Developers, housing advocate criticize development fee increase amid housing crisis

A representative of the development industry and a housing advocate are warning that a recent decision by Toronto city council to raise the cost of building new housing could further squeeze the city's supply and result in less affordable housing.

Council voted in July to hike development charges by 46 per cent for new residential buildings, with the increase to be phased in over the next two years. The fees are collected at the time a building permit is issued and are used to fund infrastructure needed to support a growing population, including transit, roads and housing.

Developers building a single-detached or semi-detached home will pay an additional $43,062 above the current rate of $93,978. The charge for constructing a condo with two or more bedrooms will go up $35,592 from $77,679, and the fee for apartments with two or more bedrooms will increase by $25,206 from $55,012.

Richard Lyall, president of the Residential Construction Council of Ontario, said the increase could make many housing projects currently in the pipeline economically unviable.

"It's going to result in the cancellation of projects going forward," Lyall said.

"This just flies in the face of common sense and reality."

Lyall said developers are already facing sky-high construction costs and a skilled labour shortage.

Along with requirements to include affordable units in new projects near transit stations under the city's inclusionary zoning policy — which will force developers to subsidize those units by raising the price of remaining ones — Lyall said the fee increase will inflate the already high cost of housing for homebuyers and renters.

"It's the consumer that pays for it at the end of the day and we already have a housing affordability crisis," said Lyall.

Raising the cost of building to pay for growth

The City of Toronto says the increase is based on a provincial mandate that "growth should pay for growth," meaning that development charges and other fees including parkland dedication rates and community benefits charges should cover the costs of infrastructure required to accommodate new residents. 

A city staff report says around 22 per cent of $67 billion in planned capital projects over the next 20 years will be recoverable through the development charges with the new rate.

The city says it took a balanced approach by breaking the increase down into two increments in May 2023 and 2024 and by exempting purpose-built rental housing and inclusionary zoning projects from the fee increase.

What that's doing is driving up the cost required to build more homes and housing.- Eric Lombardi, More Neighbours Toronto

"We understand current challenges facing the development industry include cost escalation, higher interest rates and labour shortages," a statement from the city said. 

Eric Lombardi, an affordable housing advocate with More Neighbours Toronto, said the move places too much of a financial burden on new residents while keeping property taxes down for existing homeowners.

"What that's doing is driving up the cost required to build more homes and housing," Lombardi said. 

"That is an exercise in decision making that's making it very hard for young people like myself, new immigrants, and those who are left out of the housing bonanza that's occurred over the last decade from being really able to start their lives in the city."

Housing slowdown

The city's housing market is currently experiencing a slowdown as rising mortgage rates driven by the Bank of Canada's interest rate hikes weigh on home sales. Last week, the Toronto Regional Real Estate Board revealed that Greater Toronto Area home sales fell 47 per cent in July from the same time last year and 24 per cent from this past June.

Prices for some types of housing, meanwhile, are falling at a slower rate but still remain elevated above pre-pandemic levels.

Data firm Urbanation Inc. said last week it expects almost 10,000 GTA condo units to be delayed this year.

In a statement, a spokesperson for Mayor John Tory said the new development fee increase balances the need for growth with the need to get housing built. The spokesperson highlighted amendments championed by Tory and Coun. Ana Bailão to exempt certain affordable and smaller housing projects from the increase.

"We do want to ensure that growth continues to pay for growth and that the infrastructure needed to support more homes and more people is properly upgraded to accommodate new developments, wrote Lawvin Hasidi.

"It's also important to keep in mind that Toronto's development charges are still lower than Mississauga, Vaughan, and Markham for large residential construction — despite Toronto having higher land and labour costs than surrounding cities."

While Toronto's development charges may be lower than some surrounding municipalities, a report by the Canadian Mortgage and Housing Corporation released last month found that they are still among the highest in the country.

The report said developers in Toronto pay an average of $86 per square foot in government fees, compared to $70 in Vancouver and $24 in Montreal. Depending on the dwelling type, the report said fees and levies account for between 10.4 to 23.5 per cent of the cost of construction in Toronto.

Meanwhile, the city says none of its research has shown that lower development charges would lead to lower housing prices or more housing supply.