OPINION: What lessons can we learn as we work to improve development charges? 

New infrastructure benefits everyone, but it's important to make sure everyone pays their fair share. Photo by Supplied

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Over the last few months, we have seen the announcements and moves to begin implementations of reductions to municipal development charges (DCs) under the provincial and federal governments’ Canada-Ontario Partnership to Build.  

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Once implemented, this program will reduce DCs in many municipalities in Ontario by 30 to 50 per cent for a period of three years. This program will have a very beneficial impact on housing project viability and supply, but it does beg the question – how do we use the leadership shown by this announcement to make reductions in DCs permanent?  

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Development charges are a one-time fee developers pay to municipalities to fund housing-supportive infrastructure and services like parks, water and wastewater systems, and roads. Like all input costs, these costs are rolled into the home price and eventually paid for by the new home buyer. These charges have risen significantly in the last 15 to 20 years in some regions in the Greater Toronto Area (GTA) and can add up to $130,000 to the cost of a single-family home and up to $80,000 to a condo.  

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It is important to note that many municipalities across the GTA have taken action in recent years, following the leadership of Vaughan and Mississauga, to try to address the impacts of DCs on the cost to build new homes. However, these programs like the federal-provincial one, are temporary changes.   

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If we do not use this platform to permanently rightsize and modernize DCs, it will be a lost opportunity. It is for that reason that BILD has, and will continue to advocate, that we use the period of the next three years to address the challenge presented by these charges. 

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Note that I say rightsize and modernize them, not eliminate them. DCs serve a vital purpose and provide a critical legal framework, and therefore 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.   

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As we look to do this, there are a number of principles that we should keep in mind. 

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First, payment for infrastructure should match its life expectancy and not be upfronted on the homebuyer. Roads, water and wastewater infrastructure have lifespans that are 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.  

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This invariably gets rolled into a mortgage and thus the new home buyer is doubly aggrieved – they have to pay the whole cost upfront and they have to 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.    

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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 for something 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.