How Development Fees are Impacting Housing Affordability

Canada is home to some of the most stunning landscapes and vibrant urban centers, yet the nation grapples with a common issue: housing affordability. While discussions often center around supply shortages and rising demand, an overlooked factor contributing to these soaring prices is how development levies are structured across the country.

Development Fees Driving Up Costs

The combination of Development Cost Charges (DCCs), Community Amenity Contributions (CACs), and other municipal fees have become a heavy burden on developers, who often pass these costs along to homebuyers. Across Canada, these fees are applied unevenly and are often based on outdated or insufficient data, leading to additional costs that impact affordability.

Case Study: Ontario’s Shortfalls in Housing Starts 

In Ontario, the province’s ambitious goal of building 1.5 million homes by 2031 has hit a stumbling block, with the province recently downgrading its housing start projections for the next few years. Instead of the planned 125,000 new homes in 2024, projections have been lowered to 81,300 units, due to high interest rates, elevated construction costs, and development-related expenses. In response, a coalition of Ontario developers has called on the government to reduce the fees imposed on new developments, arguing that these costs are ultimately passed down to buyers, making homes less affordable. The coalition contends that reducing these fees could stimulate construction by making development more economically viable and more affordable for buyers.

Vancouver’s “Growth for Growth” Strategy

While Ontario struggles with housing starts, Vancouver’s strategy takes a different approach, focusing on revenue generation through development charges without directly addressing affordability. The city’s “growth for growth” strategy—where revenue is maximized through charges on new housing—prioritizes generating income from development. This approach relies on various fees, such as DCCs, CACs, and Land Transfer Taxes, imposed on new developments. While these fees are intended to fund infrastructure and community improvements, they often increase the cost of building, which limits the supply of new housing. 

As a result, these added expenses are frequently passed along to buyers and renters in the form of higher purchase prices or rents, putting more financial pressure on those entering the housing market. For investors and homeowners, it maintains property values, yet for new entrants, it adds significant financial hurdles, underscoring the need to balance growth goals with affordability considerations. In cities like Toronto and Vancouver, these dynamics can enhance the appeal of real estate as an investment due to relatively low carrying costs.

Developers Choosing the US over Many Canadian Cities

Across BC, high development costs and risks are also pushing developers away, with many opting for US or Alberta projects where conditions are more favorable. Contractors face skilled labor shortages, high wages, and payment uncertainties, slowing progress on essential developments. This trend worsens Canada’s housing supply shortage as fewer projects replace those winding down.

A significant number of developers are now deciding to break ground in the US rather than Canada, attracted by greater investment stability and faster project timelines. Increased development fees, labor shortages, and complex regulations driven by municipalities and cities further complicate development in Canada, worsening affordability for homebuyers.

The Future of Housing Affordability

In cities like Calgary and Edmonton, there have been efforts to mitigate these costs through innovative incentives, such as fee waivers or rebates for developments near transit hubs or for projects meeting affordable housing criteria.

Vaughan, Ontario, has taken a significant step toward addressing housing affordability, with city council recently approving reductions to its development charges—previously among the highest in the Greater Toronto Area. The City is also collaborating with government partners at all levels to secure investments in the services and infrastructure needed to support increased home construction.

Without comprehensive reforms, Canada's current development fee structures will continue exacerbating housing affordability issues. Recognizing the impact of fees applied to building new housing must be included in housing conversations, especially as Canada risks further deepening the divide between homeowners and those pushing to enter the market. 

To confront this challenge head-on, national and local governments must collaborate on bold and innovative solutions that prioritize affordability and access for all Canadians.

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Sources

Basra, M. (2024, August 18). Understanding Speculative Real Estate Investments in Canada: Risks, Rewards, and Strategies. Manvir Basra. Retrieved October 24, 2024, from https://manvirbasra.com/real-estate/understanding-speculative-real-estate-investments-in-canada-risks-rewards-and-strategies/#:~:text=Speculative%20real%20estate%20investments%20are,investing%20has%20become%20increasingly%20common 

Casey, L., & Jones, A. (2024, August 1). Ontario developers demand tax cuts to boost home affordability. CBC. Retrieved October 24, 2024, from https://www.cbc.ca/news/canada/toronto/ontario-developer-coalition-tax-breaks-homebuyers-1.7282118 

The City of Calgary. (2024, September 19). City relaunches popular Downtown Development Incentive Program with ambitious focus on housing. City of Calgary Newsroom. Retrieved October 24, 2024, from https://newsroom.calgary.ca/city-relaunches-popular-downtown-development-incentive-program-with-ambitious-focus-on-housing/

City of Vaughan. (2024, November 19). Making housing more affordable for families. Vaughan. Retrieved November 20, 2024, from https://www.vaughan.ca/news/making-housing-more-affordable-families 

Wvong, R. (2024, January 10). Why are Vancouver's property taxes so low? Vancouver Needs More Housing. Retrieved October 24, 2024, from https://morehousing.substack.com/p/free-lunch

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