Bosley Realestate

The Pitfalls Of Permit Fees And Toronto Real Estate

November 2nd, 2016 | Real EstateTales From Tennis Crescent

By now, in the hyper-charged property market in the city of Toronto, you're undoubtedly more and more aware of the mechanics of supply and demand, squeezing available stock, and how that pushes housing prices higher...and then higher again!

I dissected some of the fundamental drivers behind this rapid price appreciation in my recent post “How The Demand For Low-Rise Housing Is Fueling Toronto Real Estate Prices”. There is not only a wild mismatch in supply and demand between detached housing and condominiums, as I touched on in this story. The booming demand for - and lack of supply of - ‘ground-oriented’ housing (i.e. townhouses, semi-detached and detached homes), is effectively driving prices up even more swiftly. (Last month the TREB stats showed that low-rise housing went up 20% in the past calendar year while high-rise housing increased 9%!).

One obvious contributor to this dynamic is the scarcity of land in the City of Toronto, which is why development upwards instead of outwards is favoured by developers.  One school of thought is that high-rise condominium development can provide options in a city where affordable housing is becoming more and more out of reach. However, the product that they are producing in volume is not the product that many house hunters are after. Statistically speaking, the number of condo sales have only increased modestly year-over-year, while annual sales of low-rise housing continue to climb by leaps and bounds. This demonstrates that just how voracious the appetite is for a semi-detached or townhouse instead of a high-rise condo; homebuyers are still making huge sacrifices - including maxing out their mortgages - in a desperate effort to secure a low-rise dwelling.

Sadly, the well-intentioned developers and private owners who are trying to remedy gap between supply and demand by building more ground-oriented housing (bravo!) are being met with another fiscally subversive force: sky-high permit and development fees!

 

 

Streamline Processes = Affordable Housing

Adding fuel to this financial fire is a barrage of red tape and policy that makes the development process cringingly slow to keep up with consumer demand.

It doesn’t just seem crazy expensive to build in Toronto; it actually is. This article, called “Another Reason A Foreign Tax Hike Isn’t The Answer In The GTA,” refers to a recent study from the Fraser Institute, which reveals some jaw-dropping statistics around building in Toronto.

Builders in Toronto are faced with compliance costs of $46,569 per unit, significantly more than the just under $21k required in nearby Hamilton.

In an interview with the Toronto Sun on the findings of the Fraser Institute survey, Fraser Institute Senior Fellow Pierre Desrochers made some astute (and really, common-sense) observations about the barriers that bureaucracy are placing against affordability.

He says in the interview, “If we all acknowledge that we would all like to see the cost of housing go down, well, we must build to answer the demand. So we would like to see life made easier for people who want to build.”

He suggests that municipal zoning can be supportive to affordable housing by streamlining processes and building a clear path toward solutions, rather than roadblocks: “... So simplify, allow things to be built, reduce uncertainty, and have clear rules.” He also draws a clear link between the ability to build housing affordably and the possibility of helping to cool an overheated housing market.

The whole interview, along with a summary of the Fraser Institute Survey can be read here in, “Building Bureaucracy Costs Twice As Much In Toronto: Fraser Institute.”

 

 

The Viability of Renovating A House Into Multi-Units Under The Current Cost Structure

It’s not just corporate development that is effectively being crippled by these costs. The blow is being directly delivered to private homeowners as well. Given the price of housing, along with the lack of available stock and the high cost of moving, it is becoming more and more commonplace for homeowners to either buy at the top end of their budget, with an eye to renovating down the road to accommodate their space needs, instead of moving out and moving up.

Given that market conditions are pretty much requiring homebuyers to leverage themselves to the max with mortgage debt just to be able to buy, many are considering properties with an income potential - or with the potential to convert part of their dwelling to a rental.

Are you considering putting on an addition? Check out our recent “Dear Urbaneer: What Are The Steps To Add Onto A House In Toronto?

As if beleaguered homeowners haven’t endured enough already, with the emotional tolls of house hunting in such a frenetic market, the costs associated with evolving their homes to suit their needs are prohibitive.

Consider this story, from the Toronto Star, called “Extravagant Fees Crush Legal Basement Apartments”. A heavily mortgaged homeowner plans to build an addition on his dwelling in order to build two rental apartments. After having engaged an architect to draw up plans and incurring application fees to the tune of $5000 just to apply for a building permit, this homeowner was absolutely floored by the additional fees he would incur to build these units. Including the $5k application fee, he would be on the hook for over $160,000 in permit fees, covering things like a hefty development charge, parkland fees, educational development fees and a road damage deposit. Think about it, how can the City truly facilitate more residential units if one homeowner, in his effort to create more suites in his dwelling complained "In Toronto, I don’t see how charging homeowners $64,500 to add a legal apartment, or $162,000 to add two units will help to solve our housing shortage".

The problem here is that these exorbitant fees are placing undue pressure in a city where affordability is paper thin, and is being pushed week to week. To be supportive of development of affordable housing would seem a good solution for both sides of the supply and demand chain. Homeowners would become less saddled with debt because they could defray mortgage costs with rental income, which would reduce household (and ultimately total market) vulnerability in the face of a change in interest rates or a market correction. And for those thousands waiting for affordable housing, while the waiting list grows and prices climb? They’d have homes that fit in their budgets, making this an economically symbiotic relationship.

These fees are effectively placing homeowners in the crosshairs of more high pressure decisions: do they abandon their hopes to renovate (and possibly their rung on the property ladder)? Do they forge ahead and make themselves financially vulnerable? Or do they proceed without following building permits, which creates a whole other level of vulnerability from a financial and liability point of view?

Curious about the actual costs? Here is a link to the Toronto Building Fee Schedule and the city's Development Charge Phamplet.  Here is a great FAQ resource on permit costs, permit required jobs, etc.

Certainly with Development Charges and Permit Fees astronomical, there's zero motivation for any homeowner to add additional units to their property or, as is often the case in downtown Toronto housing, to convert their illegal suites into legal units. I explored this in my post called Can I Have An Income Suite In My Residence?

Yikes!

Which prompts me to ask "Where do you stand in your property search? Does your long-term plan include evolving your home to suit your needs? It’s best to have all the information in hand when you set out to purchase so that you can see your goals to fruition". At urbaneer.com, Steve and his team's decades of experience and detailed knowledge of the market can give you the support that you need.

Can we help?

 

~ Steven and the urbaneer team

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000

 

*Like what you've read? Consider signing up in the box below to receive our FREE monthly newsletter on housing, culture and design, including our love for unique urban homes and other Toronto real estate.

*Have you seen Steven's newest site Houseporn.ca? It's his Student Mentorship site on Canadian architecture, landscape, design, products and real estate!

Subscribe To Our Free Monthly Newsletter