Developers, housing advocate criticize development fee increase amid housing crisis

A representative of the development industry and a housing advocate are warning that a recent decision by Toronto city council to raise the cost of building new housing could further squeeze the city's supply and result in less affordable housing.

Council voted in July to hike development charges by 46 per cent for new residential buildings, with the increase to be phased in over the next two years. The fees are collected at the time a building permit is issued and are used to fund infrastructure needed to support a growing population, including transit, roads and housing.

Developers building a single-detached or semi-detached home will pay an additional $43,062 above the current rate of $137,040. The charge for constructing a condo with two or more bedrooms will go up $35,592 from $113,271, and the fee for apartments with two or more bedrooms will increase by $25,206 from $80,218.

Richard Lyall, president of the Residential Construction Council of Ontario, said the increase could make many housing projects currently in the pipeline economically unviable.

"It's going to result in the cancellation of projects going forward," Lyall said.

"This just flies in the face of common sense and reality."

Lyall said developers are already facing sky-high construction costs and a skilled labour shortage.

Along with requirements to include affordable units in new projects near transit stations under the city's inclusionary zoning policy — which will force developers to subsidize those units by raising the price of remaining ones — Lyall said the fee increase will inflate the already high cost of housing for homebuyers and renters.

"It's the consumer that pays for it at the end of the day and we already have a housing affordability crisis," said Lyall.

The City of Toronto says the increase is based on a provincial mandate that "growth should pay for growth," meaning that development charges and other fees including parkland dedication rates and community benefits charges should cover the costs of infrastructure required to accommodate new residents. 

A city staff report says around 22 per cent of $67 billion in planned capital projects over the next 20 years will be recoverable through the development charges with the new rate.

The city says it took a balanced approach by breaking the increase down into two increments in May 2023 and 2024 and by exempting purpose-built rental housing and inclusionary zoning projects from the fee increase.

"We understand current challenges facing the development industry include cost escalation, higher interest rates and labour shortages," a statement from the city said. 

Eric Lombardi, an affordable housing advocate with More Neighbours Toronto, said the move places too much of a financial burden on new residents while keeping property taxes down for existing homeowners.