Ontario's Development Charges: A Barrier to Housing Affordability Amidst Growing Reserves

📅 Today

A recent Desjardins report highlights the growing reserves from development charges in Ontario, emphasizing their role as a significant obstacle to housing affordability and new construction.

By the end of 2024, Ontario is projected to have approximately $10.5 billion in development charge (DC) reserves, according to a recent analysis by Desjardins. This report raises concerns that municipalities have become too reliant on these fees as a revenue source, which are intended to fund infrastructure necessary for growth. Development charges, which are imposed on both residential and non-residential construction, are meant to help municipalities cover the costs of infrastructure such as roads, water and wastewater systems, parks, transit, and community facilities. The report suggests that the accumulation of these funds is outpacing their expenditure, leading to a significant backlog. Desjardins Economist Kari Norman noted, "Some level of accumulation is expected, as DCs are collected upfront while major infrastructure projects are delivered over many years and often require large, indivisible investments." However, the current scale of Ontario's reserves indicates that a portion of infrastructure costs is being pre-funded by earlier homebuyers to address future growth needs. Over the past two decades, development charges in Ontario have surged by about 500%, while other cost drivers, such as construction wages, have only risen by 70%, and general inflation has increased by 55%. This discrepancy suggests that the rise in DCs is more influenced by policy design rather than actual underlying costs, leading to varying impacts across different jurisdictions. The city of Toronto has been highlighted in the report, where DCs for a single-detached home have now reached over $137,000, positioning it among the highest in the province and directly hindering new construction efforts. A recent analysis from the Canada Mortgage and Housing Corporation (CMHC) indicates that removing DCs in major urban centers like Toronto and Vancouver could potentially boost the number of viable housing projects by about 10%. In light of these findings, government officials appear to be gradually recognizing the balance needed between funding growth and facilitating it. Recently, the City of Toronto announced a $1.5 billion investment through the Canada–Ontario Partnership to Build program aimed at addressing its infrastructure requirements. As a result, Toronto plans to cut its development charges by 40% to 60% over the next three years. This initiative marks Toronto as the first municipality to receive funding through this program, which is part of a broader Development Charge Reduction Program that initially aimed for a 30% to 50% reduction. This announcement underscores the challenges identified in the Desjardins report; while municipalities depend on DCs for funding growth-related infrastructure, the fees themselves have increasingly become a hindrance to new home construction. The Canada–Ontario Partnership to Build program aims to alleviate some of the financial burdens on housing developers by shifting costs to provincial and federal governments. Ontario is not the only region exploring this strategy; last week, the federal and British Columbia governments unveiled a $5 billion investment in local infrastructure through the Build Communities Strong Fund. This includes a $1.6 billion allocation aimed at reducing multi-unit housing development charges in designated "priority communities" by up to 50%. The province is set to match these funds, potentially totaling $3.2 billion, which could save builders approximately $40,000 per unit.

Related Posts