The fees, which are charged to developers and help pay for the associated capital investment required to support new development, are assessed every five years using a long-term formula.
City officials argue that even with the increases, Toronto will still have cheaper development costs than several neighboring municipalities, including Markham, Mississauga and Vaughan.
But at least one representative of the homebuilding industry says costs have now risen too high in Toronto and surrounding communities and risk “killing future projects” at a time when the region is in the midst of a housing crisis.
“It is completely wrong. It’s almost like there’s some group that doesn’t want the housing supply, it’s almost like they want to stop development in Toronto,” Ontario Housing Board President Richard Lyall told CP24 this week. “It will impact builders and developers in terms of their ability to bring projects to market. But the people who are going to be hit the hardest by this are the ones who are barely getting into the market and can only afford housing now. It’s completely irresponsible and it’s disgusting.”
The new development fee framework, which still needs to be approved by the city council later this month, will see the increases phased in over the next two years.
However, by 2024 developers will pay an additional $18,000 for each one-bedroom unit and an additional $35,000 for each unit with two or more bedrooms. Meanwhile, the increase for detached and semi-detached homes would be about $43,000.
City Comptroller Andrew Flynn tells CP24.com the fees are based on the principle that “development pays for development,” but said in reality “legislative restrictions” on development costs mean “development will only pay 55 percent of growth’. in Toronto over the next two decades.
“Toronto is a large and populous city – and it is projected to experience significant growth over the next 30 years. The growth charge study used to inform these rates projects an increase of more than 430,000 people and 185,000 employees in Toronto by 2041. This level of growth requires investment in necessary services and infrastructure related to growth to create integrated communities,” he said in the written statement.
Flynn said investments in “transit, roads and affordable housing” are the “key drivers” of the rate hikes, accounting for about 80 percent of the additional costs. This includes a council target to create 40,000 new affordable homes over the next decade.
Flynn said other major development-related infrastructure projects, such as “the Waterfront Transit Network, the Eglinton East LRT and the Line 1 and Line 2 capacity enhancement projects” are also combining to increase development charges.
But Lyall said the whole “growth pays for growth” approach is “big” when so many people are struggling to access housing in Toronto.
He wants Queen’s Park to step in and set some “substantial standards” for things like development costs, as well as the approval process that can lead to delays for developers who want to put shovels in the ground.
“I know they have a formula and I’m not saying the city doesn’t need money. But that’s not the way to do it. This is hitting our future. It lands on the backs of new owners and new tenants when it really should be spread out into society because when cities grow they create additional wealth and so on for the whole population,” he said. “The whole population benefits from growth and we need growth. Shouldn’t (the cost) be regressive right? It shouldn’t just be leveled on the backs of new home buyers and renters.”
Development fees will range from $52,000 to $137,000
City staff had originally proposed development fee increases that would have averaged a 49 percent increase for residential projects, but reduced the increase to an average of 46 percent after consultation with stakeholders.
The new structure will see developers charged anywhere from $52,000 for a one-bedroom apartment unit to $137,000 for a single-family home at the time they apply for permits.
Staff say the rates are “rooted” at $67 billion in planned capital work over the next two decades, of which $14.9 billion is eligible for potential recovery through development fees.
But the increases will further inflate construction costs in a city where developers were already paying among the highest development fees 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 fees in Toronto account for about 10 to 23.5 percent of construction costs, depending on the type of home.
“There is no doubt that these (charges) add to the cost of a new home. But I think that, you know, 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 ensure that development finance is a fair approach?’ David Wilkes, who is the president and chief executive of the Building Industry and Land Development Association, told CP24 this week. “We cannot use the approaches and funding tools and approval systems of the 1960s and 70s for today’s challenges. What was Einstein’s quote? This insanity is defined as doing the same thing over and over and expecting different results. We have to stop doing the same thing.”
The Mayor plans to make some changes aimed at addressing the concerns
Development costs have risen rapidly in Toronto in recent years, increasing by 80 per cent when they were last reviewed in 2018.
This has led some industry stakeholders like Lyall to call for changes to the system.
He told CP24.com that the level of increases developers are now being forced to pass on to buyers “completely undermines any goal of achieving any kind of meaningful affordable housing goal or just housing goals.”
“It’s delusional,” he said.
However, city officials argue that the fees are simply a “function of growth-related costs – which increase in Toronto along with the level of growth the city experiences.”
They say “growth has continued and been strong in recent years,” despite increases in development fees.
Mayor John Tory is also believed to support the new framework.
His spokesman, Don Pitt, told CP24 the Tories believe the proposed increases “balance the need for growth to pay for growth with the need to ensure we keep building more homes”.
Pitt said that while the Tories would introduce a number of amendments at next week’s executive committee meeting aimed at addressing “concerns about the impact of development charges on small developments, rental construction and affordable housing efforts”, he would support wider recommendations made by staff.
“We 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 the new developments,” he said.
If approved by the city council, half of the proposed increases would go into effect starting in May 2023, while the other half would be phased in next year.
