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Housing

Runaway Development Charges Deter Builders, Drive Up Housing Costs

Strategic Insights

— 2 min read

Developers in Ontario pay tens of thousands of dollars in municipal fees, including taxes, fees, and levies, before a new home can even be built. These costs, which have grown to become a significant portion of a home's overall price, have been deemed "prohibitive" by Richard Lyall, president of the Residential Construction Council of Ontario (RESCON). Lyall explained that under the current system, builders must front-end the cost of municipal levies, which can be a problem when the market is trending downward.

The cost of building a home depends on various factors, including material and labor costs, land prices, and the municipal approvals process. An analysis commissioned by RESCON found that municipal taxes, fees, and levies account for an average of 36% of the total cost of a new home. Lyall is hopeful that measures such as Ontario's Bill 17, which aims to streamline the approval process and fees for home builders, will help to alleviate the issue.

Housing starts in Ontario have been on the decline, with Barrie and Wasaga Beach experiencing significant drops in residential construction starts in 2024. Sandra Watts, Wasaga Beach's director of strategic communications and intergovernmental affairs, attributed the decline to various factors, including affordability issues, rising construction costs, and economic uncertainty.

Key Takeaways:

  • Municipal fees, including taxes, fees, and levies, have grown to become a significant portion of a home's overall price, accounting for an average of 36% of the total cost.
  • Under the current system, builders must front-end the cost of municipal levies, which can be problematic when the market is trending downward.
  • Development charges have been around since the 1950s, but there is "no rhyme or reason" for them, and they vary between municipalities.
  • Barrie's development charge for a new single-detached home is $110,000, while Oro-Medonte's development charge for a lot in an urban area is more than $40,000.
  • Simcoe County adds an additional $14,372 to the development charge for a single-detached home, up from $9,760 in 2020.
  • The Simcoe County District School Board and the Simcoe-Muskoka Catholic District School Board levy development charges of $3,411 and $1,772, respectively, for site preparation costs and to buy land for new schools.
  • The current direction of the federal government, which promises to offer municipalities incentives to reduce development charges and eliminate the sales tax for first-time buyers, has been deemed a positive step by Lyall.

Statistics:

  • Development charges account for an average of 36% of the total cost of a new home.
  • Barrie's development charge for a new single-detached home is $110,000.
  • Oro-Medonte's development charge for a lot in an urban area is more than $40,000.
  • Simcoe County adds an additional $14,372 to the development charge for a single-detached home in 2025.
  • The Simcoe County District School Board levies a development charge of $3,411.
  • The Simcoe-Muskoka Catholic District School Board levies a development charge of $1,772.
  • The federal government promises to offer municipalities incentives to reduce development charges.

Sources:

  • Barrie Advance
  • Residential Construction Council of Ontario (RESCON)
  • Canada Mortgage and Housing Corporation (CMHC)
  • Ontario's Bill 17
  • Federal government policies on development charges and sales tax.

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