Back in 2022, Altus Group did a municipal benchmarking study where they looked at approval timelines, development charges, and a host of other factors that could be impacting housing affordability in Canadian cities. I blogged about it then and spoke specifically about its benchmarking of approval timelines. But I revisited it this morning after seeing Mike Moffatt tweet about it and I came across the below chart.
Also, approval timelines are less of a concern today. There are lots of zoned sites that are ready to go, but can't because of the market. Instead, what the below charge does is compare municipal charges on a per square foot basis for low-rise and high-rise housing. What's interesting is that in most cases, but in all cases in Ontario and BC, the charges are higher for high-rise housing.
Example: If you bought an 800 sf condominium in Toronto and the fees were based on the numbers in this report, you'd be paying $125 psf x 800 sf = $100,000 in municipal charges alone. Once again, I am of the opinion that our industry should find a way to transparently itemize these charges so that people/purchasers can see where their money is going.
Now, part of this has to do with higher land values for higher-density housing and municipal fees that are calculated based on appraised land value. But it's also driven by suite sizes becoming smaller (to make the end price more affordable for buyers and renters).
Here in Toronto, it doesn't matter if you're building an 800 sf two-bedroom or an 8,000 sf two-bedroom apartment, the development charge fee would be the same. And so it is perhaps not surprising that as suite sizes have come down and charges have gone up, so too did the costs on a per square foot basis.
But it raises an important and obvious question: Is this what we want? I mean, aren't we trying to encourage more infill housing in places where people don't need to drive and we can leverage existing services? Yes, that's what we are saying. Unfortunately, our charges suggest the opposite.
If you'd like to download a copy of the report, you can do that over here. Please keep in mind that this is data from 2022 and there have been changes since then. In many cases the fees are now higher, but in some cases, like in the City of Vaughan, the fees are now lower.
Cover photo by Scott Webb on Unsplash
If you're a longtime reader of this blog, you might remember this post from 2020, which was about a cost comparison that developer Urban Capital had done between a project they completed in 2005 and a project they were doing in 2020. What they uncovered was that the biggest culprit in terms of rising costs was none other than development charges. This line item had increased by 3,244%!
Everyone in the development industry knows that this is the reality. Not only have developers needed to carry a big budget for development charges, but they've also had to carry allowances for escalations; and that's because they have tended to jump multiple times throughout the course of a single project. It's frankly hard to keep up.
So for anyone to say that development charges have generally increased at the rate of inflation -- which some do say -- I'm guessing they don't know math, they don't know how inflation works, or they're lying because taxing new homes is politically easier than the other ways of collecting municipal revenue.
Thankfully, the Bank of Canada has an easy-to-use inflation calculator. And if one were to plug in 2005 and 2020, it would tell you that over this 15-year period, the average annual rate of inflation was 1.63% and that, as a total percentage change, this equates to 27.43%. So, 3,244% vs. 27.43%. It's not even close.
For a long time, nobody cared to listen to developers complain about this. The market was, you know, too good. Isn't this just developers being greedy? Well, that is no longer the case and consumers are waking up. Here's an excerpt from a
Here is a recent chart from Mike Moffat showing how much development charges have increased in the City of Toronto from 2009 to today:
We've, of course, seen this before. Back in 2020, I shared an article
Back in 2022, Altus Group did a municipal benchmarking study where they looked at approval timelines, development charges, and a host of other factors that could be impacting housing affordability in Canadian cities. I blogged about it then and spoke specifically about its benchmarking of approval timelines. But I revisited it this morning after seeing Mike Moffatt tweet about it and I came across the below chart.
Also, approval timelines are less of a concern today. There are lots of zoned sites that are ready to go, but can't because of the market. Instead, what the below charge does is compare municipal charges on a per square foot basis for low-rise and high-rise housing. What's interesting is that in most cases, but in all cases in Ontario and BC, the charges are higher for high-rise housing.
Example: If you bought an 800 sf condominium in Toronto and the fees were based on the numbers in this report, you'd be paying $125 psf x 800 sf = $100,000 in municipal charges alone. Once again, I am of the opinion that our industry should find a way to transparently itemize these charges so that people/purchasers can see where their money is going.
Now, part of this has to do with higher land values for higher-density housing and municipal fees that are calculated based on appraised land value. But it's also driven by suite sizes becoming smaller (to make the end price more affordable for buyers and renters).
Here in Toronto, it doesn't matter if you're building an 800 sf two-bedroom or an 8,000 sf two-bedroom apartment, the development charge fee would be the same. And so it is perhaps not surprising that as suite sizes have come down and charges have gone up, so too did the costs on a per square foot basis.
But it raises an important and obvious question: Is this what we want? I mean, aren't we trying to encourage more infill housing in places where people don't need to drive and we can leverage existing services? Yes, that's what we are saying. Unfortunately, our charges suggest the opposite.
If you'd like to download a copy of the report, you can do that over here. Please keep in mind that this is data from 2022 and there have been changes since then. In many cases the fees are now higher, but in some cases, like in the City of Vaughan, the fees are now lower.
Cover photo by Scott Webb on Unsplash
If you're a longtime reader of this blog, you might remember this post from 2020, which was about a cost comparison that developer Urban Capital had done between a project they completed in 2005 and a project they were doing in 2020. What they uncovered was that the biggest culprit in terms of rising costs was none other than development charges. This line item had increased by 3,244%!
Everyone in the development industry knows that this is the reality. Not only have developers needed to carry a big budget for development charges, but they've also had to carry allowances for escalations; and that's because they have tended to jump multiple times throughout the course of a single project. It's frankly hard to keep up.
So for anyone to say that development charges have generally increased at the rate of inflation -- which some do say -- I'm guessing they don't know math, they don't know how inflation works, or they're lying because taxing new homes is politically easier than the other ways of collecting municipal revenue.
Thankfully, the Bank of Canada has an easy-to-use inflation calculator. And if one were to plug in 2005 and 2020, it would tell you that over this 15-year period, the average annual rate of inflation was 1.63% and that, as a total percentage change, this equates to 27.43%. So, 3,244% vs. 27.43%. It's not even close.
For a long time, nobody cared to listen to developers complain about this. The market was, you know, too good. Isn't this just developers being greedy? Well, that is no longer the case and consumers are waking up. Here's an excerpt from a
Here is a recent chart from Mike Moffat showing how much development charges have increased in the City of Toronto from 2009 to today:
We've, of course, seen this before. Back in 2020, I shared an article
But cities started to enjoy that revenue stream too much. They began to gorge on development fees, a flow of money that allowed politicians to keep property taxes low. Who was going to complain? Future owners of homes are often people who don’t yet live in the city and can’t vote. It’s the city-building equivalent of that Monty Python joke about an innovation in how to raise government revenue: taxing foreigners living abroad.
But even more importantly, municipalities are now waking up. Last week, the City of Vaughan -- which previously had the dubious distinction of the highest DCs in the Greater Toronto Area -- announced that it would be reverting back to the rates they had in effect on September 18, 2018, and that these rates would remain in place until November 19, 2029.
This takes the development charge for a single-family home from $95,466 per unit back down to $50,193 per unit. This is significant! And given the current strains on housing affordability, these savings will almost certainly flow through to end purchasers. (FYI, all of the developers who have signed the CANT pledge have all agreed to pass on any tax savings dollar for dollar.)
Here's a quote from Vaughan Mayor Steven Del Duca:
Development charges have become an unfair tax burden on homebuyers. Too many of our residents, in particular young families in our community, have seen their dream of buying a home close to where they grew up, disappear completely as housing prices have spiraled out of control. We have a housing affordability crisis and it’s time for us to get real about the solutions needed to solve it. Today’s decision by Vaughan Council to dramatically reduce our development charges for the foreseeable future is a strong step in the right direction. I urge other municipalities to follow our lead and do the right thing.
He makes a good point. It behooves other cities in Ontario to follow their lead.
Development charges over the last real estate cycle have been an insidious problem. Meaning, the industry knew they were crazy high, and we were all trying to be vocal about it, but let's face it -- the general public doesn't have a lot of sympathy for developers complaining about high fees. They are also largely hidden from purchasers and renters. The charges just get lumped in.
If our industry could figure out how to be more transparent and separate out these charges, much like a sales tax, I think it would go a long way to showing consumers what they're actually paying when it comes to new housing. And then maybe something positive would happen. Because this is a major reason why new housing has gotten so expensive in this region.
Can you imagine if property taxes had increased by 3,244% over the last 15 years? I can't. Because no one would have ever allowed that to happen.
For better and for worse, the current market is going to serve as a rude awakening for municipalities. We've reached the breaking point. The housing market is, as we've talked about, in a "state of economic lockdown." And when people don't buy new homes, it means developers no longer have the money to pay development charges.
But cities started to enjoy that revenue stream too much. They began to gorge on development fees, a flow of money that allowed politicians to keep property taxes low. Who was going to complain? Future owners of homes are often people who don’t yet live in the city and can’t vote. It’s the city-building equivalent of that Monty Python joke about an innovation in how to raise government revenue: taxing foreigners living abroad.
But even more importantly, municipalities are now waking up. Last week, the City of Vaughan -- which previously had the dubious distinction of the highest DCs in the Greater Toronto Area -- announced that it would be reverting back to the rates they had in effect on September 18, 2018, and that these rates would remain in place until November 19, 2029.
This takes the development charge for a single-family home from $95,466 per unit back down to $50,193 per unit. This is significant! And given the current strains on housing affordability, these savings will almost certainly flow through to end purchasers. (FYI, all of the developers who have signed the CANT pledge have all agreed to pass on any tax savings dollar for dollar.)
Here's a quote from Vaughan Mayor Steven Del Duca:
Development charges have become an unfair tax burden on homebuyers. Too many of our residents, in particular young families in our community, have seen their dream of buying a home close to where they grew up, disappear completely as housing prices have spiraled out of control. We have a housing affordability crisis and it’s time for us to get real about the solutions needed to solve it. Today’s decision by Vaughan Council to dramatically reduce our development charges for the foreseeable future is a strong step in the right direction. I urge other municipalities to follow our lead and do the right thing.
He makes a good point. It behooves other cities in Ontario to follow their lead.
Development charges over the last real estate cycle have been an insidious problem. Meaning, the industry knew they were crazy high, and we were all trying to be vocal about it, but let's face it -- the general public doesn't have a lot of sympathy for developers complaining about high fees. They are also largely hidden from purchasers and renters. The charges just get lumped in.
If our industry could figure out how to be more transparent and separate out these charges, much like a sales tax, I think it would go a long way to showing consumers what they're actually paying when it comes to new housing. And then maybe something positive would happen. Because this is a major reason why new housing has gotten so expensive in this region.
Can you imagine if property taxes had increased by 3,244% over the last 15 years? I can't. Because no one would have ever allowed that to happen.
For better and for worse, the current market is going to serve as a rude awakening for municipalities. We've reached the breaking point. The housing market is, as we've talked about, in a "state of economic lockdown." And when people don't buy new homes, it means developers no longer have the money to pay development charges.
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