Toronto could be raising the cost of building and buying new homes by introducing a significant increase to Development Charges.
The City of Toronto has proposed to increase Development Charge rates by 49% for all new residential housing types. This new update is part of a re-assessment of the City’s Growth Funding Tools and its bylaws that occur every five years.
It should come as no surprise that the City of Toronto is in need of homes as it is experiencing exponential growth. However, we did not expect an increase in new home charges that would make buying a home more difficult. These updated City bylaws – which are to be delivered for Council consideration in Q2 2022 – could take effect as early as next April when the bylaw expires.
Ontario is facing a housing crisis and is in urgent need of new housing types. With that, Premier Doug Ford recently unveiled a plan to build 1.5 million homes in Ontario to help accommodate the population influx expected over the next ten years. Toronto alone is anticipating 430,000 people and 185,000 employees expected by 2041. Of course, building 150,000 homes a year is no easy task and is expected to be faced with some hurdles. With more housing required, improved infrastructure is necessary to accommodate the historic number of people coming to live in the Toronto area. But at what cost?
Why are Toronto’s Development Charges being targeted?
The City of Toronto has three growth funding tools that help collect money to help pay for building and improving infrastructure and services that support new residents and businesses. A third-party consultancy schedules these three growth funding tools for assessment every five years.
The three types of growth funding tools are:
- Development Charges
- Community Benefits Charge
- Alternative Parkland Dedication Rate
Together, these financial tools garner approximately $750 million in revenue for Toronto each year, but the city needs more. With Ontario’s Places to Grow Act inviting 2.27 million more people to live here by 2031, a big bulk will stay in Toronto – meaning the City will need far more infrastructure. More specifically, construction cost escalation, increases in growth-related infrastructure investments in housing, and transit and roads are driving this rate increase by more than 80%.
What are Development Charges?
Development Charges are a fee charged by municipalities to recover the cost of growth. Put simply, development charges are based on the basic principle that growth should pay for growth. They are a one-time fee collected at the time a building permit is issued to help pay for the cost of infrastructure required to provide municipal services to new development – such as roads, transit, water and sewer infrastructure, community centres and fire and police facilities.
Whenever a developer builds a new pre-construction condo or commercial property, it is their responsibility to pay for the new infrastructure that's required to live there. But it’s not just developers paying for these fees - instead, they come out of a homebuyer’s pocket at the time of closing.
What will increasing Development Charges look like for homebuyers?
Hemson Consulting Ltd. found through their Study that Development Charges for residential homes need to increase by 49%. This increase should help the City prepare for population growth and help existing resources and new investments. The study indicates that if the City does not increase Development Charges, residents can expect a decrease in their quality of life.
The Study proposes that the Development Charges on single and semi-detached homes rise to $139,830 from $93,978. The proposed charge for multiples with two bedrooms or more would rise to $115,579 from $77,679, and for multiples with less than two bedrooms, the fee would increase to $57,976 from $38,968. The charge for an apartment with two bedrooms or more would rise to $81,852 from $55,012, and for an apartment with fewer than two bedrooms, it would increase to $53,432 from $35,910.
Increased rates would mean that buying and renting within the City would also increase.
How did the City determine these numbers?
As we mentioned before, the City needs to re-assess the three growth-funding tools every five years by a third-party consulting firm. The proposed increase is calculated by looking at required capital projects over a 10 to 20-year period and dividing their associated growth costs by the number of planned units to determine the rate.
Once calculated, the study found that a rate increase of up to 49% for residential development and 40% for non-residential development is necessary to build the required infrastructure.
The last Development Charge increase was introduced in May 2018.
If implemented, developers and homebuyers would feel the most impact.
While the Province is supposed to be building new homes at an accelerated rate, this will surely make the process harder. Developers already pay hefty fees to build residential developments in the City. Developers constructing smaller-scale projects in the City's outskirts will especially bear the burden when their projects aren't as profitable. Ultimately, this increase will fall on the backs of new home buyers and investors.
We can expect this increase to take effect when the existing Development Charge bylaw expires next April if approved. With that in mind, now would be a wise time for hesitant investors to tap into the condo market before the price of homes are affected.
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