January 31, 2019

The government has launched a consultation to, “increase the supply of housing in Ontario” and to “address barriers getting in the way of new ownership and rental housing.” According to the government, one of the key barriers to new housing supply is “Cost: Development costs are too high because of high land prices and government-imposed fees and charges.” Any added restrictions on the use of development charges (DCs) will have major implications for municipal governments.

Development charges are a major source of revenue for cost recovery that funds the infrastructure needed for Ontario’s growing communities. In 2017, 197 municipal governments collected about $2.3 billion in development charge revenue. At present, development charges only cover about 80% of the costs of growth-related capital. They are used throughout Ontario and especially in high growth areas. That means property taxes are currently subsiding the cost of growth and municipalities are currently falling short of achieving the principle, “growth should pay for growth.” As a recent paper from the Institute on Municipal Finance and Governance at the University of Toronto noted, “[the] burden on existing ratepayers is not only inequitable, but also leads to inefficiently low municipal service levels and other related problems for municipalities and the development industry.” Inadequate DC revenue will have negative consequences for the province, not just municipalities.

The Association of Municipalities of Ontario urges the government to consider these three key points:
  1. Development charges are not a root cause of the affordable housing and supply challenge in Ontario. Even further to the point, DCs only apply to only a small part of the housing market – new homes. DCs represent between 5 – 7% of the cost of a new home.
  2. A reduction in development charge collections will increase the cost of public services for all residents. This will increase pressure from taxpayers to constrain growth and to constrain demands on the already stretched property tax dollar.
  3. Municipal governments and current property taxpayers do not have means to subsidize developers in building new homes. Changes that reduced development charges has never resulted in reduced housing prices.
Download The Importance of Development Charges : AMO Submission to the Minister of Municipal Affairs and Housing on “Increasing Housing Supply in Ontario” consultations.