By Nicole Storeshaw, Director, Government Relations, CHBA
Development charges (DCs) or development cost charges (DCCs) are a major contributor to unaffordability in home prices and a resultant lack of supply. All three levels of CHBA have been raising members’ concerns with municipalities and governments for years, explaining that construction and financing costs, including DCs by necessity, get passed on to buyers and warning that if new supply becomes too costly to develop and people can’t afford the homes, new homes won’t be built. With the current housing affordability crisis, outside-the-box thinking is needed when it comes to how municipalities can pay for growth, rather than on the backs of the buyers of new homes.
Issue of fairness
DCs (also known as development cost charges, levies, fees and taxes depending on the jurisdiction) are upfront fees charged by municipalities and paid for by developers for each new unit they build. They are charged to cover infrastructure costs such as new roads, water and sewer connections, but over the years they have grown to pay for much more – too much. The concept of “growth should pay for growth” has long been used as justification for burgeoning DCs. However, it is time to examine the issue of fairness, especially when it is new-home buyers (and usually younger) who are the ones being disproportionately impacted by skyrocketing DCs that the previous generation of homebuyers didn’t have to bear.
For example, between 2004 and 2024, an analysis of 27 municipalities in Ontario found that all of them increased their development charges for single-detached units more than the rate of inflation in Canada (which was 54 per cent). Some municipalities increased their charges by as much as 800 per cent. That type of increase makes it particularly difficult for first-time buyers to save enough to buy a home. In Ontario, the tax burden on new housing now accounts for 31 per cent of the purchase price of a new home with development charges adding as much as $184,000 to the purchase price of the average new home in the Greater Toronto Area . The current average municipal DCC rates across Metro Vancouver are $39,199 for a single-family home, with the highest being close to $90,000 for a single-family residence.
A July 2022 Housing Market Insight Report from the Canada Mortgage and Housing Corp. (CMHC) focused on government charges on residential development stated that there should be policy discussions surrounding ways in which municipalities raise revenue to fund municipal services and capital projects. “Where infrastructure is largely funded through means other than development charges, government fees on residential development tend to be comparatively lower. This may result in new housing being delivered at a lower cost,” the report concluded.
So how should local infrastructure be financed? Municipalities will claim that provincial and federal governments do not provide enough infrastructure money to pay for growth. Local politicians are loathe to increase property taxes.
DCs have become the way to finance these projects without much consideration for how it impacts housing affordability by their constituents.
During CHBA’s Fall Meetings in Ottawa in October, Professor Emeritus Andrew Sancton presented CHBA’s Urban Council with potential alternatives to DCs, which CHBA has been exploring and recommending in its advocacy. Professor Sancton argued, as CHBA does, that as a matter of fairness, everyone should pay for growth, just like we all pay for new hospitals and provincial highways.
Options worth exploring
One option would be for municipalities to borrow infrastructure money and pay it back over 20 to 30 years. At the moment, buyers of new homes absorb the cost of DCs through their mortgages, at higher rates of interest available to municipalities. This would require changes in municipal financial practices, and possibly provincial legislation. However, it is what is in place in the province of Quebec where development charges are not systematically applied, leading to lower housing prices.
Another option would be to include new infrastructure costs in user charges for water and wastewater or include costs of new roads in user charges for roads. Both options would require more borrowing, perhaps by new municipally-owned corporations.
A third option would be grants from federal and/or provincial governments for new infrastructure, or the province grants revenue sharing or new taxation powers to its municipalities.
Regardless of the potential alternatives presented, all options would involve everyone paying for new infrastructure in an equitable fashion, rather than only burdening the buyers of new homes and further eroding affordability.
There is little doubt that reducing or eliminating development charges will be politically difficult. However, the status quo will only further contribute to affordability challenges, especially for younger people. It is also resulting in diminished housing supply. The situation as it stands is not sustainable. Eventually those who hold true to “growth should pay for growth” will see that path leads to no growth at all. Growth can pay for growth, but it can’t pay for everything..
