The Canada Mortgage and Housing Corporation (CMHC) is warning that hefty development charges imposed by municipal governments are a 'very significant barrier' to resolving the national housing crisis. A new report from the federal housing agency suggests that reducing or eliminating these fees could substantially increase the viability of new housing projects across the country.
Impact on Housing Construction
According to the CMHC's analysis, small cuts of less than 20 percent to development charges would have a modest effect, boosting project viability by less than two percent in most cases. However, more substantial reductions could yield significant results. Cutting charges by 50 to 60 percent would increase building viability by about five percent in expensive markets like Toronto and Vancouver. Eliminating development fees entirely would raise viability by approximately 10 percent in both cities.
In Burnaby, a fast-growing city east of Vancouver, the model concluded that eliminating development charges would boost housing construction by 13.8 percent. 'They're a very significant barrier,' said Mathieu Laberge, CMHC's chief economist.
Understanding Development Charges
Development charges are fees levied by local governments to fund new infrastructure such as sewers, electrical systems, and water services. These costs have become a contentious issue as the gap between housing supply and demand continues to widen. The new report, based on data from 40 Canadian municipalities, is one of the first to establish a statistical link between development charges and new home construction.
Canada has been grappling with a housing crisis for many years, driven by supply not keeping pace with demand fueled by population growth, migration to urban centers, and immigration. This imbalance has led to soaring housing prices, leaving many Canadians 'house poor,' stuck in unsuitable housing, or even homeless.
Expert Perspectives
Carolyn Whitzman, an adjunct professor at the University of Toronto's School of Cities, acknowledged that cutting development charges would help reduce costs and improve affordability. However, she noted that the effects would likely be marginal without other complementary changes.
Developers argue they would build more if land were made available and overall costs were lower. A recent study found that taxation accounts for about 36 percent of the price of a new home, making governments the top beneficiary of new construction. Approximately 70 percent of that tax bill comes from development charges, land-transfer taxes, and HST. The remaining 30 percent stems from indirect income and corporate taxes throughout the supply chain, all ultimately passed on to buyers.
Municipal Revenue Challenges
Municipalities, which lack the authority to collect income or sales taxes, rely heavily on development charges and property taxes for revenue. This reliance creates a tension between the need to fund infrastructure and the goal of boosting housing affordability. The CMHC report highlights this dilemma, underscoring the need for policy solutions that balance these competing priorities.
