BILD: Eliminating DCs on new homes is not the answer

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Government must take the important step of modernizing the Development Charges Act

Over the last few years, there have been considerable discussions on the impacts of Municipal Development Charges (DCs) on both the affordability of new homes and on the implications of the overall cost to build new housing.

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When combined with the eye-watering rate of increase for DCs over the last decade, and the accumulation of significant reserves at the municipal level, some pundits have called for their elimination.

Given the important function that DCs serve, elimination is not the answer –but it is high time for the government to reassess how new homes are taxed and an important step must be modernizing the Development Charges Act.

For background, DCs have been in Ontario for over 35 years, replacing the “lot levies” system of a simpler time. DCs are intended to offset the cost of providing infrastructure and municipal services to support new housing growth and unlike lot levies, are calculated and imposed in a prescribed and formalized manner.

Municipalities charge them to residential builders and developers on a per unit basis, and these taxes, like other housing taxes are rolled into the final price of the home paid by the new home purchaser.

DCs perform a vital function, because fundamentally, you cannot build new housing if you do not have running water, roads or sewage systems. The DC act and subsequent processes provide an important legal framework to manage and allocate responsibility for funding growth-related capital infrastructure in Ontario.

However, given the housing affordability and supply challenge facing the GTA, it is no surprise that DCs have come under sharp focus in recent years. This is due to a variety of reasons.

First, at the outset of the development charges system in the province over 35 years ago, the dollar amounts per home were relatively modest. The rate of increase of these charges, particularly in the last five to 10 years, has been staggering both in dollar terms and in percentage increase.

Today the amount is between $95,000 and $163,000 per single-family home, depending on the GTA municipality, and is increasing even though average home prices are decreasing.

Famously, one GTA municipality has increased its DCs by over 6,000 per cent over the last 30 years. Applying that same rate to other purchases, like a cup of coffee from a popular chain or average compact car would mean paying $65 for a coffee or $1.2 million for a car today.

In other words, the stakes and the cost implications are much more profound today, and the need for cost controls have never been higher.

Second, the process of establishing DCs and the underlying legislation have become increasingly complicated and there are definitely elements of the act and regulations that require an update and/or re-examination.

Since the 1997 version of the development charges act (the framework legislation), there have been countless legislative and regulatory changes made. These changes have made both the calculation and application of DC rates more complex and difficult for all stakeholders involved. A clearer, simpler system would reduce confusion, varied interpretations, conflicts, and legal disputes.

Third, jurisdictions across Canada and North America all have different ways to fund growth and housing related infrastructure. Given that the GTA has some of the highest levels of municipal costs on new homes on the continent, updating the legislation would provide the province the opportunity to seek out and implement best practices.

In particular, the opportunity to examine different and more efficient mechanisms that could be incorporated into the existing system to right-size DCs, lower costs and ultimately help address affordability.

The DC system in Ontario performs a vital function, not only from the perspective of the provision of housing supportive infrastructure, but also by providing the legal framework that reduces or eliminates informal negotiation-based approaches.

For these reasons alone, eliminating DCs are not a wise course of action and would return Ontario to the days of negotiated lot levies. Given the relative scale of DCs in dollar terms, the current housing crisis, the need to reduce complexity and the opportunity to learn from best practices from other jurisdictions, an update of the DC act is clearly the best course – and significantly overdue.

Now is the time for bold action to address generational housing affordability issues in the GTA. BILD will soon offer options on how to fund investments in growth in a more equitable and efficient manner.

Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD), the voice of the home building, land development and professional renovation industry in the GTA. For the latest industry news and new home data, visit www.bildgta.ca.