When the provincial and federal governments announced on March 30 a new joint program designed to reduce development charges (DCs) on new homes, those in the housing industry applauded the leadership the governments showed to address the collective burden of fees, taxes and charges on new homebuyers in Ontario.

BILD has long advocated for this measure to reduce government-imposed costs and help bring affordability back into the Greater Toronto Area (GTA) housing market. The announcement from the Ontario and federal governments to provide $8.8 billion over 10 years to lower DCs across Ontario is a meaningful and significant step in the right direction. The plan will ensure municipalities continue to have the necessary funding required to build housing supportive infrastructure while also prioritizing new home project viability, affordability and supply – all of which is essential to a growing Ontario.

Significant impact

The impact this funding will have on municipal costs imposed on new homes could be significant, but the impact will likely not be uniform across all regions as municipalities will need to decide their participation and to what extent.

First, it is important to understand the function of development charges before examining how this new program could vary between jurisdictions.

Development charges are a one-time, upfront fee collected by municipalities and regions on new homes to help fund housing supporting infrastructure and services. They can include fees for new water and wastewater systems, roads, transit and services like fire, police and ambulance.

DCs are baked into the cost of a new home and they are one of many municipal fees or charges collected on new housing. Currently, all municipal fees in aggregate can add up to $200,000 on a new single-family home – with DCs making up the largest single component of that share. In the GTA, DCs can add $125,000 on average to the cost of a single-family home and roughly $80,000 on average to a two-bedroom condo. The highest DC rates on a single-family home in the GTA is approximately $180,000.

The rise in DCs has been astronomical, increasing by as much as 1,000 per cent in the last 15 years in some municipalities.

The new provincial-federal joint funding program announced on March 30 could result in a reduction of up to 50 per cent in DCs over the next three years in Ontario’s fastest growing regions, according to the announcement.

The impact of this would be significant as cutting DCs to such a degree will have a material impact on housing viability, supply, choice and product mix.

How this would work is essential to note as not all municipalities have the same service and infrastructure needs, and development charges are levied at different amounts to fund distinct things in individual municipalities.

Partnering with government

For example, in the City of Toronto, more than 40 per cent of DCs collected are used to fund transit projects. For more greenfield developments (suburban communities), the DC amounts gathered are highest for water and waste infrastructure and roads – things that already exist in a more urban environment.

So as municipalities get ready to partner with the provincial and federal governments on this new program, they will be focusing on different aspects of their development charges system. Some may focus on transit projects while others prioritize a new wastewater treatment plant, community centres or roads.

This means that the percentage decrease of DCs will also fluctuate by municipality and region. We may see some municipalities with a 35-per-cent reduction in DCs while others with a 50-per-cent reduction. The key point being that DC reductions across regions will vary.

According to the announcement, municipalities will also have to demonstrate that they are part of the solution by taking steps to reduce costs within their DCs budget in order to qualify for the funding.

Very positive step

This announcement is a very positive step and will lead to improved housing project viability, affordability and supply. It will benefit a variety of projects across the GTA and is being implemented in such a way where municipalities will continue to have the resources available to fund the infrastructure and services everyone relies on – not just new-home buyers. Most importantly, it has the potential to lead to long-term structural reductions in the way costs related to growth are defined and funded.

We are looking forward to additional information from the provincial and federal governments about the specifics of this program and the ways in which it will be implemented across the province. It is sure to have a positive influence and contribute to the long-term growth of a vibrant and thriving Ontario.