The Ontario government has proposed a series of legislative reforms to ramp up home building. Chief among those measures, which must still be voted on and approved by Queen’s Park, is a proposal to defer the payment of development charges to the end of a construction project.
DCs have long been a bone of contention for industry stakeholders like the Ontario Home Builders’ Association, which has called on the province for more regulation of municipalities’ ability to charge the fees. The organization represents some 4,000 member companies across Ontario’s residential construction industry and consults regularly with the government on behalf of the industry.
Green Street News spoke with OHBA chief executive Scott Andison on the proposed reforms and how development charges impact construction budgets.
How are development charges calculated?
It’s based on the cost of land. In large urban centres – Windsor, Ottawa, London – these high land costs drive up how much municipalities charge for development.
“Since 2009, the amount of money Ontario municipalities are holding in their DC reserve funds has tripled”
Since 2009, the amount of money Ontario municipalities are holding in their DC reserve funds has tripled. It’s now over $12bn. These are funds that were raised from previous developments not yet spent. In our opinion, half of that amount should never have been raised. And those costs are added to the cost of a home.
We need to bring better transparency to what municipalities are including in those rate calculations, and then we need to modernize how they’re calculated. We need to extract the high cost of land as a factor that drives those costs up, and we need to make it so that it raises the amount of money municipalities need.
What is the rationale for the level of development charges currently assessed by municipalities?
Right now, we’ve got development charges that can range anywhere from $50,000 up to $180,000/unit. When you think about putting that onto the cost of a new home, that’s a significant increase in terms of what home buyers are having to finance.
Two things have happened over the last 10 years. One, the cost of infrastructure has gone up exponentially, which makes it very difficult to fund those costs on a small denominator, such as a hundred-unit development going into the municipality.
“We’ve got development charges that can range anywhere from $50,000 up to $180,000/unit … that’s a significant increase in terms of what home buyers are having to finance”
The other thing that’s happened is DCs are supposed to be focused on infrastructure directly related to the new development. Over time, municipalities have found opportunities to put things into it that are not, I don’t think, directly related to the cost of new development. For example, we have one municipality that put into their development charges the cost for a review of social services delivery across the entire municipality. That’s not a cost that is driven entirely because of the new housing development. So our opinion is there’s been scope creep.
How have DCs hindered new residential projects from breaking ground?
There are two major things that we think have contributed to the decline in housing. One is the slow municipal approvals process. The second factor is DCs. You look at Québec and their fees range from $8,000 to $15,000 because they’re just not having to raise as much money off of new development as in Ontario. So, that has had a significant impact on the number of new housing starts and affordability in general.
We’ve seen over the last few years a steady decline in the number of new housing starts. In 2021, we built the highest number of homes that Ontario has ever seen – 100,000. We were sitting at about 82,000 new starts in 2024. That’s not going in the right direction to meet the province’s target of 1.5m new homes [by 2031].
How will deferring DC payments benefit construction in Ontario?
Right now, when a builder goes through the site plan application, they get approved, they get their building permit issued and they have to pay all of those development charges upfront.
Let’s say there’s a $150,000 DC per unit for a plan to build 100 homes, and assuming it’s going to take five years to be able to get these homes to occupancy. If you look at what the financing costs are, a builder will have to put up $15m just in DC payments to the municipality. This is not a real asset at this time because they haven’t really started building. So, borrowing rates are slightly higher. On average, debt servicing costs over five years at current rates would be about $3m in terms of net new costs over the repayment of the principal. That works out to just over $30,000/unit.
So if you could knock $30,000 off the project cost through a deferral, that could mean the difference for a family qualifying for a mortgage.
“We need a crisis-led response to get us out of where we’re at”
Even if we defer when development charges are paid, municipalities will still get their money. We’re just asking them to wait a little bit. We’re in the middle of a housing crisis. Nobody is arguing that we’re not. So we need a crisis-led response to get us out of where we’re at.
The federal government has indicated a willingness to boost home construction. What do you want to see?
If the federal government says they want to reduce DCs and then they make up that money by giving a direct transfer payment to the municipality, that’s fine. It’s an immediate solution to help get things moving forward to unlock the bottlenecks that we’ve got right now.
We think the federal government’s major role is to direct capital funding into much-needed housing-critical infrastructure. As long as funding is coming directly to the municipality, we are in full support of that.
There were suggestions that they might become the general contractor to get projects built. I’m always wary when the solution is hiring more bureaucrats to solve a problem in a local community or within the province. So we’re hoping that the federal government rethinks the amount of direct involvement outside of supportive cash investments into municipalities.
