Impost fees impose on new developments

All sorts of descriptive words have been tossed about to indicate Winnipeg has been enjoying a strong MLS® market over the past few years. 

The one most often cited to the point of ad nausea is “hot.” This familiar, but overused, refrain, while not totally inappropriate to what has been happening in the existing and new home market, has given some folk a false sense of grandeur.

Let me explain! Some officials and politicians feel the Winnipeg home buyer is so resilient and has such a voracious appetite for housing that they can withstand whatever government throws their way. In fact, if an impost fee (land tax) of $6,500 is placed on the price of a new home (if this amount is financed like a mortgage over a 25-year amortization period at five per cent, the interest and principle is $11,342), they claim a new home buyer would be able to absorb this additional cost. 

Justification for this new levy is to pay for infrastructure costs. This is all well and good if a case can be made that new home buyers are not paying their fair share. Three different studies now show the exact opposite.

A Waverley West study by ND Lea was extremely thorough and proved conclusively that suburban development more than pays its way. It showed how an average existing home in Winnipeg pays $1,200 less in municipal property taxes than a new home and demonstrated that it costs the city 45 per cent less to service new neighbourhoods. 

The other two studies were done by the city of Winnipeg. One, which definitely lowered the net gain from new development in comparison to the planning consultant firm’s projections, included the assumption real estate values would remain static over many years. Why would they not count house price appreciation, which on average has gone up over five per cent annually (more than inflation) from 1980 to 2005? 

The most recent city report on funding new infrastructure, completed this summer by an Ontario consultant, still shows new development is a net gain to the city. It also predicts that the city in the next 15 years should see more growth than  occurred in the last two decades.

The question that needs to be asked is: How can one city report totally dismiss the reality of realty which has done better than inflation over a long period of time by neutralizing its value for upcoming years? Is there not a disconnect here? 

The city says in one report that things are going to get better than before because real estate was certainly still appreciating, yet they do not acknowledge real estate values will continue to escalate one iota despite such positive growth forecasts. Are they not confident these new developments will not equal, or even surpass, the long-term viability and sustainability of previous new developments (e.g. Southdale) that have more than kept up with higher real estate values?

Despite the evidence, the city is still seriously weighing an impost fee. The consideration is that this fee would not only be imposed on residential property but also on non-residential property. Commercial real estate interests have become aware of this, and will definitely be asking civic administrators what they have in mind. 

“We are already seeing commercial development spring up on the periphery of the city’s boundaries and another tax will only hasten more commercial/industrial development beyond Winnipeg,” said WREB Commercial Division Chair Martin McGarry. 

“They have not consulted with us at all about it (impost fees). Are they not cognizant of how important new commercial development is to fostering economic growth and the implications of imposing another tax on business?” 

“We are in a very competitive industry and the city needs to seriously consider the total costs a development incurs and how it affects affordability,” added commercial real estate developer Sandy Shindleman. 

One of the very reasons the local residential market has been experiencing double-digit price increases for three consecutive years is that there has not been enough new construction to keep up with the demand. 

Calgary, which has far more in-migration than Winnipeg, has kept a better lid on its price increases because it builds 13,000 new units every year. In comparison, the Manitoba Home Builders’ Association expects to have a very good year but is still only projecting 1,900 new units will be built this year. 

Of course, new construction includes the rental market and Winnipeg has seen no major unrestricted multi-family rental projects for years — of late, only modest projects have been completed or are in planning stages. Meanwhile, demand is high for rental units, thus Winnipeg’s vacancy rate is one of the lowest in the country.

We all know Winnipeg has a major infrastructure deficit and that was made patently clear by former Mayor Glen Murray in his zeal for a new deal to get more federal money (e.g. gas tax) to go directly towards roads and bridges. This effort needs to continue. Also, other revenue avenues need to be exploited such as savings resulting from contracting out refuse collection and continuation of tripartite agreements in areas such as housing where the federal government is prepared to take a more active role than in the past. 

The city also needs to be more aggressive in supporting associations like the real estate board, the Manitoba Real Estate Association, Keystone Agriculture Producers, and the Manitoba Chamber of Commerce in pursuing meaningful and substantive property tax relief from the province. Education taxes in many areas throughout the province including in Winnipeg are approaching, if not exceeding, 50 per cent of the total property tax bill. This is unacceptable and needs to change. Education taxes need to be shifted away from property to provincial general revenues as is the case in some of the other provinces.

To go after new home buyers and younger families by applying an impost fee is unfair and simply becomes another tax grab. This is misguided thinking. If imposed, the end result will be to push more development outside the city and stall the new home supply in Winnipeg which is required to create a more balanced real estate market. 

Affordable housing in Winnipeg is definitely at risk if we do not seriously address the supply issue. Imposing a tax on new lots is not the way to do it.