By Tracy Hanes
New study suggests how to bring development charges back down to earth
The January 2025 housing data for the Hamilton CMA (Census Metropolitan Area) was genuinely shocking.
The CMA, which includes the cities of Hamilton, Burlington and Grimsby, had just 30 new housing starts in January—the lowest total in the decade by a long shot, according to West End Home Builders’ Association CEO Mike Collins-Williams.
“It is atrocious, as this is the third-largest region in the province after Toronto and Ottawa, and we are supposed to be in the top 10 in Canada,” says Collins-Williams. “I’m concerned these numbers will get worse.”
Although several factors have contributed to Hamilton’s housing crisis, such as inflation rising by 30% over the past decade, development fees have skyrocketed 227% in Hamilton over the same period, with 87% of that increase since 2021.
Development charges (DCs) have long been a significant pain point for developers and builders throughout the province. Between 2011 and 2023, DCs rose by an average of 176% in the Greater Toronto Area for a single detached home, and it has been worse in many other jurisdictions. Consider the following sample over the same period: Oshawa—up 278% to $100,115 per detached home; Caledon—up 275% to $132,480; Barrie—up 228% to $89,498; Ottawa—up 101% to $46,993; Kitchener up 220% to $68,761.
At the same time, the City of Toronto’s development charges soared 592%. In July 2022, Toronto Council approved a 46% DC hike for new residential buildings, with the increase phased in over the following two years.
The old concept of ‘growth paying for growth’ has been bastardized beyond recognition, Collins-Williams says. “Broadly speaking, 20 years ago, the notion referred to infrastructure with a direct nexus to the homes being levied a development charge. But it has gotten out of control to mean something different today, with all kinds of additional items included, while minimizing the real benefits that existing residents are contributing toward. It’s completely detached from economic reality and actual growth-related infrastructure.”
BILD and the Ontario Home Builders’ Association commissioned Keleher Planning & Economic Consulting Inc. (KPEC) to prepare a report titled The State of DCs in Ontario – Recommendations for Fine-Tuning and Overhauling Ontario’s Development Charges System. Authored by KPEC Principal Daryl Keleher, a professional land economist and registered professional planner, the report recommends modernizing the DC system. It would result in a structural lowering of the fees, thus helping reduce housing costs and making the system more efficient.
The report says the Development Charges Act, with its accompanying regulations, functions well as a legal system with respect to managing and allocating responsibility for funding growth-related capital works in the province. Removing DCs solely to reduce developers’ costs would be counterproductive if replaced with a more informal, negotiation-based approach, as the Act provides important checks and balances.
While numerous shortcomings in the Act are highlighted, Keleher says “surprisingly minor tweaks” to the legislation and regulations would notably modernize the current DC system.
Alex Beheshti, a consultant specializing in urban planning and land economics who previously worked with Keleher, says Keleher “did an excellent job with the report” and that it provides a path to technical fixes.
That list includes the following recommendations:
•Eliminate upfront payments for sewer and water works through DCs. Use public or private-sector debt capacity to transfer these costs to an amortization payment made through a monthly surcharge on new homes.
•Remove land from ‘level of service’ calculations used to set DC rate caps to mitigate the undue influence higher land values have on DC rates. This would reorient DCs to adjust more closely to the pace of inflation for buildings and equipment rather than being susceptible to land value escalation.
•Limit the inclusion of capital costs to acquire land in DC capital programs to actual expenses only, rather than projections of the value of future lands that may need to be acquired, which are prone to overestimation. Using actuals rather than 10- to 25-year projections of land acquisition needs would better recognize the numerous other tools available to municipalities to acquire land and ‘shrink wrap’ the inclusion of costs recovered through DCs to only those that are incurred.
•Reduce subjectivity in DC calculations and implementation. Mandate the preparation of local service policies, features and necessary inclusions and ensure they are clear and easily interpreted.
•Allow pooling of capital costs for DC credits, such as merging ‘roads’ and ‘transit’ and certain soft services for purposes of calculating DC credit room.
•Require provincial oversight and approval of key elements of DC studies.
A key recommendation is that Ontario adopt a sewer and water cost recovery system similar to the State of Texas’s Municipal Utility District system (MUD) used by more than 1,300 special districts (a similar model is used in Quebec and Florida). The model could be used on a municipal-wide basis or for specifically defined sub-areas within a municipality. The MUD model would take estimated capital water/sewer works costs out of upfront DCs and amortize those over the long term until the debt is paid off.
The report’s suggestions are not about reinventing the wheel; they’re about taking away upfront DCs and shifting how the costs are imposed, Keleher assures. “It has a lot of benefits for home builders, buyers and municipalities.”
Under the current system, water and sewer costs are estimated for 20 to 25 years in the future, explains Keleher. “The upfront DCs allow municipalities to build new infrastructure. The municipality often borrows to build these. DCs pay upfront for all that capital, although the money is borrowed and paid back long-term.”
Currently, that capital is included in DC charges, embedding it into new-home prices and increasing mortgage amounts for homebuyers. With the suggested model, municipalities would collect the costs through surcharges on homeowner utility bills, matching the payback period for the debt used to finance the capital works in the first place.
“Frankly, it’s how we pay for other utilities,” says Collins-Williams. “There are no natural gas or electrical development charges in Ontario. The infrastructure for maintaining and expanding those systems is built into the monthly rate and spread among users. It’s paid for over time rather than upfront.”
Getting the Right Fit
The report also recommends “right-sizing” how land values affect DCs. Under the existing system, the influence of land values is becoming disproportionate. This creates a negative cycle in which higher land values, driven by a shortage of housing supply, put upward pressure on DC rates, further hindering supply.
Keleher says there is “cap room” that DCs must stay within, but as land values escalate, so does the available cap room. That, in turn, allows municipalities to hike DC rates—especially in the GTA—whether or not the functional service level (square feet per capita) is increasing.
Making more explicit policies would help ensure that new home buyers are not paying (through DCs) for things existing homeowners benefit from. In Hamilton, DCs have been used to finance things such as a landfill site, airport expansion and municipal parking, notes Collins-Williams. In Kitchener-Waterloo, a $144 million athletic facility with an Olympic-sized swimming pool was primarily funded by $126.2 million in DCs, with no local taxpayer money used, as reported by The Globe & Mail.
Beheshti prepared the Canadian Home Builders’ Association (CHBA) 2024 Municipal Benchmarking Study, which was released in March 2025. The study examines how development processes, approvals and charges impact housing affordability and supply in major markets nationwide. Beheshti says overall fees have increased, from DCs and parkland dedication to community amenity charges.
“The total fees municipalities tax on housing are based on a combination of various charges. Some fees, like community benefit charges, are taxed based on land values and so move in the general direction of the real estate sector. If there is less market activity, like we’re currently seeing with the decline in home building, then this portion of municipal fees likewise typically comes down in step with land appraisals,” says Beheshti. “However, the taxation room freed up from lower land taxes was more than made up for by increases in development charges, which are not market-based, and so the total overall municipal tax burden on homes has gone up.
“This is a huge problem, and planning cannot operate at the speed of markets,” Beheshti adds. “Markets have their own way of naturally recovering; if the market goes down, costs go down, and someone can come in and rebuild.”
Beheshti says that because fees such as DCs are not decreasing, the market is dysfunctional, and developers are unable to provide competitive pricing because their costs are not dropping. Thus, release valves become bankruptcies, which leads to job losses in the housing industry and fire sales on land.
Keleher says it’s time to have increased provincial oversight of DCs. Over the years, he has done peer reviews on DCs for home builders, development associations and industry groups in 84 different municipalities. He says there is a lack of oversight from the province, and the only scrutiny these DC bylaws receive is through third-party peer reviewers. While the province does provide oversight for Education Development Charges, which go through Ministry of Education approval, no such system exists for municipalities and DCs. “Given how high DC rates are, it’s time for the province to have some kind of oversight,” Keleher observes. “It’s an important planning policy and can affect whether there is or isn’t growth.”
Collins-Williams says the current system has “sliding systems that go all over the place” and agrees it would be beneficial to have stronger provincial oversight and more rules so there is consistency in how DCs are calculated. “Let’s dig in,” he notes, “so that it’s not ‘fun with numbers.’”
Collins-Williams says that as housing prices are a priority of the federal and provincial governments, and that growth-related infrastructure will be required, representatives of all levels of government must be involved in the major pieces of regional and city infrastructure if we are to enable growth and benefit existing communities.
“We need the federal and provincial governments to step up,” he says. “It’s profoundly unfair that infrastructure built to last for generations is being downloaded to mortgages for first-time buyers and newcomers.”
What is also aggravating, according to Collins-Williams, is that HST is applied on top of DCs, meaning an additional 13% (or $13,000 in the case of a $100,000 DC) is added on top. “You apply taxes to things like booze and cigarettes to discourage consumption. These taxes are discouraging homes from getting built!
“The entire DC system needs an overhaul,” Collins-Williams says. “There needs to be more consistency in how the rules are applied. DCs aren’t all black and white. There is a lot of grey area.”
Still, there have been some bright spots. Collins-Williams says Burlington was the first Ontario city to cut fees, albeit not significantly. Mississauga has also made major cuts. And the City of Brampton has launched Ontario’s most ambitious office development incentive program, waiving DCs for all office and mixed-use projects to attract investment and support job creation.
In November 2024, the City of Vaughan approved reductions to DCs, reverting rates for residential development applications to those used on September 21, 2018. These rates will be in effect for five years, until November 19, 2029. The DC rate for low-rise residential was $94,466 prior to the announcement and is now $50,193.
“Development charges have become an unfair tax burden on homebuyers,” says Vaughan Mayor Steven Del Duca. “Too many of our residents, particularly young families in our community, have seen their dream of buying a home near where they grew up disappear completely as housing prices have spiralled out of control. We have a housing affordability crisis, and it’s time for us to get real about the solutions needed to solve it.
“Vaughan was one of the first municipalities to reduce our development charges to help tackle the housing crisis,” Del Duca adds. “I called on other cities to follow Vaughan’s lead, and since then, other municipalities have implemented similar reductions in their development charges.”
Perspective is important, though. While Vaughan has substantially lowered its DCs, Beheshti notes that the city and York Region’s combined high charges still result in high fees.
In March, Toronto Mayor Olivia Chow’s Executive Committee Deputy City Manager Jag Sharma and CFO Stephen Conforti proposed that select condo builders be allowed to defer development charges for up to four years without interest. The move is meant to lower the upfront money needed for projects, as many are stalled by high borrowing and building costs. However, eligible projects would need to include at least 5% affordable housing, whether lower-cost rentals or owned homes. They must also submit a completed site plan for their proposed development before March 1, meaning only projects already in the works would qualify.
Other Fees
The CHBA study, meanwhile, benchmarked municipalities based on fees charged for new residential development, the length of time required for residential development applications to move through the process, and features that help applicants navigate the development application process.
Edmonton, Halifax, and London ranked highest overall, and those cities are “booming,” according to Beheshti. Of the 10 lowest ranked, seven are in Ontario. The four lowest ranked are Toronto, Bradford West Gwillimbury, Markham and Pickering, due to lengthy approval processes and high fees on development applications and residential developments. Municipalities that take a long time to approve projects plus have high fees, including DCs, have “poor outcomes” and affordability issues, says Beheshti.
Keleher believes DCs are the biggest needle mover in terms of housing supply. “We’ve got to get creative and look at the entire system,” he says. “DCs aren’t going away. Let’s focus on things like what needs to be paid upfront versus paid over time, and what nuances in the legislation may be inflating calculated rates beyond what the true costs are. Due to the speculative nature of future land values, there is an artificial increase in all DCs. It’s a tweak rather than a total system change, but we have to look at everything.”
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