Some developers are saying municipal development charges have put a stick in the spokes of their real estate projects in Canada, just as Ottawa pushes for a surge in construction, and a new federal research study shows how such fees can vary widely across the country.
The fees developers pay when building new projects are levied by municipalities to fund infrastructure for new projects such as new roads, transit and other growth-related infrastructure. They have become a significant cost for developers and buyers in some jurisdictions, according to a report from the Canada Mortgage and Housing Corp.
The CMHC report, authored by CMHC Chief Economist and Senior Vice-President of Housing Insights Mathieu Laberge, found that the development charges vary widely across the country and can represent a large share of the cost of a new home. CMHC’s research highlights the lack of consistency in how charges are applied across municipalities.
“Development charges have attracted significant attention from the public and policy makers in recent years,” the report states. “Across the municipalities covered by the pilot, development charges vary quite a lot." Moreover, CMHC said, "Eventually, much of these costs are at least partially passed on to homebuyers and renters. Given their magnitude, they can be a significant constraint to housing affordability.”
In Ontario, development charges for a two-bedroom apartment can reach $121,500 in Markham compared to $39,600 in Ottawa, according to the report. For single-detached homes, the range is even wider at about $125,000 in Pickering to $180,600 in Toronto. In British Columbia, Burnaby averages $109,049 per apartment unit while Richmond is closer to $39,328.
These costs can often translate into millions in upfront fees for developers. For example, a 246-unit building in Markham would face nearly $29.9 million in charges. However, the range varies quite a bit. According to the Federation of Canadian Municipalities, development charges represent about 6% of municipal own-source revenue nationally, but that figure rises to 11% in British Columbia and falls below 1% in Quebec.
Axel Monsaingeon, a first-time Quebec real estate developer, was midway through a process of building a 25-unit residential project in Saint Jérôme in 2023 when local authorities imposed a development tax of $40,000 on the project. Monsaingeon said the fee nearly tanked the entire development.
Increasing development costs
"The development charges imposed by cities are counterproductive, and they raise the price of development, which only makes the cost of housing go up,” he said in an interview. “To me, it reflects the mismanagement and inefficiency of a city because they’re trying to impose this as a tax on the developers to pay for infrastructure, but (developers) are already paying taxes; the city should be happy with that.”
Monsaingeon said he is now facing another $100,000 in fees for an upcoming 120-unit project in the same city.
Critics argue the so-called “growth pays for growth” model used to justify the fees is unsustainable and adds pressure to housing costs. However, some groups defend the development charges.
The Association of Municipalities of Ontario said this year that the fees have been "unfairly blamed for the [housing] crisis" and called for “development charge reform that is mutually agreeable."
Canadian Prime Minister Mark Carney has vowed to take measures aimed at reducing development charges. Meanwhile, the CMHC estimates that achieving housing affordability levels comparable to those seen in 2019 will require building between 430,000 and 480,000 units annually over the next decade, which would double the current annual construction pace.
Quebec is a relative newcomer to levying development charges, as municipalities were only empowered by provincial legislation to levy these fees less than a decade ago. Ontario has embraced the charges since 1989. In Quebec, development charges are generally more conservative compared to those in Ontario and British Columbia.
Development charges fund a wide range of infrastructure, from roads and transit to water systems and parks. “One of the main insights from CMHC’s data on development charges is that, because of development charges, municipal finance is housing finance,” the report concludes. Municipalities also use the fees for libraries, childcare facilities, and emergency services, but practices vary widely.