Development charges in Ontario
One step forward, one step back
If total costs are too high, nothing gets built. It doesn’t make any sense to build something that’s going to be worth less than it cost to build. And in Ontario, development charges are a major component of those costs. In Toronto, 20-25% of the cost of new housing is development charges.
In October 2022, the Doug Ford government in Ontario brought in legislation (Bill 23) requiring municipalities to have a five-year phase-in period for increases in development charges, for any increases from January 2022 onward. There was an uproar from municipalities, saying that this would result in a significant shortfall of the money needed to fund infrastructure, to support new housing. The provincial government promised to make them whole by covering such a shortfall. Canadian Press:
[Steve] Clark has said municipalities have billions of development charge revenues in reserve and the additional costs on new homes must be "reined in."
Clark said that since 2010, municipal fees and taxes on new homebuyers in Toronto have increased by close to 600 per cent.
In April 2024, Paul Calandra, the new housing minister, brought in Bill 185, which removed the requirement for a five-year phase-in. In other words, the province backed down after less than two years, not being willing to put up the money itself. Aidan Chamandy, The Trillium, April 2024.
Calandra said he reversed course because municipalities couldn’t fund infrastructure — like water and wastewater plants — needed to support homes.
Eliminating the phase-in period “will absolutely increase costs,” said Mike Moffatt, founding director of the Place Centre.
If the province kept going with the phase-in, municipalities would’ve had to be “made whole” in some way, Moffatt said, but it comes at the expense of development charges going “up quite a lot” in the Greater Toronto Area.
If some of the massive development charge increases contemplated in places like Toronto and Burlington now go forward, “affordability is going to get much worse.”
The legislation
Bill 23 (October 2022). Requires five-year phase-in period for development charge increases - section 5(6). Development charges cannot be used to build non-market housing - section 2(4) (item number 17). Requires 15-25% discount for purpose-built rental - section 26.2(1.1). Text of the bill.
Bill 185 (April 2024) - Revokes five-year phase-in for development charge increases. Text of the bill.
Some Ontario municipalities raising development charges
Toronto’s New Condo Development Charges Could Hurt Affordability (Even More). Erin Nicole Davis, Storeys, April 2024. “On May 1, development charges on Toronto condos will increase 20.7% from their current rates, meaning the average one-bedroom and bachelor unit will now cost $44,774 in development charges (up from $37,081).”
Ottawa hikes fees housing experts hate, despite warning from feds. Elyse Sakura, CBC News, May 2024.
Let developers pay: Large hikes to development charges approved by Niagara Falls city council. Ray Spiteri, Niagara Falls Review, May 2024.
Sudbury: Despite evidence, council issues moratorium on some development fees. Tyler Clarke, May 2024. Cites arguments from city staff and from the Association of Municipalities Ontario that development charges don’t affect prices.
An alternative: a separate utility
It’s hard to beat something with nothing. Without some other source of funding to pay for infrastructure, municipalities are going to continue extracting development charges, slowing down development.
Want to boost housing affordability? Then start thinking about sewers. John Michael McGrath, TVO Today, March 2024.
The task force’s report suggests that, instead, we should pay for water and sewer service in much the same way we pay for electricity and natural gas — through a separate agency that’s structured like a corporation, charges homeowners for the water they use, and amortizes the costs of that service with debt. This would replace the current model, which relies heavily on development charges. In principle, it could remove some of the political obstacles to expanding the infrastructure that new housing depends on.
This is very similar to Benjamin Dachis’s 2018 proposal.
McGrath suggests that this could perhaps happen in the Peel region, where water and sewer charges on a new detached or semi-detached house are about $57,000.
More
Ottawa calls development fees a housing tax, but without them, who pays for new infrastructure? Frances Bula, Globe and Mail, June 2024.
Development charges in Ontario and “growth pays for growth.” A guide by Open Council (a good resource for people interested in municipal issues, run by Alex Wideman in Belleville). Includes arguments for and against development charges.
Previous posts: Mario Polese on housing in Montreal vs. Toronto, who pays for development charges, what the cost bottleneck looks like, presentation to the Metro Van board.