Development Charges: Revenue Tool or Economic Drain?

By ReNew Canada 09:57AM March 10, 2011



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When new housing starts go up, who should pay for the infrastructure and services that come along with it? Ultimately, it’s the municipality. Even when developers pay for initial installation of essentials like sewer and watermain systems, street lights, and roads, the municipality  is still on the hook for the long-term maintenance of those assets.

To offset those costs, municipalities have a few financial tools. Among them are development fees. Those are particularly high in the Greater Toronto Area (GTA).

According to two new reports released today—one from the Residential Construction Council of Ontario (RESCON) and another from the Residential and Civil Construction Alliance of Ontario (RCCAO)—it’s ultimately the homeowner who pays for those increased fees. There’s nothing wrong with the public paying the true cost of services like water and power. The issue, according to these reports, is that while development charges are levied on the construction industry result in higher housing prices, putting a strain on local economies.

RESCON’s study argues that higher prices slow demand, reduce employment within the construction industry and suppliers. It estimates that if house prices in the GTA could be reduced by 10 per cent, annual housing starts would increase by 4,500 to 4,750 dwelling units, creating 7,400 new jobs.

The associations also argue that, because development charges are applied on a per unit basis, higher density development pays a higher charge per hectare than low density development, undermining land use policies aimed at intensification, and encouraging sprawl.

“We understand that government must be able to fund the infrastructure investments, but this should not be at the expense of housing affordability,” says Richard Lyall, president of RESCON. “Governments should conduct a cost-benefit analysis each time another housing charge is proposed.”

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