Schedule 3- Development…

Schedule 3- Development Charges Act

Schedule 3 proposes changes to the Development Charges Act (DCA), 1997 that intend to reduce development costs and provide more housing options, which can help make housing more attainable for the people of Ontario. Specifically, the proposed changes aim to support a range and mix of housing options, and boost housing supply; increase the certainty of costs of development; and make housing more attainable by reducing costs to build certain types of homes.

City staff have reviewed the proposed changes to the DCA and believe they will not achieve the stated goal of increasing housing supply/reducing costs, and also go against the long-stated principle that “growth pays for growth”. These two issues are discussed in more depth below.

Increasing Housing Supply/Reducing Costs
The two ideas of increasing housing supply and decreasing costs go hand in hand because as costs go down, supply would go up (and vice versa). Bill 108 seeks to reduce costs of development by removing some current development charge (DC) items from DC legislation, and by reducing or spreading out the remaining DC costs of development. While on the surface both of these changes would seem to reduce development costs, a more detailed look shows that these changes could actually adversely affect housing supply and degrade the quality of new neighbourhoods being built.

First, rental housing, non-profit housing, and commercial/industrial/institutional DCs will be payed in six equal annual payments commencing the date an occupancy permit is issued or occupancy of the building, whichever is earlier. This will negatively affect DC cash flows since revenue collection will be delayed. This means the City may need to delay the construction of engineering infrastructure, such as roads, watermains and sewers, needed to further develop the city, which will constrain the amount of land available to be developed and increase land costs (which will increase housing prices). This will also add to administrative costs related to tracking, billing, and collecting deferred payments.

On a related note, under Bill 108, DC amounts will also be determined at the time of site plan/zoning amendment applications as opposed to the issuance of a building permit. This means the City will receive less revenue, as developers will not be paying at the current DC rate, which will again reduce the amount of funding available to build the infrastructure needed to service new lands for development. Staff’s concern is the end result will be higher housing prices, not lower housing prices. Staff also expect this will likely increase the number of disputes about application dates and decrease the quality of planning submissions as developers will be motivated to bring forward their applications early in order to lock in lower DC rates.

Second, under Bill 108 all soft or discounted services (including libraries, recreation facilities, cemeteries, parking and growth related studies), have been removed from the DCA and will be funded by a new Community Benefit Charge (CBC). This new charge must also be used for Parkland Dedication, which is being eliminated as a stand-alone charge. Funding for the CBC will be a percentage of land value as determined at the time a building permit is issued. The percentage has not yet been determined, therefore no detailed analysis can be completed related to overall financial impact at this time. Having said that, given the stated goal of reducing development costs, City staff expect the CBC will be less than the current soft service DC, meaning there will be less funding available for these projects going forward. This will degrade the quality of new neighbourhoods as fewer new recreation facilities will be able to be funded unless existing taxpayers fund these growth-related recreation facilities.

Growth Pays For Growth
A longstanding principle of development legislation has been that “growth pays for growth”. This principle is reiterated in the Province’s Ontario Housing Supply Action Plan where it says “We believe that growth must pay for growth and it’s important that municipalities have the resources to support complete communities”. While it has been long argued that the existing DC legislation does not achieve the principle of growth paying for growth, Bill 108 appears to move further away from the principle, specifically as it relates to the Community Benefit Charge (CBC).

As noted in the item above, the CBC will be used to fund discounted DC projects as well as Parkland Dedication items. Combined, these two funding sources were planned to provide approximately $140M over the next 10 years for capital projects such as community centre expansions, building a new library in the south end, and developing parks in new neighbourhoods. Unless the CBC rate revenues meet or exceed what was anticipated to be collected through DCs and Parkland Dedication, there will be a negative impact because any new development will not fully be covering these costs.

If the City wants to maintain service levels in new communities by continuing to build new recreation facilities, it will be up to existing taxpayers across the city (not wholly by development driving the need for the new facilities) to fund the projects. The other option is to not build as many new facilities in developing neighbourhoods, which will drop service levels in those locations and put increased pressure on existing amenities as new residents visit these already established facilities. In either case, growth would not be paying their fair share of the costs of growth.