Tag: development levies

• Development charges are an insidious problem

  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 that developer Urban Capital published where they did a cost comparison between a project they had done in 2005 and a project they were doing in 2020. What they uncovered was that development charges alone had increased by 3,244%! The most of any line item in their pro forma.

  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.

  2024.09.12

• Site Magazine: Why have Toronto condos become so %@$#$! expensive?

  Every year my friends at Urban Capital publish an annual magazine called Site. And every year it contains some great articles about the real estate development industry across Canada. (Some of you may also remember that I’ve written a few articles for it in previous years.)

  Well this year’s issue is out and there are a few featured articles that I’d like to draw your attention to:

  • What happens when 175 (mostly) women get together to design a condominium? Link
  • How (not) to build a public park Link
  • Why have Toronto condos become so %@$#$! expensive? Link

  This last one is a topic that we have talked about many times before on the blog. But here, UC has provided a quantitative comparison between a project they did in 2005 and a project that they’re doing today in 2020. Here’s what they found:

  

  Average condo prices in the City of Toronto are up about 150%. But…

  Land costs are up 160%.

  Soft costs are up 118%.

  Construction and related costs are up 91%.

  Financing costs are up 93%.

  Government fees, charges, and taxes are up 413%.

  And development charges (a subset of the above) are up 3,244%!

  At the same time, the profit margin over costs is down about 45%.

  (As a point of comparison, CPI only increased by about 26.5% during this same time period.)

  The point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost bucket.

  If you’re developing new housing in Toronto, you have no choice but to accept these rising costs. You have to pay development charges and you have to pay them when you’re told, even if that means swallowing some new massive increase.

  So by necessity, end prices get continually pushed as a way to try and absorb these costs. You figure out what your costs are going to be and then you price accordingly. But of course, you also have to ask yourself: Can people actually afford this kind of pricing and can this neighborhood support it?

  Sometimes the answer is yes, which is why development continues. But sometimes the answer is no. In this case, the next step is simple: you don’t build.

  2020.12.06