Developers aim to avoid millions of dollars of fees in downtown Kitchener
By Lucas on Oct 10, 2017
Does this mean it’s time to invest in Kitchener? A recent article on The Record drew attention to the fact that downtown Kitchener will likely see a construction boom over the next couple years as developers scramble to avoid expensive development charges.
Something we were not aware of and actually find quite interesting is that the City of Kitchener introduced a number of incentives to spur and support new development - one of them being the Downtown Kitchener Development Charge Exemption.
The incentive states that “All lands within the Downtown Core Boundary are exempt from both City of Kitchener and Regional development charges, including the Regional development charges for waste and transit.”
In case you’re wondering, development charges are fees developers pay on a per unit basis for residential and nonresidential construction. The money collected through development charges is supposed to fund infrastructure growth to accommodate the growing population.
This incentive ends in February 2019, and it can take a long time for an application to make its way through the system, so developers are starting to act now.
According to Jennifer Young in Kitchener’s building department, the City is expecting to get “swamped” with applications. There are many major, high-density projects in the pipeline, and they will incur millions of dollars of development charges if approved after February 2019.
The Record uses one project as an example. Drewlo Holdings has a 450 rental apartment in the works. If it’s approved before the incentive is taken off the table, the developer will save more than $6 million.
The article also says that a new condo in downtown Kitchener would have fees of around $14,600 a unit. Development charges are typically based on unit size or type of dwelling.
What a lot of people don’t realize is that development charges impact the price of a home. The developer isn’t going to eat that cost - it’s passed on to the homebuyer. So if it’s costing developers millions of dollars more to develop, then expect it to be reflected in the prices.
Prices will rise in downtown Kitchener and there will be a construction boom! We assume the whole point of the incentive was to encourage more development in the downtown, and that’s exactly what’s going to happen.
The price increases apply to rental and nonresidential development too. Monthly rent will be more expensive for apartment units and businesses will also be impacted by more expensive leases.
But, does this mean you should be buying in downtown Kitchener? We don’t think you should let this policy change determine your investment decisions because there are many factors at play.
For example, Kitchener already saw a mini boom due to many buyers from the Greater Toronto Area (GTA) looking to the city for a wider selection of relatively more affordable homes. Of course, this caused a rise in prices.
If the City ends up approving a lot of the development, they are in danger of overbuilding, especially if the developers don’t manage their inventories accordingly. Overbuilding could cause a drop in property value.
As the applications pour in over the next few months, we’re excited to see what becomes of downtown Kitchener!
