Buried deep in the final sticker price of a new home is a complex stack of hidden costs for land and approvals, materials and labour, as well as exorbitant taxes, fees and levies.
Development charges (DCs), which are ultimately paid by the first purchaser of a home, make up a significantly large chunk of the price tag.
The one-time fees were traditionally used to help fund infrastructure and services like roads, water, sewers, parks, transit and police services. However, they’re now being used for other projects like day cares, parks and schools.
Over the years, the charges have become a runaway train, making new housing unaffordable for many.
Canada Mortgage and Housing Corp. recently reported DCs alone could add more than $100,000 to some new units that are located in municipalities across the nation with the highest fees.
The most expensive fees were in Toronto, where the average condo faces $130,200 in costs, while for the average detached home, municipal development charges account for about $180,600 of the cost. The fees make up nine per cent of the total cost of a detached home in Toronto.
Canadian Home Builders’ Association chief executive Kevin Lee recently noted DCs have risen by 700 per cent in the last two decades and contribute heavily to a lack of housing affordability.
The fees have been rising as municipalities have been adjusting rates significantly higher to cover inflation and increasing costs of infrastructure projects.
Problem is the burden is putting housing out of reach for most homebuyers. People are leaving cities like Toronto because the cost of a home is out of their range.
Four years ago, the Ontario Housing Supply Task Force recommended action be taken to stem exorbitant DCs. However, the problem has not been addressed.
The Ontario government has passed legislation that permits developers to defer DC payments to municipalities on new homes until occupancy. Before, builders were required to pay DCs when a building permit was issued by the municipality. The change will provide some relief as it will enhance a builder’s cash flow during the capital-intensive construction phase.
The Liberals, meanwhile, promised to cut development charges during the federal election campaign but have not substantially addressed the issue.
A few municipalities, like the City of Vaughan and others like Mississauga and Burlington, meanwhile, have taken steps to lower DCs. But in light of the crisis we’re facing, more action is needed.
For starters, the province should fund initiatives that require all Ontario municipalities to return the DC rate to 2015 levels for a period of five years. This would help reduce housing costs.
The Ontario government has the power constitutionally to bring to bear on municipal governments and implement solutions that, to date, have been elusive.
Presently, municipalities in Ontario have not spent what they have collected. They are sitting on $10 billion in DC reserve funds provincewide. The City of Toronto, for example, has nearly $3 billion in the pot.
DCs are particularly egregious as they are a regressive tax on those least able to afford them – the new home buyer. They front-load the cost of infrastructure that will last a lifetime onto today’s buyers. The scale and pace of today’s increases are no longer affordable or sustainable.
A Toronto Region Board of Trade report estimates DCs now fund about 60 per cent of the cost of a typical growth-related capital project in Ontario. For the City of Toronto, the report cites a 10-year capital plan that includes $6.1 billion in DC-funded projects (roughly 10 per cent of planned capital spending), with the city collecting roughly $520 million in development charges annually.
Higher DCs are only fuelling the housing crisis, making it difficult for working individuals and families to afford the cost of a new home.
In the Greater Toronto Hamilton Area home sales are now down 71 per cent for single-family homes and condominium sales have plummeted by 90 per cent.
The experts are forecasting that Ontario will likely see a reduction in GDP by as much as 1.5 to 2.5 per cent in 2026 directly related to the situation affecting the residential housing sector.
Bold action is needed to reduce DCs. We can not afford to wait.
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at [email protected].
