Sunday, March 20, 2011

Hidden fees hike cost of new homes in GTA by as much as 30 per cent

New home buyers in the GTA are being saddled with hidden fees that threaten to price buyers out of the market, with as much as 30 per cent of the purchase price going directly to government coffers.

But the construction industry is pushing back, saying the municipalities’ appetite for development charges could derail the new-housing market by driving the average price beyond the means of most buyers just as interest rates are about to move higher.

The charges have more than doubled in the past five years in many communities around the Greater Toronto Area, according to a pair of reports from the industry that will be released on Thursday.

Development fees are levied to raise the money for the municipality to provide infrastructure – such as roads and sewers – to support the housing. However, the cities have also funneled some of the cash toward projects such as libraries and community centres, which developers say have little to do with the actual construction of a house.

Homebuilders – who have become increasingly vocal in their critique of government policy as the new-housing market shows signs of cooling – said governments have been able to pile costs on consumers over the past several years because interest rates have been low and homes have been relatively affordable.

But with interest rates set to move higher in the next year and more buyers conscious of costs, they said, the full effect of a decade of rising fees could sideline an industry that has been crucial to the region’s economic health.

“Municipalities have increasingly looked to development charges for additional revenue because these costs are indirect and hidden,” states a report by the Residential and Civil Construction Alliance of Ontario.

The report estimates that home buyers in Oakville pay an average $50,548 in development charges, with most cities surrounding the City of Toronto charging between $30,000 and $50,000 for each new home built. Toronto’s average take is $12,281 per house, with development charges set to rise this year after a two-year freeze.

“We’re in a different position in the City of Toronto because we aren’t building large subdivisions and most of the infrastructure for new homes is already built,” said special projects director Joe Farag.

In Vancouver, development charges average $23,418. In Calgary, they are $7,475.

These figures don’t include the additional costs added by the federal goods and services tax, or additional charges brought on by the new harmonized sales tax in Ontario and B.C. With those factored in, a report from the Residential Construction Council of Ontario estimates that 30 per cent of a new GTA home’s cost is now determined by government charges. Canada Mortgage and Housing Corp. estimates the Canadian average is 13.4 per cent.

Oakville Mayor Rob Burton said the city charges developers the maximum amount allowed under provincial legislation because development fees haven’t covered the cost of growth in more than a decade. “Mike Harris gutted them in 1997,” he said.

“So local property taxpayers subsidize billionaire developers whose subdivisions make higher profits by not paying for the hospitals, transit and other infrastructure they require,” he said. “Oakville’s council is proud to have development charges that capture the maximum permissible amount of the costs of growth.”

The builders agree that the shifting of some provincial responsibilities to the municipalities led to rapidly escalating fees in the GTA, but say they should not have to bear the brunt. The president of the Canadian Homebuilders Association said builders can’t simply absorb the costs, because their margins have never been thinner.

“Profit is not a dirty word,” said Vince Laberge. “Politicians need to raise property taxes instead of having a social agenda funded by the new home buyer.”

The reports recommend the province pay a greater share of the cost of municipal infrastructure such as fire stations and libraries, and provide more transit funding, and that municipalities implement user fees in place of development charges wherever possible. If not, they warn, development could be reduced in coming years.


Source: STEVE LADURANTAYE — REAL ESTATE REPORTER
From Thursday's Globe and Mail
Published Thursday, Mar. 10, 2011

Thursday, March 03, 2011

Housing sales this year to come in 15 per cent lower than 2007 peak: Scotiabank

Canadian real estate sales this year are expected to come in about 15 per cent below their peak in 2007 but will hover close to the 10-year average, according to a home sales report from Scotiabank.

The bank's Global Real Estate Trend report released Tuesday said the housing market should remain relatively balanced between both buyers and sellers throughout the year.

Momentum will be strongest in the first half of the year as anticipated higher interest rates and tighter mortgage lending rules contribute to softening later in the year, said Scotiabank senior economist Adrienne Warren.

"Market conditions are expected to remain fairly balanced, favouring sellers to some degree in the spring, and buyers by the fall. This, in turn, suggests relatively steady prices, but with more downside risk later in the year," said Warren.

The broad economic factors supporting housing demand — historically low interest rates and steady employment growth —remain in place for further gains. However, sales will edge down this year and into 2012 as demand modifies following the record-breaking housing boom of the past decade.

"Ownership rates are now reaching both a cyclical and structural peak, given inevitably higher borrowing costs, more moderate medium-term growth prospects and more restrictive mortgage product offerings," she said.

One of the major changes beginning this month is a shortening of the maximum amortization period from 35 years to 30 years — adding about $100 per month to the average mortgage payment.

That could have the effect of pricing some first-time buyers out of the market, or at least forcing then to opt for a less expensive home, Warren said.

"Coming on the heels of earlier mortgage-tightening measures implemented in October 2008 and April 2010, this latest round of regulatory changes will have at least some dampening impact on credit demand, home sales and prices," she wrote in the report.

This year's market is expected to follow a similar pattern to the housing activity seen last year.

A powerful driver of economic recovery, the real estate market kicked off last year on a tear as buyers rushed into the market in advance of higher interest rates, new mortgage rules and a new harmonized tax regime in two provinces.

But sales moderated in the second half of the year as a string of modest interest rate hikes, along with the new rules and sales tax took their toll on demand.

The Bank of Canada announced Tuesday it will stick with its ultra-low interest rate policy of one per cent for now, but most economists suggest it will have to raise rates soon in order to ward off inflation.

Any increase would raise variable mortgage rates and any other loans tied to banks' prime rates.

Warren warns that rising mortgage rates, combined with low household incomes and high home prices will strain affordability and further reduce sales.

The report suggests that the number of unsold new homes is higher than average after builders raced to catch up to demand amid the post-recession boom.

"Combined with more muted sales expectations and potentially some slowing in household formation rates, this points to a lower level of sustainable starts over the next few years," it said.

Canada Mortgage and Housing Corp. predicted last month that between 157,000 and 192,000 new housing units will be built this year, with the number remaining virtually the same in 2012.

In its first-quarter housing market outlook, released Thursday, it said economic growth and lower unemployment will prop up the need for new homes.

Housing sale data from February won't be released until mid-March, but the Canadian Real Estate Association projected activity in the resale market likely picked last month in advance of the new mortgage rules coming into effect March 18.

About 42,379 homes were sold on CREA's Multiple Listing Services in January across the country, up 4.5 per cent from the 40,558 sold in December.


Source: By Sunny Freeman, The Canadian Press