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Development charges on new construction could double in Toronto

Last month, Metrolinx, the crown agency that oversees transit in the GTA, proposed a relatively modest 15 per cent increase in development charges as one of its “revenue tools” for funding transit expansion in the region. That increase would bring in an additional $100 million, the Metrolinx report said. The building industry was quick to denounce the proposal, saying it would only make housing less affordable, considering that those development charges are passed on to the end user.

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Development charges on a one-bedroom condo would double under the proposal to be debated by the mayor’s executive council next week. An earlier proposal from Metrolinx to increase development charges by 15 per cent was denounced by the building industry.

Now we learn that the City of Toronto is considering raising those development charges all on its own, and the increases being proposed would be far greater than what Metrolinx proposed.

The proposed by-law changes would double or nearly double the fees developers are charged for residential construction projects. The first increase would take effect in November of this year, then rise twice by July, 2014. The development charge on an apartment with two or more bedrooms would jump by 86 per cent, from $12,412 in November to $23,036 by next July. The charge on a one-bedroom apartment would rise from $8,356 to $16,027.

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Proposed development charges on residential construction as they would be in July 2014 if the city approves the amendment.

The by-law amendments are to be debated at the mayor’s executive council meeting next week.

There’s not much question about how the builders will react to this. The head of the Building Industry and Land Development Association (BILD), Bryan Tuckey, has said that new home buyers and new businesses are already doing “their fair share.” BILD released a study just weeks ago in which it showed that on average, more than one-fifth of the cost of a new home goes to government fees and charges. That translates to $64, 400 on the cost of a new condo, Tuckey says. By his estimate, the building industry paid more than $1 billion in development charges in 2012. Increasing charges, he says, is simply not sustainable. Raising property taxes would be one option for the City of Toronto, BILD says.

But the city says it has to increase the charges. Toronto’s development charges are the lowest in the GTA at present, and the city’s aim, in levying the charges, is to approach “full cost recovery,” according to the city’s Chief Financial Officer, Roberto Rossini, who told the National Post that ideally development should pay for itself. He did not rule out the possibility of significant increases in development charges to accomplish that.

There is the real possibility, however, that since the charges are passed on to the new home purchaser, that additional cost could further dampen the housing market.

It is not clear how the proposed changes to Toronto’s development charges by-law would affect the Metrolinx proposal.

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