What We Know (and Don’t) About the Federal Government’s Proposed Development Charge Cut

We're having trouble making the numbers add up

Highlights

• During the election campaign, the Liberal party pledged to cut development charges by half on multi-unit residential housing. It was one of their three big housing campaign promises.

• We have learned very little about this promise since the campaign, though we have pieced together ten things we know so far about the promise.

• However, there is still much we don’t know.

• We find that halving development charges on only apartment units, and only in the GTA and GVA, exhausts the entire $1.5 billion budget. Either there are additional nuances that are not apparent in the platform details, or the costing is incorrect.

The Liberals have promised to halve development charges, but do the numbers add up?

If you’re a housing policy wonk and thrive on getting details on the roll-out of new initiatives, this summer has been incredibly frustrating. The federal government has been near silent on the issue of housing over the summer, which hasn’t gone unnoticed by commentators like David Herle and others. Given that we are not learning much from the federal government about their plans, we thought it would be helpful to compile what we know, based on their statements during the election campaign.

Today, we’ll start with the federal government’s promise to cut development charges in half.

The Liberal housing plan is a three-legged stool

Three initiatives account for over 90% of the spending in the Liberal housing platform, with nearly half going to Build Canada Homes. The MURB tax provision comprises 17% of the planned spending, and the promise to cut development charges accounts for one quarter of the dollars in the plan.

Figure 1: Annual cost of federal Liberal campaign promises on housing

Source: Liberal platform campaign costing

So, what has the Liberal government told us about this promise? As it turns out, very little, but we can compile a fair-sized list of things we do know, with the help of a bit of digging.

Only some development charges would see a cut

When it comes to understanding Liberal housing campaign promises, there are two relevant documents. First, there is a two-page document detailing their housing plans, which has this to say about the Liberal promise to cut development charges in half:

We will cut municipal development charges in half for multi-unit residential housing and work with provinces and territories to make up the lost revenue for municipalities for a period of five years. For a two-bedroom apartment in Toronto, the cost savings from this measure would be approximately $40,000.

Interestingly, the full Liberal platform offers a significantly different, yet non-contradictory, explanation of the program.

Cut municipal development charges in half for multi-unit residential housing for five years by working with provinces and territories to keep municipalities whole. These revenues will be offset by federal investment in housing infrastructure like water, power lines, and wastewater systems.

And as we saw earlier, the Liberal campaign platform estimates a yearly cost of $1.5 billion for this initiative.

Based on these two descriptions and the budget costing, we can begin our list of what we know about the Liberal DC cut promise with the following four things:

• The promise to halve development charges only applies to multi-unit residential housing, although it is unclear how they are defining “multi-unit residences”.

• The freeze would only last for five years.

• The Liberals have estimated that this will cost roughly $1.5 billion per year.

• It would reduce the development charges on a two-bedroom apartment in the City of Toronto by roughly $40,000.

The $40,000 number provides an additional lead.

The cut only covers municipal development charges and not related taxes

The term “development charges” can be confusing, as it is often used broadly to encompass an alphabet soup of municipal housing taxes, including community benefit charges (CBCs), parkland dedication and other charges rather than just the specific charge known as a development charge. This raises the obvious question:

Is the federal government promising to cut development charges in the specific sense, or the general sense?

That we are told it will save $40,000 on a two-bedroom apartment in Toronto allows us to answer this question. The City of Toronto’s development charge schedule reveals that the DCs on a two-bedroom condo in Toronto are $80,000, so it is clear that this reduction only applies to municipal development charges, and none of the other related costs, including educational development charges.

Figure 2: City of Toronto Development Charges for non-rental units

Source: City of Toronto.

Interestingly, this measure would save nearly $57,000 (50% of $113,938) on a 2-bedroom multiplex unit, and nearly $69,000 (50% of $137,846) on a duplex, though it is unclear whether the federal government counts these housing types as “multi-unit residences”. This “what does the federal government consider a multi-unit residence to be” question also came up in our piece on MURBs, where the 1970s MURB program only required two rental residences, but recent federal policy changes, such as accelerated capital cost allowance (ACCA) provisions, require a minimum of four units.

Your guess is as good as ours as to where the federal government is setting the cut-off line for this development charge reduction.

Let’s add two more points to our list:

• The federal government is proposing to cut development charges only, not other municipal fees.

• It would reduce the development charges on a two-bedroom multiplex home in the City of Toronto by approximately $57,000 and a duplex by approximately $69,000, but only if the reduction applies to these housing types, and it is unclear whether it does.

But that’s just the City of Toronto. What about other cities?

Almost all of the savings go to Ontario and British Columbia

Finding municipal development charge data is a challenge task, as we’ve detailed in our DC data series. Fortunately, BILD and Altus Group’s recent Greater Toronto Area Municipal Benchmarking Study provides development charge data for 2-bedroom apartments across the GTA as of September 2024. Interestingly, there are several communities in the GTA where development charges for these units exceed those of the City of Toronto.

Figure 3: Development Charge rates for 2-bedroom dwellings, September 2024

Source: Greater Toronto Area Municipal Benchmarking Study

For a view beyond the GTA, we can go to the CHBA and Altus Group’s 2024 Municipal Benchmarking Study. Unfortunately, that report lumps together development charges and the other alphabet soup fees (which is why Toronto’s figure greatly exceeds $80,000), but it does reveal that outside of Ontario and British Columbia, these charges are relatively modest.

Figure 4: Development fees by Canadian municipality, 2024

Source: 2024 Municipal Benchmarking Study

With this information, we can add two additional pieces of information to our list:

• The development charge cut will be even higher in many other GTA municipalities outside of the City of Toronto.

• Outside of Ontario and British Columbia, particularly outside of the GTA and GVA, the savings are relatively modest. In other words, almost all of the benefits accrue to two provinces.

While we don’t have enough information to estimate the savings in each municipality, we can create a rough sketch using housing starts data.

As it turns out, $1.5 billion doesn’t get you a lot of savings

The universe of homes to which this development charge cut could apply is quite large. In 2024, there were 154,927 apartment units and 25,466 townhome housing starts across Canada. That is approximately 180,000 total homes that could be eligible for such a development charge cut. However, it is currently unclear whether townhomes would be eligible for the cut, and it is possible that some apartments might not qualify as well. However, it provides us with a rough estimate of the number of units in play.

If the entire $1.5 billion were allocated to reducing development charges, this would represent a reduction of roughly $8,300 per unit if it covered both apartments and townhouses, and $9,700 if it only covered apartments.

If this $1.5 billion cost is accurate, then some quick back-of-the-envelope math suggests it likely does not cover townhouses. In 2024, 32,694 townhomes and apartment units were started in the GTA, and 25,052 were started in the GVA. Even at an average reduction of $30,000 per unit in those two markets (which appears relatively low, given the numbers in the previous section), the annual cost exceeds $1.7 billion. If we exclude townhomes from the calculation, then the annual cost drops to just over $1.5 billion. And that’s just for the GTA and GVA.

In other words, for the math to work out here, the program cannot cover townhomes, and all of the $1.5 billion goes to the GTA and GVA. This is almost certainly not the case, so there must be some other elements to this program that have not been released yet. Alternatively, it is also possible that the Liberal platform substantially underestimates the program's cost.

With that, we can put together the ten things we know so far about the Liberal promise to halve development charges.

The ten things we know so far about the Liberal promise to lower development charges

1. The promise to halve development charges only applies to multi-unit residential housing, although it is unclear how they are defining “multi-unit residences”.

2. The federal government is proposing to cut development charges only, not other municipal fees.

3. The freeze would only last for five years.

4. The Liberals have estimated that this will cost roughly $1.5 billion per year.

5. It would reduce the development charges on a two-bedroom apartment in the City of Toronto by roughly $40,000.

6. It would reduce the development charges on a two-bedroom multiplex home in the City of Toronto by approximately $57,000 and a duplex by approximately $69,000, but only if the reduction applies to these housing types, and it is unclear whether it does.

7. The development charge cut will be even larger in many other GTA municipalities outside of the City of Toronto.

8. Outside of Ontario and British Columbia, particularly outside of the GTA and GVA, the savings are relatively modest. In other words, almost all of the benefits accrue to two provinces.

9. If the reduction applies to apartment units and townhomes, and the $1.5 billion costing is accurate, the average per-unit reduction across Canada is $8,300. If it only applies to apartment units, the value rises to $9,700.

10. Given that halving development charges on only apartment units, and only in the GTA and GVA, exhausts the entire $1.5 billion budget, either there are additional nuances that do not appear in the platform details, or the costing is off.

We hope that this has been helpful. We will post additional information as soon as it becomes available.