Ontario’s Development Charge Reform Is Here. What Happens Next?
How development charges became one of the biggest hidden costs driving Ontario’s housing affordability crisis.
Ontario has taken a major step toward development charge reform.
After years of debate, both the federal government and the province have announced measures to reduce development charges, one of the largest hidden costs embedded in the price of a new home. In some Ontario communities, those charges can add to the cost of a newly built home well over $100,000, and in places like York Region, closer to $200,000.
But reducing development charges is only the beginning.
In this episode of The Missing Middle Podcast, Mike Moffatt speaks with Kim Fairley, President of Ontario Real Estate Association (OREA), about what these recent policy changes mean, and what needs to happen next.
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Below is an AI-generated transcript of the Missing Middle podcast, lightly edited.
Mike Moffatt: Development charges can add up to $200,000 in direct costs to the price of a new home in Ontario and add more in indirect costs as they are embedded into the price and assessed GST, PST, and land transfer taxes, creating a tax-on-tax situation. It hasn’t always been this way. DCs used to be relatively modest, but they have risen by over 5,000% in the city of Toronto since the year 2000.
If other prices in our economy had risen at the same rate, a small cup of coffee at a doughnut shop would cost $66, and a new small family-size sedan would cost $1.3 million.
Today, we’ll be talking about development charges and how they could be lowered without increasing property taxes, and the state of Ontario’s housing market, with the president of the Ontario Real Estate Association, Kim Fairley. So, Kim, it’s great to have you here today.
Kim Fairley: Thank you so much for having me. This is wonderful.
Mike Moffatt: Absolutely. Our two organizations back in March worked together on a report called A Pathway to Development Charge Reform, which Alex Beheshti and I coauthored through the Missing Middle Initiative and was published by OREA. The report talks about the importance of reducing development charges and provides seven recommendations on how development charges can be reduced without increasing property taxes.
The very first recommendation in that report was, and I quote, “provide immediate relief to homebuyers and accelerate housing construction through a two-year DC suspension program.” Then, less than two weeks later, the federal government and the province of Ontario announced an agreement that would cut development charges by as much as 50% over three years. Not exactly what the recommendation was calling for, but pretty close. So I want to speak about both the development charge agreement and the HST agreement between the federal government and the province of Ontario. What impact do you see it having on Ontario’s housing market?
Kim Fairley: Great question. I think it’s going to have a lot of great impact on our housing market provincewide. I know that there are different markets within the province, so you’ll see different factors hit all of those areas. But the reality is the government did a fantastic job. We want to commend Premier Ford, Minister Flack, and the federal government for all of those announcements they did a couple of weeks ago.
Is it the exact recommendation? No, but it definitely falls in line with it. We’re really looking to how do we help move that needle along in homeownership and affordable homeownership. The $8.8 billion announcement was huge when it comes to helping municipalities with those development charges, and they’re really geared to helping municipalities that have high ones lower those for the consumers.
It’s a really great program. We’re really hoping that municipalities take that offer up and lower the DCs to help make the housing more affordable for folks in their area and move that needle forward. In regards to the HST announcement, again, another step in the right direction to try to get first-time homebuyers especially into the market. Hopefully the government works with us on some of the other recommendations and maybe expands that to the general public, where those folks could really make a difference. If they expand it, that really opens it up to resale homes.
If I’m a first-time home buyer, I maybe can’t afford that million or $800,000 house. Even with the HST rebate, if it’s expanded out, it really could open that resale area up for first-time homebuyers, which is really huge. I can see it really swing the market provincially in an upward position.
Mike Moffatt: I think it’s going to be positive as well. I was recently on Matt Brown’s podcast with the head of the London area homebuilders, and he was saying that in London they’re already seeing the impact of the HST move. Even with just the HST move, they’re seeing a lot more activity in showrooms and actually increased sales already. You mentioned that this is a different market across the province, but are you hearing that it is having any impact yet?
Kim Fairley: Yeah, I think it does for sure. We’re talking homes up to $130,000 in a price difference. That’s a big deal. Even for me up in Sault Ste. Marie—I’m a northern kid—our new homes average between 600,000 and 700,000. Even for that spectrum, that’s a big difference for people up in the northern areas to have that swing into their favour when it comes to being able to buy that house.
Mike Moffatt: I’m really glad you brought up the Northern Ontario thing because I have to admit, we don’t talk about the northern part of the province enough here on the podcast or at MMI. Beyond just development charges and HST, how different is the northern housing market from the one that most of us know in southern Ontario?
Kim Fairley: It’s different in a lot of ways. Just because your market averages are different, what happens typically in southern Ontario, we normally see the opposite happen in northern Ontario. But it still doesn’t mean that we don’t have the same concerns. Affordability is still affordability.
In Sault Ste. Marie, when we talk about development charges, the Soo is sort of like this little unicorn in the North. There are other northern communities that do have development charges. When it hit us back in the day, the realtors in the Soo came together and realized how much of an impact that would have had. Thankfully, City Council listened at the time.
It’s not to say that other municipalities should take that same way, because we do know that DCs definitely do help with certain things like infrastructure build and things like that. We don’t want to say that we’re totally against that. It’s just for a community like us, we knew it would have such a big impact on that affordability stance, so we’re really happy they took that path.
Mike Moffatt: When I talk about how development charges are too high and point out that they have increased by over 5,000% since 2000 in Toronto, I often get pushback that it’s simply impossible for municipal governments to function without high development charges. But you’ve pointed out that you live in a city that doesn’t have them at all. How is that possible? How is the Soo able to function with basically no development charges?
Kim Fairley: It’s part of that municipal service corporation. For us in Sault Ste. Marie, we do have a public utilities corp, which helps cover that cost of infrastructure build or repair throughout the whole community. We see that bill basically stretched out across everyone, which is really great because the amount of growth in the Soo alone in the last five years has been pretty substantial.
When I’m hearing some of my colleagues across the province go, “building a house is too expensive” — we’ve got all these other things that sort of factor into the way that builds can come apart. For us [in the Soo], we’re seeing that growth be tenfold. We’ve got subdivisions going out left, right and centre, which is fabulous. It’s exactly what our small community needs. Hopefully it can be something to look at for other communities to say, “Let’s work together. How are you doing it? How can we do the same thing for our municipality as well?”
Mike Moffatt: I think there really is that lack of awareness of best practices, and I think there can be issues around awareness of just how high development charges are.
My home town of London, rates are up about 1,000% from the time when I bought a home in 2004. I think I paid about $4,700, and now it’s close to $50,000. That’s not unusual either. Whitby, Mississauga, Markham, Oakville, they’ve all had their DCs rise by 1,000%, 2000%, 3,000% since the year 2000. You go into places like York Region, and the combined effect is about $200,000, so it’s massive.
If they had simply kept up with inflation, we’d probably be talking about maybe $8,000, $10,000, to $12,000, which is still a lot of money but I don’t think we would’ve been working together on a paper if they’d only risen at the rate of inflation over the last 20 to 25 years.
I know you’ve done some polling on this, but do you think the general public is aware how high development charges are in some cities and how quickly they’ve grown?
Kim Fairley: Honestly, I don’t think that the consumers and the public are educated enough about it. The reality is you go to look for a house and that cost is clumped into the ask price for that property. If DCs are something that a municipality needs, then we’re really just asking them to be transparent about it. Show and educate your consumers, your constituents, what those fees are going towards.
There are definitely communities, especially in the western area, that really rely on the DCs to make that infrastructure. That’s fabulous. But just be open and honest. If consumers are really concerned about it, then they know, “Okay, your DC is $10,000 rounded. This is what we’re spending it on.”
We’re hearing that some communities are collecting these DCs and they’re just not sure what to do with them. Do they use it every year? Maybe they’re saving it for a rainy day in an emergency situation. If that’s the case, then just be open. And maybe this is an opportunity with the announcement of the $8.8 billion that those DCs can go down.
Mike Moffatt: I love that word: transparency. There are seven recommendations in this report, and there’s a bunch of sub-recommendations so we could consider it closer to 20, but if we look at the high level, there’s seven.
My absolute favourite one — and this is something that we’ve worked on at the Missing Middle — is around creating transparency when it comes to development charges. It should be a separate line item on the bill that the homebuyer can see. It should be made exempt from GST, PST, and land transfer tax.
My viewpoint is that it’s one thing to ask a homeowner to kick in a few bucks so we can get a library for the neighborhood. I think most people would say that’s reasonable. But why am I paying GST and PST for the privilege of building infrastructure for the neighbourhood or for the town?
That one is my personal favourite. Do you have a particular favourite when it comes to the recommendations?
Kim Fairley: Honestly, all of them are my favourite because they work so well together. It’s one fluid line in my opinion. Transparency obviously is a great one. The hold-off just works really well, especially with the announcements that just came out. It’s really hard to pick and choose one because they work so well together, and can do so much good for these municipalities, for consumers, our buyers, our first-time homebuyers. It’s hard to pick a favourite one but honestly, they’re all great recommendations. We’re really excited.
Mike Moffatt: We are as well. I like that in the report, we focus on efficiency. It’s not just changing what pocket the money comes out of. You mentioned wastewater earlier.
If you change how you fund or finance a wastewater plant — if you put it on a bond to finance that plan — you’re basically financing at a lower interest rate than what we do now, which is putting it on DCs, and it goes onto residential mortgages and raises the price of homes. You can still have the fee assessed to new homeowners, but you’re paying it at a lower interest rate. That’s what a lot of people miss about this debate. They treat it as zero sum, going, “Well, if I’m paying less, that means that you’re paying more.” But in the report, we focus on the idea that we can create efficiencies in the system that is not just moving money out of one pocket into another.
Kim Fairley: Exactly.
Mike Moffatt: Let’s highlight the work of David Coletto over at Abacus. You guys commissioned some polling data — it’s some really interesting stuff. One of the things that jumped out to me is that 71% of Ontarians agree that development charges make housing less affordable. Do you think the public is on board with reducing DCs? I know they’ve done it temporarily, but could we see this be a permanent thing?
Kim Fairley: Yes. I think the public is more aware of what DCs could actually mean. Before, we talked about the transparency aspect and outlining those, but I think in general, because data is at our fingertips and both the federal and provincial governments are talking about housing and housing affordability, DCs are starting to become a very popular topic of conversation. So yes, I think the public is interested in having those DCs reduced because it helps with the overall concept of affordability in general — not just on housing. We’re talking groceries, bills, expenses in your everyday life, gas — goodness knows what gas is going to get to before the end of this summer, but these are all major concerns that wrap themselves up together.
Mike Moffatt: I feel like the conversation has changed. Five years ago, I used to talk about developments charges and I would have to explain to people what they are. Nowadays, they’re like, “Yeah, we get it, Mike. We might disagree or agree with you but at least we understand what you’re talking about.”
If we go back to the polling, are there any other results you’d like to highlight?
Kim Fairley: The polling pointed out that 2 in 5 Ontarians are really concerned with the cost of DCs being pushed onto homebuyers. It just really ties back to affordability. What is it going to look like?
We’re finding the generation of homebuyers is getting younger, and those younger folks are more concerned.
I’ve got an 18 and a 20-year-old sitting at home, and my 20-year-old says, “Mom, I don’t know if I’m ever going to be able to afford a house.” She’s really concerned and she fits right into that polling. She’s 20, about to be 21. I was 24 when I bought my first house and had no second thought on whether things would be affordable to this degree. It’s a whole new spectrum of folks.
We’re also seeing that it’s not a partisan thing. Before, governments would have certain conversations around election time. But this is a concern across all of our major parties. It’s really a big deal to be talking about it. It’s really an awesome thing to see that all of them are on board to try to make some change. Some really cool information came from that polling.
Mike Moffatt: Absolutely.
I’m delighted by the policy itself, but the fact that you’ve got a Liberal Prime Minister working with a Progressive Conservative Premier to lower development charges in cities like Toronto and Hamilton that have former New Democrat mayors. It is great to see. Governments can work together even if they’re of different partisan stripes.
Kim Fairley: It’s really cool to see the collaboration these days. It’s a testament to show that these governments as a whole, all the parties, are really looking towards the best interest of the consumers in Ontario, which is a really nice thing.
Mike Moffatt: I think it’s great too. There’s so much conflict going on in the world, so when you have people who don’t always agree but are still working together to get things done, that’s fantastic.
My final question is about thoughts or predictions — policy related or market related. What are you thinking about for the next 6 to 18 months when it comes to housing in Ontario?
Kim Fairley: I think the general consensus will be : are our municipalities taking up that funding to help lower DCs? Is it helping their market improve? Is it helping builders get into the market as well, offering first-time homebuyers options? Not every municipality has that issue. For me, up in the North, we’ve got an influx of subdivisions, so that’s not a major concern, but there are areas where getting these builds done is a huge problem. I’m really hopeful and optimistic that some of these big announcements are really going to move the market forward and just rebalance everything as well when it comes to market and pricing, and bring us back to a steady market rather than an off-kilter one.
Mike Moffatt: I couldn’t agree more. I think that you point you made where there’s still work to be done particularly on development charges, on implementing this, is an important message to leave off on.
We can’t put up the “Mission Accomplished” banner too quickly here. There’s still a lot of hard work.
Thank you so much for being on today. This was a fantastic chat and I’m excited to have somebody on from Northern Ontario because it is a geography we don’t speak about enough, so thank you for sharing your viewpoint on life in the north.
Kim Fairley: Thank you. The opportunity is amazing. Thank you for reaching out and working with us especially on these reports.
Big thank you for asking at least a little bit about the North too. It’s not to take away from our big cities, because there are definitely things that trickle from the big cities down to us, and we see that happen years to months later, so it’s really important to still advocate on their behalf. But I appreciate that you’re putting a little love to the North as well.
Mike Moffatt: Thank you for being here, Kim. And thank you to our audience for watching and listening. Thanks to this episode’s producer, Cara Stern, and our editor, Sean Foreman.
If you have any thoughts or questions about $66 cups of coffee, please send us an email to [email protected], and we’ll see you next time.
Additional Reading/Listening that Helped Inform the Episode:
How to Lower Development Charges Without Raising Property Taxes