‘It probably is an unworkable system’: The development charge problem

A row of condominium townhouses being built at Wasaga Beach, Ontario, Canada. This photograph shows the houses with the siding almost complete. Plywood is piled up aginst one of the units.

It may be time for a development charge rethink to get much-needed homes built, not just in Windsor, but across the province, and fix a system an $8.8 billion band-aid won’t, say housing experts.

As higher levels of government act on rising municipal fees meant to cover new infrastructure costs in Ontario with a recently announced federal-provincial fund, following growing criticism of the role of those charges in the housing crisis, some researchers and urban planning experts believe the system is overdue for a rework.

“It probably is an unworkable system to have municipalities responsible for the bulk of infrastructure capital costs,” said Carolyn Whitzman, senior housing researcher for the School of Cities at the University of Toronto, in an interview with CTV News.

The new development charge reduction fund was a major joint-announcement of the federal and provincial governments — a policy important enough to be included in the Throne Speech for the new Carney government.

The aim is to juice sluggish home construction by reducing building costs at a time of near-record housing unaffordability.

“I’d say it’s more of a quick fix than a transformational fix,” said Whitzman. “The Federation of Canadian Municipalities (FCM) has been arguing for years that there needs to be a new look at who pays for what infrastructure.”

The FCM calculates municipalities receive between $0.08-$0.10 of every tax dollar in Canada to cover 63 per cent of core infrastructure construction and maintenance.

The municipal advocacy association has also notes the funding framework for municipalities was established in 1849 and hasn’t fundamentally changed since.

“The [development charge] rebate program is a band-aid,” said Shoshanna Saxe, a Tier II Canada Research Chair in Sustainable Infrastructure. “It won’t fix our fundamental problem, which is that we’ve had an unwillingness to pay the true cost of our infrastructure maintenance or our community maintenance.”

Development charges, billed on new construction to fund growth-related capital infrastructure like roads, sewers, and emergency services, have come under fire from housing advocates as a key culprit of the affordability crisis.

Ontario has come under particular scrutiny for its housing taxes, billed as the highest in Canada, making up as much as a quarter or more of new home costs and rising at unsustainable rates.

“Development charges are coming from a good place. They have a good history, but we’ve started relying on them too much and often in the wrong places,” Saxe told CTV News. “We’ve gotten to a point where they’re also doing quite a bit of damage.”

The development charge debate has reached council chambers around the region, with councils in Lakeshore and Windsor agreeing in principle to reduce the fees to take advantage of the federal-provincial program while Amherstburg council decided against an application.

Growth pays for growth

Enid Slack, the director of the Institute on Municipal Finance & Governance, a municipally backed research organization, isn’t quite ready to throw development charges by the wayside amid the scrutiny.

“Development charges pay for infrastructure that is needed for these new developments,” Slack said. “So, you can’t build a house if you can’t have water going into the house.”

The development charge approach comes with an oft-quoted mantra heard in council chambers across the province — growth pays for growth.

It’s a policy principle meant to prevent existing taxpayers from bearing the costs of infrastructure in new communities.

“The way the charges are calculated, it’s based on future growth. Municipalities have to show what the growth is, where it’s going to be, what the costs are,” said Slack. “And then they levy the charges to pay for that growth.”

According to Whitzman, the notion of ‘growth pays for growth’ showed up in the 1970s in relation to outer suburbs that didn’t have any infrastructure as cities expanded outward from their traditional centres.

“I would say it’s always been an imperfect mechanism,” said Whitzman. “It wasn’t really a factor for a lot of Canada’s growth, including some quite precipitous growth in cities. I don’t think that development charges are particularly necessary, but what would be necessary is a long-term fix to the issue.”

In Windsor, the city exempts development charges for its core, west-end, and near-east side neighbourhoods, while implementing the fees elsewhere city-wide, and increasing fees for the Sandwich South Planning District at the edge of the city.

The current schedule includes a charge of $70,646 per unit for single-detached homes, $39,721 for row or semi-detached homes, and $32,691 per unit for other residential types.

Industrial development is exempted across all of the city’s schedules.

“The idea of ‘growth pays for growth’ makes a lot of sense when your cities are expanding. It’s very expensive to build a new neighborhood at the edge of a community,” said Saxe. “Especially if the density of that new community is going to be low, like a traditional subdivision or single-family neighbourhood.”

But the challenge the development charge system is meant solve is made more difficult by the type of growth often seen in the region — and much of the country.

“Low density development is a bit of a Ponzi scheme, right? You use the development charge from the new development to pay for maintaining the last development, and you keep going,” said Saxe. “And so now we’ve got communities all over Ontario, all over Canada, that don’t have a sufficient tax base to maintain themselves. And so that money is going to come from somewhere.”

Whitzman criticizes the current system as one that doesn’t accurately match shifting population trends or housing demand for residents.

“Growth would mean their children eventually moving out and getting a new home. Or it would mean, if they want to downsize to a new two-bedroom apartment, they’d be the growth. So, it’s not just a matter of, I don’t know, the hordes descending from some unknown place, which is just as likely to be interprovincial as international migration,” said Whitzman.

“It’s a matter of population growth and change, which right now is being poorly served by the development charge system.”

Property tax support

Slack stresses development charges levied don’t typically cover 100 per cent of growth-related costs as is and the gap left behind can become its own pitfall.

“There’s been a property tax mantra: we’re not going to increase your property tax rates more than the rate of inflation,” said Slack. “In the case of Toronto, for many years, it was a zero [per cent] increase, not even at the rate of inflation.”

“If you’re not raising property taxes, but costs are still going up – you’re going to fall behind,” Slack warned.

Windsor had its own property tax freeze streak from 2008 to 2015 and has again kept its rate increase to 0 per cent for its 2026 budget.

The city has touted its most recent spending plan as fiscally responsible and includes the “largest” local road rehabilitation and repair program in its history, maintaining its 10-year capital plan.

Affordability crisis

When it comes to the affordability crisis in housing, Slack warns axing development charges isn’t likely to be a panacea.

“The price of housing is determined by the market, it’s determined by demand and supply,” said Slack. “If you lower the development charge on an individual property, it’s not clear the price of that property will go down.”

The latest monthly housing market statistics gathered by the Windsor-Essex County Association of Realtors showed the average sale price increased 1.65 per cent year-over-year in May to $565,000 while listings and properties sold slid 12.05 per cent and 17.99 per cent respectively.

Slack stresses prices are also impacted by interest rates as well as material and labour costs.

A recent study from the Canada Mortgage and Housing Corporation showed while reductions in development charges, or outright eliminations, could increase the number of viable projects by as much as 14 per cent in some cities — the loss of revenue would pose a challenge for municipalities.

Who pays for what?

If not development charges, then what?

“The whole question of ‘Who does what?’ is a bigger question, right?” said Slack. “It’s a bigger question of what should municipalities be doing? What should the province be doing? And frankly, what should the federal government be doing?”

In Whitzman’s view, municipalities are shouldering too much of the infrastructure burden, and it should be higher levels of government managing those costs.

“Quebec offers a really interesting counterexample because in most cases, infrastructure has been paid through a combination of property taxes and direct transfers from the province,” said Whitzman. “So, infrastructure charges there have been quite low until very recently, but even the increases have been nowhere [near as high], in Montreal for instance, as compared to Toronto or Vancouver.”

It’s a possible course correction to the development charge conundrum exacerbated by decades of provincial downloading that has left municipalities responsible for more than their tax bases can bear, says Whitzman.

And that has left other essential housing priorities on the backburner.

“There’s absolutely no way that municipal governments can pay capital costs, or for that matter, operating costs of nonprofit housing, which is essential infrastructure,” said Whitzman. “It’s just like asking cities to pay for all of the major bridges there or all of the major roads that go between cities.”

“It’s essential national infrastructure during a housing crisis, certainly, but really at all times,” she said.

Whatever a future reform looks like, Saxe points to better community planning as a pillar of managing the costs of growth and infrastructure.

“Until we face up to the fundamental problem of our unwillingness to pay for the communities we build, either by being willing to pay more or changing our approach to housing and infrastructure, this problem is just going to keep coming back, and the longer we put it off, the worse it will be,” said Saxe.

The deadline to apply to the federal-provincial development charge reduction fund is June 19.