There might be a hidden driver behind the high cost of homes in Canada: development charges.
These charges might be raising the cost of homes — depending on city and property type — by eight to 16 per cent, new analysis from the Canada Mortgage and Housing Corporation CMHC) released on Thursday suggests.
A report authored by CMHC chief economist Mathieu Laberge pulls development charge data from 30 municipalities in Ontario, British Columbia, Alberta and Quebec.
“New data collected by CMHC shows development charges account for a significant part of the cost of a new housing unit in some cities. Charges vary greatly across the country both in their magnitude and on how they are charged,” Laberge said in the report.
Development charges on a two-bedroom apartment can vary from about $39,600 per unit in Ottawa to $121,500 in Markham, Ont.
This represents an addition of between 8.2 per cent and 15.7 per cent to the average new condo price, the report found.
For a single-detached home, development charges vary from around $125,000 in Pickering, Ont., to about $180,600 in Toronto, representing between 9.4 per cent and 8.5 per cent of the average single-detached home price.
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“These development taxes are passed on to renters and home buyers,” said Carolyn Whitzman, adjunct professor and senior housing researcher at the University of Toronto’s School of Cities.
The development charges can vary greatly from city to city, the CMHC report found.
“This shows, first of all, how large development charges are in some municipalities, but also the difference in size of development charges. For highrises, for instance, development charges are 15 or 16 times larger in the city of Toronto than they are in the city of Montreal. And that’s a massive difference,” said Mike Moffat, founding director of the Missing Middle Initiative at the University of Ottawa.
The data also shows the inequity in development charges, with apartment buildings paying far more proportionally than single family homes, Moffat said.
“In general, apartment buildings pay far more in development charges than infrastructure that they use. For instance, a lot of apartments pay millions and millions of dollars in parks and library fees, but are put in neighbourhoods where parks and libraries already exist, no new ones are getting built. So a lot of those fees end up going to subsidize other parts of town,” he said.
There are different drivers of development charges depending on the city. For example, in Toronto and Ottawa, 50 per cent of the development charges collected are dedicated to public transit and roads, CMHC found.
On the other hand, water and sewage was the biggest driver (45 per cent) of development charges in Langley, B.C., and in Ontario’s York region.
Despite the increase in costs for the buyer, some experts caution against removing development charges entirely.
“Development charges or development taxes need to be reduced, if not eliminated 100 per cent. But saying to municipalities, ‘You can’t do that anymore,’ is probably not the most productive discussion,” Whitzman said, adding that these charges are an important part of how municipalities earn revenue.
She said the federal and provincial governments have other financial levers they can use to offset some of those losses.
“The whole idea of the Housing Accelerator Fund was funding for infrastructure that was conditional on municipalities making changes to approvals processes, to zoning, and to other ways to enable more housing to be built,” she said.
In much of Canada, zoning laws only allow for either single family homes or highrise apartments. Mid-sized apartment buildings and multiplexes are what policy experts refer to as “missing middle housing.”
Laying out utilities such as water, electricity and gas lines gets more expensive the more spread-out housing is, Moffat said.
Changing zoning laws and building more housing density can bring down utility costs in the long term, he added.
“The way that we build infrastructure in the places we build homes changes the cost per person of various types of infrastructure (such as) roads and water and wastewater. If we build more missing middle housing and don’t build our cities out as much, we don’t need to build as much infrastructure,” Moffat said.
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