‘Sales have stopped': Ontario developers predict layoffs if cost to build doesn't fall
On Monday, the Building Industry and Land Development Association released a brief calculation considering how far new home construction could fall and how many jobs could be lost if the sale of new homes remains low.
So far this year, new single-detached family homes sales are down 50 per cent in and around Toronto, while condo sales have dropped 65 per cent compared to last year.
'We are seeing sales have stopped,' President and CEO of BILD Dave Wilkes told Global News. 'Without sales, you don't have that ability to undertake new projects, to make those investments, to provide those well-paying jobs the sector is known for.'
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A research brief prepared for the advocacy group by Altus Group found that if housing starts remain low, they could bottom out at 4,000 new single-family homes per year and 10,000 new apartments.
'Importantly, this is not a forecast or projection; there may be many reasons why sales will recover,' a note of caution in the paper explains.
If home sales do not recover, however, the research suggested tens of thousands of construction jobs could be on the line. It found 40,000 direct homebuilding jobs could go, as well as 30,000 construction supply chain jobs.
The prediction comes in contrast to concerns only a year ago, when a labour shortage was cited as one reason for growing housing costs in Canada.
'That's how quickly the market has turned, unfortunately,' Wilkes said. 'We've seen a number of factors that created the challenges, and we see a number of solutions that can get us out of this. The market really did turn as interest rates went up, as we saw some instability in the geopolitical environment and the challenges that that created.'
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He said that while costs like borrowing, materials and labour have now dropped as interest rates begin to fall again, a nervous market is being stalled by taxes and fees.
'What we have now is a cost-to-build crisis as the market has reset, where the price points are too high for individuals to be able to afford, despite the other adjustments,' he said.
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BILD is using the potential labour shortage and slow market to ask for more financial relief for the development sector. It is calling for the federal and provincial governments to waive the harmonized sales tax on all new developments, rather than a few specific categories.
It's a move BILD said would cost around $2 billion for the federal government and $900 million for Ontario.
'There's projects being completed now, but once those projects get completed in '26 and '27, there is gonna be a real lack of jobs, lack of investment, lack of a new activity, and lack of delivery of new homes in '28 and '29,' Wilkes added.
Reducing the burden cost of taxes on builders has been a central request from the development community for years and has grown louder as new housing starts have slowed.
Recent provincial legislation made major changes to the fees homebuilders pay to towns and cities, also reducing some of the approvals they have to go through.
It remains to be seen how effective those changes are, with government-controlled fees making up less than a third of the cost of building a home.
Figures prepared to brief Ontario Housing Minister Rob Flack, obtained by Global News, show soft costs like taxes don't make up much more of the new cost of a home than developer profit does.
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The graphic shows that 10 to 20 per cent of the cost of building a new home is developer profit, while 10 to 30 per cent is soft costs. A further 10 to 20 per cent is land and 50 to 70 per cent is hard costs like materials and labour.
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Data presented to Ontario's housing minister. Global News
'Projected profit margins generally must be >10% for a housing development to be viable,' the briefing explained.
Wilkes said developers need a certain profit margin to ensure they can secure loans and financing, pointing out the slowing market had already forced some to accept lower profits.
'The market is forcing those adjustments in profit — we always argue it is a 10 to 12 per cent range,' he said.
'Do we need to? The market is forcing that decision. Now, government — through development charges (provincial sales tax), (goods and services tax) — is making more on a house, many more fold, than the developer.'
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A spokesperson for the Ministry of Municipal Affairs and Housing indicated the Ontario government could be open to the move.
'We have been clear – we need partnership from the federal government to continue reducing HST and GST on homes,' they wrote in a statement.
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