Development charges (DCs), also known as development cost charges (DCCs), levies, fees, and a variety of other names depending on the jurisdiction, are all municipal taxes on new housing that have skyrocketed in recent years (in some cases but hundreds of thousands of dollars per home) and are a major contributor to unaffordability in home prices and a resultant lack of supply. This article explains what they are, why they need to be dramatically reduced, what the election platform plans are to address them, and suggests alternatives for funding the many things that offending municipalities have inappropriately burdened new homebuyers with. The impact of DCs has been devastating for affordability in many cities and has played a large part in falling homeownership rates for the next generation of Canadians – they need to be fixed.
2025 Election Platform Commitments on Municipal DCs
Both the Liberals and the Conservatives are rightly looking to use federal funds to address DCs.
The Liberals, who were first out of the gates on DCs during the 2025 election campaign period, say that they 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. That is a good start, but two improvements are needed: 1) This needs to apply to all housing forms, not just multi-unit housing; and 2) While subsidized municipal DCs is a good short-term fix, there needs to be a plan for how the federal government will ensure municipalities cut these charges permanently (so that municipalities don’t just double them in 5 years). Alternative funding models to development taxes must be found and implemented for a long-term solution (see the “Alternatives” section below).
The Conservatives have also targeted DCs, saying that for every dollar of relief a municipality offers in development charges, a Conservative government will reimburse 50%, up to a maximum of $50,000 in savings for buyers of new construction homes. While this will incent those municipalities already inclined to cut DCs to do so by covering half of the lost revenue, many municipalities will not want to lose any revenue and hence may not change their DCs at all. Covering all reductions initially, on a declining scale, and/or including infrastructure support to offset losses would improve the likelihood of municipal take up. Per above, there is also the need to find alternatives alternative funding models to development taxes so that development taxes are lowered permanently (and municipalities can replace their DC revenues with alternative revenue streams that are more equitable for both buyers of new homes and existing communities). There is a federal role in working with the provinces and municipalities to ensure this happens. CHBA has a list of such alternatives (again, see the “Alternatives” section below).
The NDP are pledging to freeze the increase of DCs and work with provinces to halve DCs that hold up construction. Their proposed $8 billion Communities First Fund, invested over four years, will only be available to jurisdictions that do so. This fund will also be available to municipalities that end exclusionary zoning that blocks new homes, support the construction of pre-fabricated homes to speed up building timelines, and require cities to allow at least four units on residential lots and more multi-unit homes, among other measures. All of these measures are positive and needed. However, as was said previously, CHBA stresses that, for municipalities to permanently reduce their DCs and still adequately fund new infrastructure, an alternative funding model is needed for the long term.
Note: See CHBA’s election platform tracker for other platform measures pertaining to housing affordability.
What are development charges?
DCs are upfront fees charged by municipalities and that are initially paid for by developers for each new unit they build, but ultimately get paid for by the buyers of new homes. They are supposed to be charged to cover the proportionate infrastructure costs such as new roads and water and sewer connections, but have grown to cover an inordinate and inappropriate amount more.
The concept of “growth should pay for growth,” which implies that new developments should pay for themselves, has long been used as justification by municipalities for increasing DCs, who also suggest that “developers should pay for this,” knowing full well it is homebuyers that ultimately pay these fees that are inherently included but hidden in the price of a home. Over the years, however, they have grown to pay for much more—too much. This is largely due to the fact that raising property taxes for those who already have a home is never popular—it’s much easier to put a hidden tax on someone who doesn’t even live there yet. So how do some cities fund the replacement of aging infrastructure in older existing neighbourhoods, other amenities, roads and systems that are used by the existing community, and many other things that aren’t being properly covered by other more appropriate sources of funds? You guessed it: development charges.
It is time to examine the issue of fairness, especially when it is new (and usually younger) home buyers who are the ones being disproportionately impacted by skyrocketing DCs that the previous generation of homebuyers didn’t have to bear.
The increase of development charges
You may be thinking that increasing DCs is unavoidable, because the cost of everything goes up over time. However, the staggering rate with which DCs are rising cannot be explained away by inflation.
Between 2004 and 2024, an analysis of 27 municipalities in Ontario found that all of them increased their development charges for single detached units more than the rate of inflation in Canada (which was 54%). Some municipalities increased their charges by as much as 800%.[1]
That type of increase makes it particularly difficult for first-time buyers to save enough to buy a home.
In Ontario, the tax burden on new housing now accounts for 31 percent of the purchase price of a new home[2], with development charges adding more than $195,000 to the purchase price of the average new home in Toronto[3]. The current average municipal DCC rates in Vancouver are over $104,000 for a single-family home.[4]
Finding alternatives to development charges
Clearly, the next generation of would-be Canadian homebuyers need municipalities to find better and more appropriate solution to fund what they are inappropriately funding through excessive and unfair development charges.
A July 2022 Housing Market Insight Report from the Canada Mortgage and Housing Corporation (CMHC), which focused on government charges on residential development, stated that there should be policy discussions surrounding ways in which municipalities raise revenue to fund municipal services and capital projects. “Where infrastructure is largely funded through means other than development charges, government fees on residential development tend to be comparatively lower. This may result in new housing being delivered at a lower cost,”[5] the report concluded.
In some instances, there is a case for limited DCs, but in cities where they have grown egregiously, they need to be cut way back, and alternatives must be found. (And there are several alternatives out there already).
So how else should these things that are being erroneously paid for through DCs be financed? Municipalities will claim that provincial and federal governments do not provide enough infrastructure money to pay for growth, and it is true that there could be some more funding from those levels of government. However, local politicians are loathe to increase property taxes, which is how these things used to be (and should be) paid for in many cases. But raising property taxes is a very unpopular move with their constituents –most of whom never had to pay DCs on for the houses they purchased decades ago. DCs have become the way to finance these projects without much consideration for how it impacts housing affordability for new neighbours.
The Canadian Home Builders’ Association (CHBA) has been advocating for alternatives to DCs. Through our Urban Council, we’ve been exploring possibilities with experts like Andrew Sancton, Professor Emeritus at Western University’s Political Science Department. Professor Sancton argues, as CHBA does, that as a matter of fairness, everyone should pay for growth, just like we all pay for new hospitals and provincial highways.
One option would be for municipalities to borrow infrastructure money and pay it back over 20-30 years. At the moment, buyers of new homes absorb the cost of DCs through their mortgages, at higher rates of interest available to municipalities. This would require changes in municipal financial practices, and possibly provincial legislation. However, it is what’s in place in Quebec, where development charges are not systematically applied – leading to much lower development fees and proportionately lower housing prices.
Another option would be to include new infrastructure costs in user charges for water and wastewater or include costs of new roads in user charges for roads. Both options would require more borrowing, perhaps by new municipally-owned corporations.
A third option would be grants from federal and/or provincial governments for new infrastructure, or the province grants revenue sharing or new taxation powers to its municipalities.
Small increases on the many existing properties would go a long way too, versus very high and unfair taxes on only the few new builds.
Land Value Capture (LVC) is another alternative. It is a financial strategy used by governments to recover a portion of the increase in land value that results from public investments, infrastructure projects, or changes in land use regulations. When a government builds new infrastructure—such as roads, public transit, or parks—the surrounding land becomes more desirable, increasing its market value. LVC mechanisms help reclaim part of this value to fund further development. Rather than excessively taxing new housing, LVC avoids private landowners from gaining all the benefits of rising land prices due to public actions, and ensures that some of these gains are reinvested into public services or infrastructure, while keeping DCs in check.
Regardless of the potential alternatives presented, all options would involve everyone paying for new infrastructure in an equitable fashion, rather than only burdening the buyers of new news and further eroding affordability.
Next steps for government
There is little doubt that reducing or eliminating development charges will be difficult for those municipalities that have grown to rely on them excessively. However, the status quo will only further contribute to affordability challenges, especially for younger people. It is also resulting in diminished housing supply. Indeed, some municipalities now are realizing that if they don’t cut DCs, they will have so few revenues they will be in financial difficulty – a perfect demonstration of how municipalities have been using DCs to fund much more than what new housing units should fairly contribute to.
All three levels of CHBA have been raising members’ concerns with municipalities and governments for years, explaining that construction and financing costs, including DCs by necessity, get passed on to buyers, and warning that if new supply becomes too costly to develop and people can’t afford the homes, new homes won’t be built.
With the current housing affordability crisis, outside-the-box thinking is needed when it comes to how municipalities can pay for growth, rather than on the backs of the buyers of new homes. The federal government must continue to work with municipalities and provinces, and use all federal levers, to reduce development taxes by supporting housing-supportive infrastructure. This includes:
- Maintain and increase housing-supportive infrastructure and transit investments (to lower municipal development taxes which get passed on to homebuyers) and tie them to housing affordability and supply outcomes (e.g. requirements to freeze or lower development taxes, increase density, reduce parking requirements).
- Work with provinces and municipalities to mandate that alternatives to development taxes be found and implemented so that development taxes are lowered. Alternative solutions include:
- Municipal debt financing, including shifting some charges to property taxes, particularly for services that benefit the wider community (beyond the new development) such as libraries, roads, and new fire stations.
- Implementing user charges for certain services (e.g. water and wastewater).
- Adopting land value capture techniques for transit improvements.
- Updating provincial development tax legislation.
The DCs situation as it stands is not sustainable. Eventually those who hold true to “growth should pay for growth” will see that path leads to no growth at all. The development industry recognizes that there is a place for limited DCs where warranted. Growth can pay for growth, but it can’t pay for everything.
[1] Open Council – Development Charges
[2] The Canadian Centre for Economic Analysis (CANCEA)
[3] BILDGTA – Greater Toronto Area Municipal Benchmarking Study (3rd Edition)
[4] Development Finance: New Legislation, New Charges, and the Cost of Delivery Crisis – HAVAN
[5] CMHC – HOUSING MARKET INSIGHT CANADA Government Charges on Residential Development in Canada’s Largest Metropolitan Areas