Housing advocates argue that development charges are a tax on new housing.DARRYL DYCK/The Canadian Press
Any retailer knows that the easiest way to encourage customers to make a purchase is to lower prices. To encourage home-building, the British Columbia government decided not to lower development charges but instead allow more time to pay them.
As internet critics say when someone stumbles their way towards wisdom, they’re so close to getting it.
Development charges are a problem. They have grown so high that they often now form a substantial chunk of the cost to build new homes. In Vancouver, which is the most expensive real estate market in the country, these charges can add tens of thousands of dollars to the cost of a house.
Housing advocates argue that development charges are a tax on new housing. They’re right. And in most communities, the tax is too high. With the country – and particularly hot markets such as Vancouver – experiencing a housing affordability crisis, this is the time to look for ways to lessen them.
Instead, the British Columbia government announced this month that developers would be able to defer three-quarters of the charge for four years, instead of two, or until occupancy, whichever comes first. This change will come into force at the start of next year and is being billed as a way to boost home-building. It’s actually a half-measure.
CREA cuts 2025 forecast again but says home sales are rebounding from ‘chaotic start’
The way development charges are calculated is complex, usually depending on the type and location of a property.
For a single-family home in Southeast False Creek, Vancouver would charge levies of approximately $30 per square foot, while a residential low-rise would be levied $40. A bigger building in the area, which is zoned to allow density, would be charged about $60 per square foot, though much of that could be waived if it were a rental development. These charges are slated to go up about 5 per cent at the end of September.
In Toronto, city council opted earlier this year to freeze development charges at 2024 levels, but only after they had risen sharply. According to data from the builders’ lobby group BILD, these charges went up by nearly 50 per cent from 2022 to 2024. Building a two-bedroom unit in the city now generates a development charge of approximately $81,000, while a single-family home is charged around $137,000.
Toronto also voted last year to defer development charges on rental projects, which is good, though some other cities have moved more aggressively to reduce what they charge.
Small Vancouver builders embrace citizen-developed housing through multiplex prezoning
Mississauga council voted earlier this year to cut charges by 50 per cent, and to waive them completely on three-bedroom rental units. And Vaughan, to the north of Toronto, cut its own development charges by nearly half last year.
Steven Del Duca, the mayor of Vaughan, argues that this could leave the city better off, noting that recent housing starts have been lacklustre and the cut might spur activity. “I would much rather that we get half of something than 100 per cent of nothing,” he told TVO.
That’s a refreshing attitude. High development charges don’t help encourage home-building.
It’s true that, in theory, these charges perform an important role in helping defray municipal infrastructure costs associated with new development. And there’s no doubt that an influx of new residents can require more green space or upgrades to infrastructure such as roads and water utilities.
Buyers have the power as lower prices drive sales in Toronto real estate
But that’s not an argument that the charges are set at the right level currently. There are several other considerations that must be weighed.
Did development charges soar because it has suddenly become much more expensive to provide municipal services to new homes? Unlikely. The more reasonable conclusion is that cities are using the fees to subsidize services used by existing home-owners. In essence, buyers of new homes are paying to help keep down property taxes for everyone else.
Also, there are large swaths of Toronto and Vancouver where the population has dropped in the last 50 years. This makes it hard to justify an argument that new homes necessarily require extra municipal spending.
Toronto even levies development charges on laneway housing – a type of modest density slipped into existing neighbourhoods that the city is trying with little success to encourage – though they can be deferred up to 20 years.
A reminder for both Toronto and British Columbia: a bill put off is still a bill that must be paid. To encourage building, a better approach would be to cut these charges to more reasonable levels.