Over the last few months, announcements and initial implementations of reductions to municipal development charges (DCs) have been made under the provincial and federal governments’ Canada-Ontario Partnership to Build program. Once fully implemented, this program will reduce DCs in many Ontario municipalities by 30 to 50 per cent for a period of three years. While this will have a very beneficial impact on housing project viability and supply, it raises a critical question: how can the leadership shown by this announcement be used to make reductions in DCs permanent?
What Are Development Charges?
Development charges are a one-time fee developers pay to municipalities to fund housing-supportive infrastructure and services, including parks, water and wastewater systems, and roads. Like all input costs, these charges are rolled into the home price and ultimately paid by the new home buyer. Over the last 15 to 20 years, DCs have risen significantly in some regions of the Greater Toronto Area (GTA), adding up to $130,000 to the cost of a single-family home and up to $80,000 to a condo.
Many municipalities across the GTA have taken action in recent years, following the leadership of Vaughan and Mississauga, to address the impacts of DCs on the cost of new homes. However, these programs—like the federal-provincial one—are temporary changes. If we do not use this platform to permanently rightsize and modernize DCs, it will be a lost opportunity. That is why BILD has, and will continue to advocate, that we use the next three years to address the challenge presented by these charges.
Principles for Reform
Note that I say rightsize and modernize them, not eliminate them. DCs serve a vital purpose and provide a critical legal framework. The objective should be to ensure that the new home buyer pays their fair share, but not shoulder a disproportionate amount as is currently the case. As we look to do this, there are a number of principles that we should keep in mind.
First, payment for infrastructure should match its life expectancy and not be upfronted on the homebuyer. Roads, water and wastewater infrastructure have lifespans measured in decades. Municipalities themselves amortize the cost of these pieces of infrastructure over decades, but expect the developer—and thus the new home buyer—to pay the cost in one chunk up front. This invariably gets rolled into a mortgage, so the new home buyer is doubly aggrieved: they have to pay the whole cost upfront and pay mortgage interest on it. For infrastructure where it makes sense, like water and wastewater, it would be appropriate to bill the new homebuyer on their utility bill or tax bill over a 20 to 25 year period.
Second, new infrastructure benefits everyone, so let’s make sure that everyone pays their fair share. In principle, the current DCs regime includes a calculation called “Benefit to Existing,” which is meant to capture the above. However, in practice there are countless examples where this calculation is distorted or adjusted, resulting in the new home buyer paying a disproportionate share.
Ensuring Fairness and Affordability
By permanently rightsizing DCs, we can reduce the financial burden on new home buyers while still funding necessary infrastructure. This approach would align payment timelines with the actual use of infrastructure and ensure that existing residents contribute their fair share. The next three years offer a critical window to implement these reforms and create a more equitable and sustainable system for all Ontarians.
