Housing construction costs in Toronto will soon rise by tens of thousands of dollars per unit as the city raises development fees by nearly 50 per cent.
The fees, which are charged to developers and help pay for the associated capital investment needed to support new development, are assessed every five years using a long-term formula.
City officials say even with the increases, Toronto will still have cheaper development fees than several neighboring municipalities, including Markham, Mississauga and Vaughan.
But at least one housing industry official says costs have now risen too steeply in Toronto and surrounding communities and risk “killing future projects” at a time when the region is in a housing crisis.
“It’s just completely wrong. It’s almost like there’s some group that doesn’t want housing, it’s almost like they want to stop growth in Toronto,” Housing Board of Ontario president Richard Lyle told CP24 this week. “This will affect builders and developers in terms of their ability to bring projects to market. But the people who will be hit the hardest by this are those who are barely getting into the market and are just now able to afford housing. This is completely irresponsible and appalling.”
The new development fee framework, which still needs to be approved by the City Council later this month, will see gradual increases 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 single-family and two-family homes will be approximately $43,000.
City Comptroller Andrew Flynn tells CP24.com that the fees are based on the principle that “growth pays for growth,” but he said that in reality, “legislative restrictions” around development fees mean that “growth will only pay for 55 percent of growth’ in Toronto over the next two decades.
“Toronto is a large and crowded city – and it is projected to experience significant growth over the next 30 years. The development levy study that was used to inform these levels projects an increase of more than 430,000 people and 185,000 employees in Toronto by 2041. This level of growth requires investment in the necessary services and infrastructure associated with the growth to to create whole communities,” he said in a written statement.
Flynn said investments in “transit, roads and affordable housing” were the “key drivers” of the rate hike, which accounted for about 80 percent of the added spending. This includes the city council’s target of creating 40,000 new affordable homes over the next decade.
Flynn said other significant growth-related infrastructure projects such as the “Waterfront Transit Network, Eglinton East LRT and the Line 1 and Line 2 capacity improvement projects” are also combining to increase development fees.
But Lyall said the whole “growth pays for growth” approach is “nonsense” when so many people are struggling to access housing in Toronto.
He wants Queen’s Park to step in and set some “meaningful standards” for things like development fees and the approval process, which could cause delays for developers looking to put shovels in the ground.
“I know they have a formula and I’m not saying the city doesn’t need the money. But that’s not the way to do it. This is hitting our future. It lands on the backs of new homeowners and new renters when it should really be spreading to society because as cities grow, they create additional wealth and so on for the entire population,” he said. “The whole population benefits from growth and we need growth. It (price) shouldn’t be regressive, right? It shouldn’t be thrown solely on the backs of new home buyers and renters.”
Development fees will range from $52,000 to $137,000
City staff initially proposed a development fee increase that would have reached an average increase of 49 percent for residential projects, but reduced the increase to an average of 46 percent after consulting with stakeholders.
The new structure will see developers charged anywhere from $52,000 for a one-bedroom apartment to $137,000 for a detached house at the time they apply for permits.
Staff says the rates are “rooted” in $67 billion in planned capital activities 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 actually revealed that developers in Toronto are paying $86 per square foot in government fees, compared to $70 in Vancouver and $24 in Montreal.
The report says fees in Toronto account for about 10 to 23.5 percent of construction costs, depending on the type of home.
“There’s no question that these (fees) add to the cost of a new home. But I think there’s an immediate story, but there’s also a bigger story, and I think the really important thing we have to look at here is how do we fund growth? How do we ensure that financing growth is a fair approach?” David Wilkes, who is president and CEO of the Construction Industry and Land Development Association, told CP24 this week. “We cannot use the funding approaches and tools and approval systems of the 1960s and 1970s for today’s challenges. What was Einstein’s catchphrase? This insanity is defined as doing the same thing over and over again and expecting different results. We have to stop doing the same thing.”
The mayor plans to make some changes aimed at addressing the issues
Development fees have risen rapidly in Toronto in recent years, climbing 80 percent the last time they were reviewed in 2018.
This has led some industry stakeholders such as 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 goals of achieving any kind of meaningful affordable housing goal or just housing goals.”
“It’s a fallacy,” he said.
However, city officials say the fees are simply “a function of growth-related costs — which are rising in Toronto along with the level of growth the city is experiencing.”
They say “development has continued and been strong over the past few years” despite increases in development fees.
Mayor John Tory is also understood to support the new framework.
His spokesman Don Peat told CP24 that Tory believes the proposed increases ultimately “balance the need for growth to pay for growth with the need to ensure we continue to build more homes.”
Peet said that while the Tories would table some amendments at next week’s executive committee meeting aimed at addressing “concerns about the impact of development charges around small developments, rental construction and affordable housing efforts”, he would support -the broad recommendations made by the staff,
“We really 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 in May 2023 and the other half would be phased in next year.
Add Comment