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