Battle brewing over Toronto's development charges

The lobby muscle of Toronto’s property developers is being tested by a recent proposal from city staff to double the charges levied on all residential development projects to recover the cost of new infrastructure.

Toronto’s development charges bylaw requires the city to review these charges every five years. In an unwelcome surprise to the development industry, this proposal has come a year earlier than anticipated.

"The numbers are staggering," said Steve Deveaux, vice-chair of the Building Industry and Land Development Association (BILD). "It’s a huge hit to affordability, and it makes it very difficult for us to proceed with the intensification of the city in the areas that the city wants to see it grow with these additional costs."

Toronto currently charges less than any other large municipality in Ontario. The average development charge for a large apartment unit in Toronto is about $13,000. That's much lower than surrounding municipalities such as Brampton ($45,000) Mississauga ($42,000) and Oakville ($34,000).

Unlike Toronto, many developments in the GTA are located on green field sites: previously undeveloped land that requires completely new roads, sewage plants, libraries and parks be built from scratch, resulting in higher development charges. Nevertheless, experts say that the added pressures that have come along with Toronto’s condo boom still warrant greater contributions from the development industry.

The proposed increase in development charges in Toronto would bring the rate of a large apartment unit up to about $26,000, a 100 per cent increase on the current charge. Non-residential development charges are set to go up by 37 per cent.

Roberto Rossini, deputy city manager and chief financial officer, said, "We want to make sure we’re collecting as much as we can under the parameters of the Act, and we want to make sure that development charges are as up to date as possible."

The proposed increase stems from a detailed study by Hemson Consulting Ltd, an independent consultant hired by the city to forecast the costs of new roads, transit and additional infrastructure services needed to accommodate Toronto’s growth over the next ten years.

Would boost prices for buyers

The development industry insists the revised charges will make prices too high for new buyers and as a result, drive future development out of the city. The industry has been rallying its members to fight the change.

"There’s a significant amount of risk and capital investment that goes into these projects," Deveaux said. "A $10,000 hit per unit is not something that the development industry can absorb, and we think it’s also not something that the home owner can absorb."

Rossini says the extent to which developers are able to pass higher charges on to the homebuyer depends on market conditions. If the market prices are rising, then the costs would pass through, but in slower markets some of the additional costs might eat into the developer’s profit margins.

The last time the city visited this issue was in 2008 to 2009, in the midst of the global financial crisis. City staff proposed a 100 per cent increase to charges, but developers threatened to appeal the matter to the Ontario Municipal Board.

At the 11th hour, then-mayor David Miller negotiated an agreement to freeze the charges for two years before phasing in the increase by 25 per cent per year, over a four-year period.

David Soknacki, former city councillor and Toronto’s budget chief from 2003 to 2006, says the city’s failure to charge developers the full rate needed to recover the cost of growth is "depressing the standard of living in the city of Toronto."

"What I find surprising is the outrage that people seem to have when it comes to development charges, as if it was nothing but a revenue grab, when in fact, it’s a team of consultants determining what the actual minimum cost-recovery would be, under a very strict set of rules," said Soknacki.

"If the city doesn’t ask for basic costrecovery it means, first, that our infrastructure is falling behind, second, that the existing taxpayer has to pick up the burden and third, that a lot of development is incorrectly priced."

Deveaux responds that building in Toronto is not cheap. In Ontario, development fees also include Section 37 contributions and park land taxes. In Toronto there is also a municipal land transfer tax. "If you look at all of the total governmental costs that go into a unit ... we’re on par if not higher than all of the other municipal development charges out there," said Deveaux.

City staff plans to study the entire list of charges currently imposed on developers in Toronto to determine if the combined fees are, in fact, greater in Toronto than the rest of the GTA. Rossini is confident the hike will not deter Toronto’s ability to attract new development. "I think that we’ll find that even with all things considered we’ll still be competitive in the GTA."

The city’s initial plan was to consult with stakeholders and the public through the spring so that it can deliver a new development charge draft bylaw to council before the summer break. But pressure from developers has pushed the timetable off course.

One major point of contention is that the proposal includes the cost of servicing new recreational amenities like the waterfront development that includes the Port Lands revitalization project.

"We accept and agree that growth should have to pay for growth," said Deveaux, "but they are charging future homeowners who will buy over the next 10 years with effectively the full cost of building out the waterfront."

Rossini said that the provincial law allows the city to charge for development related to expanding the city’s recreation facilities.

"They may not like all the items on the list of projects, but I can point to several types of services that we can no longer collect development charges for that at one point we used to — and that municipalities face real pressure to provide," said Rossini.

He said that before 1997, the city was allowed to charge for the growth-related capital costs of cultural facilities, administration buildings, hospitals and solid waste management. Now the cost of these services falls directly on the taxpayer.

Increases could be phased in

Joe Farag, the city’s director of corporate finance, points to the need to find a balance between having growth pay for itself, without unduly impacting the real estate market.

"We might expect that council would give some consideration to some provisional charges to phase-in the increase, but it’s hard to speculate what will happen."

He said one way or another, the cost of accommodating growth has to be absorbed by someone, so if the charges do not go to development projects, the money will have to be found from extra taxes.

City staff are updating the proposal for the statutory public meeting that will be held by the executive committee on July 3, and are due to come back in September with a final draft bylaw for council to vote on.