Study Shows Developer Fees Are Driving Up Home Prices by Six Figures
Charges that municipalities impose on homebuilders are worsening Canada’s housing affordability, and could be costing some homeowners more than $100,000 for new units located in cities with the highest fees, according to new data from the Canada Mortgage and Housing Corp.
It’s the first time the national housing agency has measured and identified the average cost of development charges in 30 municipalities in Ontario, British Columbia, Alberta and Quebec. The report found the charges that cities impose vary widely across the country.
The most expensive fees were in Toronto, where the average condo faces $130,200 in costs, while for the average detached home, municipal development charges account for about $180,600 of the cost. The fees make up 9 per cent of the total cost of a detached home in Toronto.
Montreal was among the cheapest cities, with homebuilder charges of $8,584 and $30,597, for condos and detached houses respectively.
While development costs are publicly listed by municipalities, the variance in how they’re charged and what they’re used for makes it extremely difficult for the average person to actually compare the costs they’d face between two cities, said Mathieu Laberge, chief economist and senior vice-president of housing insights at CMHC.
The Crown corporation initially set out to compare 55 municipalities, but it found some cities such as Vancouver had such complicated fee structures that they simply had to be scrapped from the list – even with a team of 50 researchers working on the project.
“The data was so messy it was unusable for us,” said Mr. Laberge, speaking about Vancouver’s development fee system specifically.
Coquitlam, B.C., was the most expensive listed city in that province, with development fees averaging at $62,104 for a single condo.
Fees also varied as a percentage of the final cost of a home.
For example, the average development charge on an condo in Ottawa (outside the Greenbelt) was $39,620, or 8.2 per cent of the total cost of the unit. In Markham, the figure was more than three times higher at $121,500, and it accounted for 15.7 per cent of the cost of a unit.
The report highlights how these differences result in much higher upfront costs for developers in some cities.
Prime Minister Mark Carney’s Liberals had promised to cut development charges in half during the federal election campaign. But critics say the government’s 2025 budget retreated from that pledge, saying that it will try to reduce charges “substantially” by allocating $1.2-billion a year to the issue.
Last month, Canadian Home Builders’ Association chief executive Kevin Lee said that development charges have risen by 700 per cent in the last two decades and contribute heavily to a lack of housing affordability.
Mr. Laberge stressed the need for some sort of standardization for development charges. He said that an overreliance on development charges for city finances puts an outsized burden on new buyers.
He said development charges were traditionally used for very specific projects or measures, but cities are now relying on them for more general, continuing costs such as wastewater, daycares, parks and schools.
“There’s a common wisdom in the municipal world right now that growth pays for growth, but I think it’s inequitable and it’s building up a deficit and giving it to the next generation,” Mr. Laberge said.
This article was first reported by The Globe and Mail
