Increasing development charges will hinder affordability

Development charges are meant to be used for the infrastructure necessary to sustain additional population as a result of development. It’s not just sewage and water — it can be used also for soft services like libraries and communities centres. Makes sense on the surface, but the argument can be made that the tax unfairly targets homeowners for infrastructure that will be used by renters, commercial tenants, tourists, whomever passes through.

All taxes have to go up periodically, but the hikes currently being proposed by some municipalities are outrageous — nearly double in some areas. Developers are understandably up in arms.

The developers are in this case merely tax collectors who of course are going to pass fees onto consumers, and in an already overheated market like Toronto, it just pushes prices higher. Those projects already under development may find themselves hit with a multi-million-dollar budget crunch, as municipalities typically collect the charges during later stages of construction, after the pre-sale and approvals process. There are nearly 150 condo projects in the GTA already pre-sold to the tune of 70% but not yet in construction.

The timing is particularly bad, as there are signs that condo developers are cancelling pre-sold projects in greater number than the year prior, according to The Globe and Mail; 17 GTA-region condo projects (93,627 units) have been cancelled since the beginning of 2017 compared to seven projects (808 units) in 2016.

These municipal plans come to light as a result of a background study undertaken by the province, after which the province requires municipal development charges to undergo review. Those who are planning significant hikes are justifiably making the news; Toronto, Brampton and Vaughan were among those municipalities considering the most substantial hikes.

One of the biggest sold out projects cancelled in recent years was Cosmos Project in Vaughan from Liberty Development Corp. The company communicated in 2016 that it was cancelled when satisfactory financing terms could not be found.

Vaughan builders face some of the most expensive development charges around, at $38,031 per unit under 750 square feet and less than two bedrooms, and $49,995 per unit for more than 750 square feet and more than two bedrooms. As the Globe points out, on the assumption that 90% of the intended units were of the smaller size and 10% the larger, development charges could have been more than $45 million. Vaughan’s municipal government is contemplating hikes of more than 95%.

There’s a problematic dichotomy right there. While encouraging or even mandating construction of more family-friendly, multi-bedroom units, all area municipalities except Kitchener/Waterloo are substantially penalizing buyers for going up in size.

Charges aren’t just a little higher — an on-the-fence buyer thinking of purchasing a unit with at least two bedrooms needs to factor in development charges half again as much in Vaughan, which currently charges the fourth-highest development charges in the area; it would jump into first place if its proposed hikes go through.

In Toronto, one proposal to council raised development fees to more than $46,000 for a larger apartment and more than $30,000 for a smaller one by November 2020, according to the Globe; currently, nearly all the municipalities in the 905 around us charge higher fees than in the City, but the proposed hikes would change that.

In a recent report issued by Altus Group for BILD, the fees dramatically impact buyers, adding $186,000 to the price of an average new single-family home and $121,000 to the average high-rise unit.

“Some of these costs, such as development charges, are increasing far faster than the rate of inflation, squeezing prospective new home buyers out of the market,” says Dave Wilkes, President and CEO of BILD, in a release.

The report showed that charges across the GTA had increased between 236% and 878% since 2004; government charges and HST make up nearly 80% of all the government fees applied to new homes.

I think most of us would agree that homebuyers should pay their share for increased infrastructure but fee hikes of nearly double are unsustainable. In what other circumstances would we even tolerate a nearly 100% tax hike?

Would you go buy a car tomorrow if the province doubled HST today? But because they’re buried in the cost of new homebuying, development fees are less on the radar than some of our more in-your-face taxes.

Development fees are low-hanging fruit for the municipal governments that think developers have bottomless bank accounts and that there’s so much money to be made, they’ll be able to continue to feed a hungry public the real estate they crave with hardly a hiccup. But there will come a tipping point.

Find out what’s going on in your municipality — or one you’re contemplating calling home — and let your city council know how you feel about development fees.