Halifax Developer Says Taxes Must Decrease to make Apartments More Affordable
HALIFAX — Atlantic Canada is growing quickly, and the need for new apartments has never been greater. In Halifax, where many of Nova Scotia’s newcomers are moving, vacancy rates remain at a paltry one per cent. Due to the demand being so high compared to the supply, the cost of rent has skyrocketed.
Many are clinging to the hope that, once supply increases, the rental prices will drop significantly. But Alex Halef, president of BANC Group, is pouring cold water on that notion, at least for Halifax’s newer apartments.
BANC is a developer in Halifax with several major residential projects underway. Halef was part of a panel discussion at APEC’s ‘Building Atlantic Canada’ conference held at Pier 21 in Halifax on Tuesday.
Throughout the day, presenters spoke at length about the transition to a greener economy, major projects on the horizon, and other topics.
Housing projects, and housing affordability, was a major theme. Halef broke down the financial realities of being a developer in Halifax. With the Bank of Canada holding its interest rates at 4.5 per cent, it is far more expensive to finance a development now than it was just two years ago when rates were less than 1 per cent.
Halef estimates that a newly constructed unit costs $1,200 per month just to finance, plus $500-$600 a month in operating costs. This is why people are seeing new apartments go for more than $2,000, easily, when they are listed.
“This is what’s driving rents,” Halef told Huddle in an interview following the panel talk. “So, when you talk about $2,000 rents, well, if you can’t get the $300 a month [in profit], what are you building [for]?”
With so many people frustrated at the cost of rent, developers and landlords are being painted with the same brush. “Greedy” is a common term thrown around in online forums. Halef shook his head “no” when asked if he takes personal offense to these comments.
“Because they’re not educated on numbers,” he said. “And I’m not saying there isn’t greed in the industry. There’s greed in every industry. There are good developers and there are bad developers. There are good landlords and bad landlords.”
With the current rental costs unaffordable for many in Halifax and beyond, there are more pressures for cities to use inclusionary zoning in new developments. It just so happens that one of BANC’s projects, the Bloomfield development, has inclusionary zoning.
BANC bought the property from HRM two years ago and 400 units will go on-site. The city made inclusionary zoning part of the sale, so 10 per cent will be set aside for affordable units.
But just how affordable it will be for a low-income earner is yet to be seen. According to Halef, the affordable apartments will be calculated at “40 per cent below-market rent,” rather than being based on someone’s income.
There are many factors out of anyone’s immediate control when it comes to the affordability of rental units, whether it be it be labour, materials, or interest rates. That is why Halef believes a major solution is lowering taxation on new builds.
Halef estimates that 25-30 per cent of development costs come from the various levels of taxation and permits on a new building. HST alone is 15 per cent.
“Permitting fees are going up. There are other infrastructure fees from other utility groups; start adding all these taxes into the equation. As a development community, we’re not saying get rid of all the taxes. We’re saying reduce them significantly.”
“We’ve had many conversations (with politicians). Has anything happened? No. I think that there’s competing interests for taxation.”
The need for buildings to become more energy efficient will also be an added cost for newer buildings. Two of BANC’s residential projects, The Elevation, and Lock Suites, are using geothermal energy for heat. It may be energy efficient, but the initial costs are expensive.
For the system to work, boreholes must be drilled in the ground. Halef says one borehole costs nearly $20,000. And the two developments required 70 boreholes between them.
Halef says the payback period for such an energy expense would normally be 25 years. But because of incentives from Efficiency Nova Scotia, BANC has lowered the payback period to 10-12 years. Halef believes such partnerships on energy efficiency will be vital moving forward.
“They need to continuously be fostered, and more of it needs to happen with these new buildings,” he says. “that’s the way of the future.”
Derek Montague is a Huddle reporter in Halifax. Send him your feedback and story ideas: [email protected].