Toronto is in the midst of a housing crisis. Why are development fees set to go up by nearly 50 per cent?

The cost of building housing in Toronto will soon rise by tens of thousands of dollars per unit as the city hikes development charges by nearly 50 per cent.

The fees, which are charged to developers and help pay for the associated capital investments required to support new development, are evaluated every five years using a long-standing formula.

City officials maintain that even with the increases, Toronto will still have cheaper development charges than several neighbouring municipalities, including Markham, Mississauga and Vaughan.

But at least one representative for the residential construction industry say that the costs have now grown too steep in Toronto and surrounding communities and risk “killing future projects” during a time when the region is in the midst of a housing crisis.

“It is just completely wrongheaded. It’s almost as if there's some group that does not want housing supply, it's almost as if they want to stop growth in Toronto,” President of the Residential Construction Council of Ontario Richard Lyall told CP24 this week. “It will affect builders and developers in terms of their ability to bring projects to the market. But the people that are going to get hit the hardest by this are the ones that are just barely making it into the market and can only just afford housing now. It is entirely irresponsible and it is flabbergasting.”

The new development charge framework, which still needs to be approved by city council later this month, would see the increases phased in over the next two years.

However, by 2024 developers would be paying an additional $18,000 for every one-bedroom unit and an additional $35,000 for each unit with two or more bedrooms. The increase for detached and semi-detached homes, meanwhile, would be approximately $43,000.

City Controller Andrew Flynn tells CP24.com that the charges are based on the principal that “growth pays for growth” but he said that in reality “legislative limitations” around development charges mean that “growth will only pay for 55 per cent of growth” in Toronto over the next two decades.

“Toronto is a large and populous city – and is projected to experience substantial growth over the next 30 years. The development charge study which was used to inform these rates forecasts an increase of more than 430,000 people and 185,000 employees in Toronto by 2041. This level of growth requires investments in necessary growth-related services and infrastructure to create complete communities,” he said in a written statement.

Flynn said that investments in “transit, roads and affordable housing” are the “key drivers” of the rate increases, accounting for about 80 per cent of the added costs. This includes a city council target of creating 40,000 new affordable housing units over the next decade.

Flynn said that other significant infrastructure projects related to growth like “the Waterfront Transit Network, the Eglinton East LRT, and the Line 1 and Line 2 capacity enhancement projects” are also combining to push development charges higher.

But Lyall said that the whole “growth pays for growth” approach is “baloney” when so many people are struggling to access housing in Toronto.

He wants to Queen’s Park step in and set some “meaningful standards” for things like development charges, as well as the approval process that can result in delays for developers eager to get shovels in the ground.

“I know they have a formula and I am not saying the city doesn't need money. But this isn't the way to go about it. This is hammering our future. It is landing on the backs of new homeowners and new renters when really it should be spread amongst society because when cities grow they create additional wealth and so on for the entire population,” he said. “The entire population benefits from growth and we need the growth. It (the cost) shouldn't be regressive right? It shouldn't be leveled solely on the backs of new homebuyers and renters.”

Development charges will range from $52,000 to $137,000

City staff had initially proposed development charge increases that would have amounted to an average hike of 49 per cent for residential projects but reduced the increase to an average of 46 per cent following consultations with stakeholders.

The new structure will see developers charged anywhere from $52,000 for a one-bedroom apartment unit to $137,000 for a detached house, at the time that they apply for permits.

Staff say that the rates are “rooted” in $67 billion in planned capital work over the next two decades, of which $14.9 billion is eligible for potential recovery through development charges.

But the increases will further inflate building costs in a city where developers were already paying among the highest development charges in Canada.

A CMHC report released this week, in fact, revealed that developers in Toronto pay $86 per square foot in government fees, compared to $70 in Vancouver and $24 in Montreal.

The report said that the fees in Toronto account for about 10 to 23.5 per cent of construction costs, depending on the dwelling type.

“There's no doubt these (charges) add to the cost of a new home. But I think, you know, there's a there's the immediate story but there's also the bigger story and I think the really important thing to look at here is how do we fund growth? How do we make sure that the funding of growth is an equitable approach?” David Wilkes, who is the president and CEO of the Building Industry and Land Development Association, told CP24 this week. “We can't use the approaches and funding tools and the systems for approvals of the 1960s and 70s for the challenges of today. What was Einstein's phrase? That insanity is defined as doing the same thing over and over again and expecting different outcomes. We have to stop doing the same thing,”

MAYOR TO MAKE AMENDMENTS

Development charges have risen rapidly in Toronto in recent years, going up by 80 per cent the last time they were reviewed back in 2018.

That has led some industry stakeholders like Lyall to call for changes to the system.

He told CP24.com that the level of increases that developers are now being forced to pass on to buyers “completely undercuts any objectives to reach any kind of meaningful affordable housing target or just simply housing targets.”

“It is delusional,” he said.

However, city officials maintain that the charges are merely a “function of growth-related expenses – which have been rising in Toronto along with the level of growth the city is experiencing.”

They say that "development has continued and been strong over these last number of years," despite increases to development charges.

Mayor John Tory is also believed to be in support of the new framework.

His spokesperson, Don Peat, told CP24 that Tory believes the proposed increases ultimately “balance the need for growth to pay for growth with the need to ensure that we continue to get more housing built.”

Peat said that while Tory will introduce some amendments at next week’s executive committee meeting aimed at addressing “concerns about the impact of development charges around small developments, rental construction and affordable housing efforts,” he will support the broader recommendations being made by staff,

“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,” he said.

If approved by city council, half of the proposed increases would take effect as of May, 2023 with the other half being phased in the following year.