used to fund
amenities such as childcare, community facilities,
park upgrades, and affordable housing, but funds
are ultimately allocated by the municipality.5 In the
Vancouver rental example, the CAC could account for
$161.30 of the average monthly rent per unit, or 5.97%,
and in the Vancouver condo example the CAC could
contribute $89,992 to the cost of an average unit. The
CAC rates in Vancouver are greater than the CACs
budgeted in the other examples in this analysis.
If the CAC amounts are negotiated with the
municipality, the process can take several years to
reach a conclusion. This can create a risk so high
that builders may decide not to proceed with a new
housing development. While the scenarios in this
analysis have fixed CAC rates, some municipalities,
including the City of Vancouver, also use negotiated
CACs which are much harder to calculate into the
budgeting process. Although fixed CAC rates provide
more predictability, CACs in general are a burden on
any new housing development, adding more costs to
projects. If these costs exceed project revenue or the
amount a project can bear, after other costs have been
fixed (ie. land cost), the project may be delayed, or not
built at all.
In the Vancouver rental example, the CAC could be
charged at $25.61 per sq. ft. and in the Vancouver
condo example, the CAC could be more than four
times as high, totalling $112.49 per sq. ft. Supplying
new housing, especially rental housing, is critical to
meet the demands of a growing population, but high
CAC expectations can create a burden big enough
to render a project unviable. If a project does not
proceed it will reduce the new housing supply as well
as the funding for amenities.
Taxing Growth
CAC per unit
Total Fees per unit
Per unit
$161.30
$882.70
Total Charge per sq. ft.
$25.61
CAC - Vancouver Rental Example
CAC
Total Fees per unit saleable
Per unit
89,992.00
$327,565.53
Total Charge per sq. ft.
$112.49
$409.46
CAC - Vancouver Condo Example
Breaking Down the Taxes & Fees
Property Transfer Tax
In all of the condo examples, there is potential for the
Property Transfer Tax (PTT) to be charged twice.
This tax is charged when the builder assembles a site,
and becomes embedded in the cost of the housing.
It then can be charged again if the unit purchaser
does not meet all of the PTT exemption requirements.6
Both of these PTT charges have been included in
the budget of the development projects analysed to
show the range of PTT an end user could pay. There
are several types of exemptions a buyer could qualify
for, including the Newly Built Home Exemption, which
would apply to housing purchased from a developer.
To qualify for this exemption, the unit must:
•
Be located in British Columbia;
•
Only be used as a principal residence;
•
Have a fair market value of $750,000 or less; and
•
Be 0.5 hectares (1.24 acres) or smaller.
All criteria have to apply for the purchaser to qualify for
an exemption. In the Vancouver condo example, the
average unit is above the value threshold and would
not be eligible for a PTT exemption. In the Saanich and
Kelowna examples, the average unit would meet the
fair market value criteria. However, the purchaser could
still pay the PTT at the time of purchase if the unit is
intended to be rented out and would not be the buyer’s
primary residence.
If an investor purchases a new unit for the purpose of
renting it out, rather than living in it themselves, the PTT
on the sale of the completed unit would apply. In the
Saanich example, this could be an additional $10,062.00
cost for the average unit, and would become part of
what the renter would pay. If the purchaser meets all
of the PTT exemption criteria, including the criteria
of purchasing the unit as their principal residence,
the PTT charge on the purchase would be $0 at the
purchaser stage. In the Kelowna scenario, the PTT
charged on the purchase of the average unit could
either be $0 or $9,900, dependant on the purchaser’s
eligibility to meet the exemption criteria.
Public Art Fee
A municipal Public Art Fee is another type of cash
contribution charged to a project to raise funds for
public amenity projects. In the Vancouver condo
example, this is a charge of $1,584.00 per unit, and
in the Vancouver rental example, the charge could
impact rent by $12.50 per month. While this is a lower
charge, it still contributes to the layered taxes and fees
charged on housing.
Municipal Permits
In B.C., municipal permits refer to a wide range of
approvals. In this analysis, the examples have included
development and building permits. In the Vancouver
rental example, it can take anywhere from 6-12 months
to receive a development permit, and a further 6-10
months for a building permit. Municipalities such as
Vancouver are recognizing the negative impacts of
long processing times, and are working to streamline
their reviews and approval processes.
Taxing Growth
Principle Residence
PTT Paid $0
Rented
PTT Paid $$9,900
48-90 MONTHS TOTAL
12-18
Months
Rezoning
6-12
Months
Development
Permit
6-10
Months
Building
Permit
18-42
Months
Construction
6-8
Months
Lease Up
Period
Permitting: 24-40 Months
Construction & Leasing: 24-50 Months
Vancouver Rental Example - Project Timeline
Breaking Down the Taxes & Fees
Recommendations
Building the housing supply that is
required to meet British Columbia’s
current needs and planning for
future growth will take action by
all levels of government.
The recommendations outlined in this report are
only some of the tools to address taxes and fees
as barriers to new housing delivery. Some of these
recommendations build on the opportunities identified
by the Development Approvals Process Review (DAPR)
and recommendations of the Canada-B.C. Expert
Panel on Housing Supply and Affordability (Expert
Panel), to improve processing times and streamline
development approvals at the local and provincial levels.
Other recommendations include tax-specific solutions
to create certainty for home builders, and intentionally
support the development of new rental housing.
Streamline Development
Approval Processes
Steps must be taken to streamline approvals and
minimize the impact of annual property taxes, as
well as better coordinate government charges to
reduce the layers of taxes and fees that apply to
new housing. Lengthy development processes add
costs to new housing in the form of both time and
funding. Considering the extensive rezoning timelines
in jurisdictions such as Vancouver, holding costs such
as property taxes and interest can become significant
while the project goes through the development
approvals process. Uncertainty in the total amount
of charges on a project add a level of risk that can
jeopardize the viability of the project.
Establish Standardized Timelines and Processes
UDI recommends that municipalities establish
standardized and predictable development approval
timelines and processes. This recommendation aligns
with the Expert Panel, which advised that “the B.C.
government impose statutory time limits to all stages
of the property development process, municipal or
other, for all types of development.” 7 Currently, larger
developments can take many years to reach final
approval due to the capacity constraints of municipal
staff, competing policy objectives, negotiated CACs,
and lengthy Council proceedings. Streamlining municipal
approvals could address the risks associated with taxes
that are charged annually, such as the AST. It could also
minimize the impact of changes to DCC, DCL, and
CAC rates on in-stream projects. Additionally, offsetting
increases in community amenity contributions with added
density would help maintain the viability of a project, and
ultimately support the growth of the full housing continuum.
Incorporate Pre-zoning into Official Community Plans
Pre-zoning sites would reduce a project’s approval
timeline by decreasing the time and risks associated
with a full rezoning process. The DAPR recognizes the
opportunity to “Provide training to local governments
and/ or create best practices guide on conducting
a meaningful and robust public consultation process
for OCP and pre-zoning, then delegate approval of
subsequent applications.” 8 In the Vancouver and
Saanich examples, it is estimated that rezoning could
take anywhere from 12-26 months. The taxes incurred
during this time, and the uncertainty embedded
within the public-hearing process, adds risk to the
delivery of new housing. Approaches could include
pre-zoning at the end of area planning processes,
or pre-zoning within 800 metres of major transit hubs.
This would improve certainty for builders and speed
up the approvals process, reducing both cost and time
barriers to new housing delivery.9
Taxing Growth
Recommendations
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