The $1.5 Billion Question: Can Ottawa Really Cut Development Charges in Half?
Seven design challenges the federal government must solve to make its housing promise work
Highlights
The federal government has committed to halving municipal development charges for multi-unit residential housing. Implementing this promise will prove challenging, so we have provided seven considerations to aid in the design of such a program.
First, $1.5 billion doesn’t go very far; the government must optimize every single dollar.
Second, the federal government needs to clarify how “multi-unit residential” is defined.
Third, the plan needs to be regionally fair and not punish cities that have held the line on development charge increases.
Fourth, the plan must recognize that a homebuilder often must pay development charges to multiple governments.
Fifth, the federal government must not allow development charge increases by stealth.
Sixth, the federal government must be transparent about the agreements it has signed and enforce them.
Seventh, the federal government must ensure that municipalities give it the data on which to make informed decisions.
Moving from campaign promise to implemented policy
Earlier this week, we discussed how little we know about the federal government’s plan to halve development charges on multi-unit residential properties, but through some digging, we were able to piece together ten key points about the plan.
Eventually, the federal government will want to institute reforms that live up to the spirit of the campaign promise. In an effort to be helpful, the MMI team has compiled seven key considerations that the federal government should consider when implementing a development charge reduction plan.
1. $1.5 billion doesn’t go very far; the government must optimize every single dollar
During the federal election, the Liberals committed $1.5 billion per year to development charge reduction, representing one-quarter of the planned expenditures on their housing platform.
The idea that a billion dollars doesn’t go very far seems absurd, but once it gets divided across nearly 200,000 annual housing starts, the per-unit reduction is quite small. The federal government will need to find ways to leverage this money so that each dollar leads to several dollars’ worth of savings. One way is through instituting a direct-to-buyer development charge system; in our Vancouver example, for every $1 reduction in government tax revenue, the savings to the homebuyer were over $2. Through creativity, the federal government can find ways to structure payments so its program goes beyond simply shifting a dollar from municipal balance sheets to the federal one.
2. The federal government needs to clarify how “multi-unit residential” is defined.
It is not yet clear how the federal government defines multi-unit residential for the development charge cut. Does it include townhouses? Sixplexes? Fourplexes? Duplexes? The broader the definition, the more expensive the plan (or the lower the cut for each unit). However, it would be unusual if the federal government disallowed fourplexes and sixplexes from qualifying, given the significant emphasis the Housing Accelerator Fund places on them.
3. The plan needs to be regionally fair and not punish cities that have held the line on development charge increases
Because development charges are significantly higher in the Greater Toronto and Greater Vancouver Areas than in the rest of the country, a dollar-for-dollar reduction compensation plan would result in almost all of the $1.5 billion being allocated to those two metros, leaving very little for the rest of the country. It would also perversely punish municipalities that held the line on development charge increases, and reward cities that loaded up their development charge systems with projects unrelated to growth, or amassed massive unspent reserves.
The government will need to be creative in structuring a reduction that is regionally fair and does not penalize municipalities that have acted responsibly. One way the federal government could do this is to require each city to freeze and lower its development charges by $10,000, in the spirit of what Mike and Cara proposed in a March 2024 article at The Hub. For municipalities with development charges under $10,000, they would be required to lower other development-related fees until a $10,000 savings is reached. This may be somewhat at odds with the first consideration, that the plan needs to be optimized, as the biggest bang for the buck may come from targeted reductions in a handful of municipalities. Navigating these trade-offs will be challenging.
4. The plan must recognize that a homebuilder often must pay development charges to multiple governments
This is a minor technical point, but it will complicate the reduction. Due to the existence of two-tier municipalities, a housing project may face development charges from multiple municipalities. A new apartment in Markham, Ontario, for example, faces development charges from both the City of Markham and York Region, as well as additional development charges from GO Transit and the education sector. And that doesn’t include the rest of the alphabet soup of development-charge-like taxes, including community benefit charges (CBCs).
5. The federal government must not allow development charge increases by stealth
Speaking of the alphabet soup, the federal government needs to ensure that when it requires municipalities to freeze and lower development charges, cities don’t simply make up the difference elsewhere by increasing other taxes, fees, or charges on new housing construction. It would render any reform ineffective and give municipal governments large sums of money for nothing in return.
6. The federal government must be transparent about the agreements it has signed and enforce them
Which leads us to our next point. The federal government cannot afford to spend large sums of money and get nothing in return. It must ensure that it actually enforces any agreements it makes with municipalities and be unafraid to withdraw that funding should municipalities not live up to the terms of those agreements. To ensure that the general public has confidence in this program, the text of the agreements should be made public, and the federal government (or CMHC) should implement a progress tracker, so we know who
7. The federal government must ensure that municipalities give it the data on which to make informed decisions
Since the federal government is providing billions to provinces and municipalities to spend on infrastructure, it will need to ensure that the money is spent wisely (or even spent at all). This monitoring will require large amounts of data. Admittedly, this is a somewhat self-serving point on our part, as we have been attempting to collect municipal data on development charges with, at best, mixed results. But, with better data, we would be able to identify best (and worst) practices when it comes to infrastructure spending and the design of development charges, and these lessons could collectively save governments (and taxpayers) across Canada billions.
The federal government has its work cut out for them
Development charges, particularly in Ontario, can only be described as a crisis, so change is needed. The federal government can play a crucial role in these reforms, but only through well-designed policies. We wish them the best of luck!