Ontario Construction News staff writer
A new report by The Conference Board of Canada delves into the complexities of development charges and their impact on Canada’s housing market. The report, titled “Balancing Growth and Affordability: The Pros and Pitfalls of Development Charges in Canada’s Housing Market,” provides a comprehensive analysis of development charges, examining their benefits, drawbacks, and overall effect on housing affordability.
Development charges, which are fees imposed on developers to fund infrastructure such as roads, waterworks, libraries, and parks, have become a contentious issue in Canada. The report highlights the debate between those who argue that all taxpayers should fund infrastructure and those who believe that new residential areas should bear the costs through development charges.
“Policy-makers have waded in, arguing that development charges boost house prices and impair affordability for voters,” the report states.
The federal government has also taken a stance on the issue. “For instance, the federal government made freezing municipal development charges at April 2024 levels a precondition of receiving a share of infrastructure funds unveiled in the 2024 federal budget,” the report points out. This condition has sparked controversy, with some municipalities prepared to forgo federal funding rather than relinquish this revenue stream.
The good, the bad, and the ugly of Development Charges
The report provides a balanced view of development charges, outlining their potential benefits and significant drawbacks.
The good:
- The report acknowledges that development charges can finance the overbuilding of infrastructure to accommodate future growth.
- They can potentially recapture developers’ windfall rezoning profits.
- Development charges can also help contain urban sprawl.
- The report states that “development charges are politically attractive.” They shift the costs of new housing development from existing homeowners to new homebuyers, are not directly observable like property taxes, and can build political support for new development in a community.
The bad:
- However, the report also emphasizes that “development charges can create inequalities between existing homeowners and new homebuyers.”
- New buyers may end up paying for infrastructure primarily used by existing homeowners.
- Existing homeowners benefit from higher house prices and reduced property taxes, while new buyers face higher home prices.
The ugly:
- The most significant concern raised in the report is that “development charges are reducing housing affordability.”
- The report establishes “there is a positive correlation between home prices and development fees.”
- Furthermore, the report notes that while development charges are intended to fund new physical infrastructure, “in practice, municipalities sometimes divert them to non-infrastructure expenses.”
- This “mission creep” undermines their purpose and public trust.
Recommendations for a balanced approach
The report concludes by offering several recommendations for a more balanced and equitable use of development charges.
Given the benefits and drawbacks, the report recommends that development charges be used judiciously. In particular, it suggests that development charges should be used only to provide new physical subdivision infrastructure and should not flow into general revenue.
To ensure transparency and fairness, the report recommends that the share of development charges relative to home prices should be capped and clearly demarcated in home purchase agreements. Additionally, their levels and use should be publicly disclosed and debated, and the use of associated reserve funds should be carefully monitored.
“Ultimately, the best infrastructure financing solution should come from a mix of general municipal revenue and development charges, with their respective contributions regularly scrutinized in public,” the report concludes.
Gemini.Google.com artificial intelligence assisted in writing this story.
