Development Charges are Artificially High Due to Failure to Plan for 1.5 Million Homes
Municipal goals and plans are two very different things
Highlights
Ontario has set a goal of building 1.5 million homes over ten years, including individual targets for 50 municipalities.
Municipalities are opting not to incorporate these targets in their planning, including in their development charge background studies.
Failure to incorporate targets into planning makes it less likely that Ontario will build the needed homes while also keeping development charge rates higher than they otherwise would be.
The province of Ontario set an explicit goal to build 1.5 million homes over a 10-year period, from 2022 to 2031. This 1.5-million goal was then divided across 50 different municipalities, giving each city an individualized target.
Ontario did not require municipalities to incorporate these targets in their planning, as they did with the now-defunct Growth Plan. As a result, most municipalities have disregarded the targets and instead employed less ambitious housing growth forecasts in their planning.
Not only does the adoption of lower targets make it far less likely that the province will achieve their 1.5 million home target, but failure to adopt the higher targets also keeps development charges higher than they otherwise would be due to the way DC rates are calculated.
The province sets a goal
In February 2022, Ontario’s Housing Affordability Taskforce provided 55 recommendations to help solve the housing crisis, with the first being that the government should “[s]et a goal of building 1.5 million new homes in ten years.”
The province quickly adopted this target in its communications, including in Budget 2022 that spring. The first disbursement of individual municipal targets occurred in October 2022, when the province released a bulletin on the Environmental Registry of Ontario (ERO). This ERO bulletin provided individual municipal ten-year housing targets for 29 cities, similar to the regional allocations in our October 2021 report, Baby Needs A New Home. However, unlike that report and our follow-up Ontario’s Need for 1.5 Million More Homes and Ontario’s Need for 1.7 Million More Homes: An Update reports, the province did not show how it arrived at the 1.5 million homes target, nor how it determined the target for individual municipalities.
Each of the original 29 municipalities was then required to submit a municipal housing pledge by the end of March 2023, committing them to the province's housing target and providing a general outline of how they intended to meet that target. Twenty-eight out of the original 29 municipalities provided the required pledge, with only Newmarket refusing to submit a signed pledge.
Later, the province added another 21 municipalities with a similar pledge process and rewards, bringing the total number of municipalities with a housing target to 50 and a collective total of 1.5 million homes.
Mayors of municipalities that signed a pledge received strong mayor powers, which allowed them to pass zoning changes without a majority of council votes, along with other enhanced executive abilities. In addition, municipalities that passed housing pledges would be eligible to receive financial rewards from the Building Faster Fund (BFF), a 3-year $400 million per year ($1.2 billion total) reward program that provides municipalities with funds that met or exceeded their provincial housing targets. The province has also built a monthly tracker to monitor progress against the goal; however, it has not updated it since late last year.
Beyond these two incentives, municipalities were not required to incorporate these targets in their planning and development charge (DC) background studies.
Cities are ignoring their housing targets in DC Background studies
Four municipalities—Ajax Brampton, Kingston, and Ottawa—recently updated their development charge (DC) background studies. Cities are periodically required to do this to be legally allowed to charge DCs for housing. The updated studies were published between July 19, 2024, and December 17, 2024, well over 600 days after those municipalities were assigned their targets from the province.
In none of the four DC background studies did the annual average number of planned units match the provincially assigned target. As with the provincial targets, we counted institutional and off-campus housing as a ‘home’ if the study provided those numbers to ensure an apples-to-apples comparison.
In three of the four background studies, the planned number of units was substantially lower than the provincially assigned target. Kingston, however, chose a forecast that exceeded the provincially assigned target.
Figure 1: Annual housing start targets for four Ontario municipalities
Sources: Ontario’s housing supply progress tracker, DC background studies
It is important to note that while ambitious homebuilding targets in development charge studies are necessary, they are not sufficient. The City must still ensure the other conditions are in place for development. The provincial tracker shows that none of our four cities are on pace to hit their 2024 homebuilding target. This underdevelopment also includes the City of Kingston, whose DC Background study has a homebuilding forecast that exceeds the provincial target.
Figure 2: 2024 housing supply progress, four municipalities
Source: Ontario’s housing supply progress tracker
Cities are being transparent that they are ignoring provincial targets in planning
Brampton’s DC background study is explicit that the City is opting to ignore provincial targets in their planning:
“It should be noted that the forecasts used in this DC Study do not incorporate the Provincial housing target for the City of Brampton which is 113,000 new housing units in the 10-year period to 2031. At this time, the City’s infrastructure master plans have not yet been updated to reflect new infrastructure needs arising from the housing pledge. It is anticipated that this growth and associated infrastructure needs will be incorporated in future DC Study updates.”
The province is currently in the fourth year of a ten-year goal to build 1.5 million homes, but municipalities are still only planning to build a fraction of that. The province cannot hit its target if large cities like Brampton and Ottawa, in year four of a 10-year goal, still plan to build half as many homes as required. There is not enough time left to catch up.
Failure to incorporate these targets also keeps development charges higher than they otherwise would be
Development charge rates are calculated by spreading eligible infrastructure costs over the planned number of units. All else being equal, the fewer number of planned units in the denominator of the formula, the higher the rates. If municipalities were required to increase their planned number of units to, at a minimum, meet their provincially assigned targets, development charge rates would decrease. The incentives that the province has put in place, such as the Building Faster Fund, are clearly insufficient to incentivize municipalities to adopt provincial housing targets in their planning.
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