New tax on buildings under construction

Daniel
Daniel MacEachern
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Homebuilders’ association slams new tax, says trickle-down effect will shut out buyers and raise rents

The City of St. John’s won’t be raising taxes on residential and commercial properties next year, but 2015 will see the introduction of a whole new tax — one collected on properties under construction.

The tax will be based on the completed percentage of the property under construction. Coun. Danny Breen, chairman of the city’s finance and administration committee, said it’s common in many jurisdictions to tax partially completed properties. For example, for a house that’s 50 per cent completed — with property value of $250,000 and lot value of $100,000 — the tax bill would be $1,822.50 at the city’s current tax rate. Right now, properties under construction are taxed only on the raw value of the land.

“In terms of the residential portion of that, we are looking at earmarking some of those funds — or all of them — in terms of affordable housing initiatives,” he said.

“We need to find new revenue streams in terms of taxation to offset the burden on the residential property owner taxpayer. This tax would reflect the fact that we’re providing service to houses even though they’re not occupied or sold yet.”

The tax takes effect in 2015, not next year, and Breen said the city estimates the tax will generate between $1 million and $2 million for the city.

“It’s very hard to tell because you don’t know what properties you’re going to have, that are going to be in what stage, the partial completion they’ll be in,” he said.

The Newfoundland and Labrador branch of the Canadian Home Builders’ Association had repeatedly expressed its opposition to the tax while the city was considering it. A representative from the association declined to comment Monday night, but did issue a written statement on the new tax, warning that it will have a trickle-down effect on home buyers and renters, and questioning the city’s stated commitment to affordable housing.

“As potential first-time home buyers are shut out of home ownership, they are stuck renting for longer periods. This clogs the strained rental market and, as demand for rentals increases, rents climb,” reads the statement. “Housing prices in the City of St. John's have risen 93 per cent in the last seven years and in an economy where we need to be focused on homes that are more affordable, the city should not be impeding consumers with additional taxes. The city's financial policies clearly have an effect on local housing prices.”

But Breen said the city’s contribution to housing construction costs amounts to just 1.1 per cent.

“We feel this is more of a fairness thing too,” he said. “Whether a property is partially completed, it’s still on a street that’s getting snow plowed and the fire department is covering the area, etc. It’s more of a reflection of the use of services.”

City manager Bob Smart said it’s not fair to blame the city for escalating house prices when it’s responsible for so little of the total cost.

“It’s difficult to look at this one per cent driving the increase. That’s obviously not the case,” he said. “When you look across the country, in terms of charges that we impose, we are the lowest in the country with the exception of the Yukon.”

 

 

Organizations: Canadian Home Builders

Geographic location: Labrador, St. John's, Yukon

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