Commercial real estate leaders are rallying for a reduction in Toronto development charges, arguing that high fees are stalling home construction and worsening affordability.

As preconstruction sales decline and construction starts remain below target, calls for reduced development fees are growing louder, The Toronto Star reported.

Over the past decade, the cost of building new homes in Toronto has surged due to increases in materials, labour, land values, commissions, and interest rates. However, the most significant rise has been in development charges.

“The current cost-to-build crisis for new homes and condominiums in the GTA is a result of significant cost escalations across almost every aspect of projects,” David Wilkes, CEO of the Building Industry and Land Development Association (BILD), told the Star. “The most significant cost escalations have come from the extremely rapid increase of municipal development charges and other municipal fees, and the amount of HST revenue collected by governments on new homes.

“These have increased by almost 240% in a decade, eroding affordability and the financial viability of future housing projects.”

Industry experts argue that reducing or deferring development charges would enable developers to build more homes and lower costs for buyers. However, municipalities counter that there is no guarantee that savings will be passed on to consumers and that reducing development charges would require higher property taxes to compensate for lost revenue, the Star reported.

In 2014, construction costs accounted for 52% of the total cost to build a 500-square-foot one-bedroom condo in Toronto, while land costs made up 16%, the Star reported. By 2024, construction costs had fallen to 47%, while municipal fees had surpassed land costs, increasing from 8% to 13%. Land costs fell to 12%.

From 2014 to 2024, municipal fees saw the largest increase at 238%, accounting for $81,000 of the total cost to build a one-bedroom condo in 2024, according to BILD. Financing costs rose by 200%, while construction and land costs increased by 90% and 57%, respectively.

Toronto’s municipal fees include development charges, community needs fees, parkland fees, and education development charges for the Catholic school board. BILD notes that these cost increases have significantly impacted consumers, with the average price of a 500-square-foot condominium in Toronto doubling from $336,745 in 2014 to $675,000 in 2024. Builder profits have dropped, with profit on a 500-square-foot condo declining by 67%, from $29,100 in 2014 to $9,584 in 2024, according to BILD.

“Reducing municipal fees works in participation with all the other factors—like interest rates, construction costs, and land prices coming down,” said Niall Finnegan, partner at Finnegan Marshall, a property development consultancy.

Some Ontario municipalities have moved to ease development charges, the Star noted. Vaughan reduced fees by 47% in November 2023, with the new rates in place for five years. In January, Mississauga announced a 50% reduction for new builds and a 100% reduction for three-bedroom units in purpose-built rentals for projects that secure permits before November 13, 2026.

Toronto has also introduced incentives, including an indefinite deferral of development charges for purpose-built rentals. In March, the city proposed allowing select condominium builders to defer development charges for up to four years without interest, the Star reported. Eligible projects would need to include at least 5% affordable housing and have submitted a completed site plan before March 1.

The Association of Municipalities Ontario has been critical of eliminating development charges, warning in a November 2023 report that doing so could lead to a 20% increase in property tax revenue requirements to compensate for lost funds, the Star.

Experts suggest alternative funding methods, such as provincial incentives to encourage development, increased federal transit funding, and leveraging the rising value of public lands.

“We have some of the highest development charges globally,” David Amborski, a professor at Toronto Metropolitan University’s School of Urban and Regional Planning, told the Star. “A temporary reprieve of these charges will help build more supply in the short run, and the city has other means to make up for a reduction in development charges.”

Amborski believes developers will adjust pricing to boost sales.

“If developers don’t pre-sell 70% to 80% of their units, the condo tower isn’t being built,” he told the Star. “Rather, they would build to an end-user market—hopefully, larger and more family-designed units or to a retirement empty-nester market. Some have already targeted this market. Developers will build where there is demand.”