Proposed Planning Act and Development Charges Act, 1997 Changes: Providing Greater Cost Certainty for Municipal Development-related Charges

Everyone in Ontario should be able to find a home that is right for them. But too many people are struggling with the rising cost of living and with finding housing that meets their family’s needs.

Ontario’s housing supply crisis is a problem which has been decades in the making. It will take both short-term strategies and long-term commitment from all levels of government, the private sector, and not-for-profits to drive change. Each entity will have to do their part to be part of the solution to this crisis.

Ontario needs more housing, and we need it now. That’s why the Ontario government is taking bold and transformative action to get 1.5 million homes built over the next 10 years.

To support More Homes Built Faster: Ontario’s Housing Supply Action Plan: 2022-2023, the government introduced the More Homes Built Faster Act, 2022, which, if passed, would ensure that cities, towns, and rural communities grow with a mix of ownership and rental housing types that meet the needs of all Ontarians.

These changes are providing a solid foundation to address Ontario’s housing supply crisis over the long term and will be supplemented by continued action in the future.

We welcome your thoughts on the following municipal development-related charge amendments to the Development Charges Act and Planning Act, 1997 proposed under Bill 23, More Homes Built Faster Act, 2022.

Provide greater cost certainty of parkland costs to enable housing developments to proceed more quickly

To help reduce the cost of developing housing and to create cost savings for new home buyers and renters, the maximum alternative parkland dedication rate, which is the maximum amount of parkland that can be required for higher density developments would be updated to:

• For the purposes of land conveyed, from the current rate of one hectare for each 300 dwelling units to one hectare for each 600 dwelling units; and
• For the purposes of cash payment in lieu of land, from the current rate of one hectare for each 500 dwelling units to one hectare for each 1000 dwelling units.

To provide further cost certainty, no more than 15 per cent of the amount of developable land (or equivalent value) could be required for parks or other recreational purposes for sites greater than 5 hectares and no more than 10 per cent for sites 5 hectares or less.

These proposed changes to parkland dedication would be in effect immediately upon Royal Assent of Bill 23 and would apply to developments, (other than a development that has received a land division approval under the Planning Act), for which a building permit has not yet been issued.

To incent developments to proceed more quickly, the parkland dedication rates would be set at the time council receives a site plan application for a development; or if a site plan is not submitted, at the time council receives an application for a zoning amendment (the status quo would apply for developments requiring neither of these applications).

• To encourage development to move to the building permit stage so that housing can get to market faster and provide greater certainty of costs, the legislation provides that parkland dedication rates will be frozen for two years from the date the relevant application is approved.

To ensure that parkland dedication requirements are only applied to new units/developments, as originally intended, legislative amendments would ensure existing residential units/developments are fully credited for parkland dedication requirements.

Support more efficient use of land and provide for more parks quickly

To make more efficient use of available land in a development and to provide for parks more quickly for a community, developers would be able to identify land, including encumbered land (e.g., land with underground transit tunnels or other infrastructure) and privately owned public spaces that would count towards any municipal parkland dedication requirements if defined criteria, as set out in a future regulation, were met.

• With regard to privately owned public spaces, a municipality would have the ability to enter into agreements with the owners of the land, which may be registered on title, to enforce parkland requirements.
• In cases, where disputes arise about the suitability of land for parks and recreational purposes, the matter could be appealed to the Ontario Land Tribunal (OLT).

Build transparency and other measures to support the faster acquisition of more parks

To build more transparency and accountability on planning for and acquiring parks, municipalities would be required to develop a parks plan before passing a parkland dedication by-law.

• Currently, this is a requirement before a municipality can adopt the official plan policies required to use the alternative parkland dedication rate for higher density developments.
• Now, this requirement is extended to municipalities that plan to use the standard parkland dedication rate. This rate requires that the maximum land to be conveyed for park or other public recreational purposes not exceed 2 per cent for development or redevelopment for commercial or industrial purposes and 5 per cent for all other developments.
• This proposed change would apply to the passage of a new parkland by-law.

To incent municipalities to acquire parks more quickly, municipalities would be required to allocate or spend at least 60 per cent of their parkland reserve balance at the start of each year.

Set maximum interest rate for DC freeze and deferral (prime + 1 per cent)

To provide for more consistent municipal interest rate charges that apply during the period that development charges are frozen and/or deferred, a maximum interest rate of Canadian Banks prime rate plus 1.0 per cent per annum would be set for these periods as of June 1, 2022.

The municipal interest rate charge would apply to the freeze and deferral period from the date the applicable application is received to the date the development charge is payable.

Reduce development costs to enable more housing to be built faster

To reduce development costs immediately and slow future increases, municipalities would be required to:

• Phase-in development charge rates set out in new DC by-laws over a 5-year period. The DC rates set out in new DC by-laws would be subject to a percentage reduction that gradually decreases each year, over a five-year period (i.e., 20 per cent in year 1, 15 per cent in year 2, 10 per cent in year 3 and 5 per cent in year 4). With this proposal, the maximum development charge rate would be applied in year five of the DC by-law. This proposed change would apply to any DC by-law passed as of June 1, 2022.
• Update a development charge by-law at least once every 10 years compared to the current requirement to update every 5 years.
• Use a historical service level of 15 years compared to the current 10 years to calculate capital costs that are eligible to be recovered through development charges. This would not apply to transit. This proposed change would apply to the passage of any new DC by-law.
• Remove housing services from the list of eligible services. DCs could no longer be collected for housing services, effective immediately, upon Royal Assent of Bill 23.
• Limit eligible capital costs to ensure greater cost certainty:
  • Studies would no longer be an eligible capital cost that could be recovered through development charges.
  • A regulation-making authority would be provided to prescribe specific services for which the cost of land would not be an eligible capital cost that could be recovered through development charges.
  • These proposed changes to eligible capital costs would be apply on a go-forward basis to the passage of new DC by-laws.

Increase transparency and accountability in the use of development charges funds

To incent municipalities to plan and build priority infrastructure to service growth more quickly, municipalities would be required to allocate or spend at least 60 per cent of their development charges reserve balance for water, wastewater and roads at the start of each year. Regulation-making authority would be provided to prescribe additional priority services, for which this would apply, in the future.

Encourage the supply of rental housing

To incent the supply of rental housing units, particularly family-friendly rental housing, a tiered discount would be provided on development charges levied on purpose-built rental units. The discount would be deeper depending on the unit type (i.e., 15 per cent for a 1-bedroom unit (or smaller), 20 per cent for a 2-bedroom unit; 25 per cent for a 3+ bedroom unit). This proposed change would be in effect immediately upon Royal Assent of Bill 23.

The definition of purpose-built rental would be based on the definition that is currently used in a regulation under the Development Charges Act, 1997: “a building or structure with four or more dwelling units all of which are intended for use as rented residential premises”.

Encourage the supply of affordable housing

To incent the supply of more affordable housing, affordable ownership and rental housing units, affordable housing units in a development subject to inclusionary zoning, as well as non-profit housing developments would be exempt from development charges, community benefits charges and parkland dedication requirements.

The proposed exemptions for non-profit housing developments would come into effect immediately upon Royal Assent of Bill 23. Similarly, the proposed exemptions for affordable units in a development subject to inclusionary zoning would come into effect immediately.

For all other developments, an affordable housing unit would be any unit that is no greater than 80 per cent of the average resale purchase price for ownership or 80 per cent of the average market rent for rental, for a period of 25 years.

A Minister’s (Municipal Affairs and Housing) bulletin would provide the information needed to support municipal determination of the eligibility of a unit for development charges and parkland dedication exemptions.

To benefit from a development-related charge exemption, a developer must enter into an agreement with a municipality, which may be registered on title, to enforce the affordability period of 25 years and any other applicable terms set out by the municipality, such as the eligibility of buyers and renters. The Minister of Municipal Affairs and Housing would have the authority to impose the use of a standard agreement to ensure the effective implementation of these exemptions.

Affordable housing units would also be exempt from parkland dedication requirements. With regard to the standard parkland rate, the exemption would be implemented by discounting the maximum parkland rate of 5 per cent of land or its value based on the number of affordable housing units to be built as a proportion of total units in a particular development. With regard to the alternative parkland dedication rates, the maximum parkland requirements would only be calculated based on the market units in a particular development.

Similarly, affordable housing units would be exempt from community benefits charges. The exemption would be implemented by discounting the maximum CBC of 4 per cent of land value by the floor area of affordable housing units as a proportion of total building floor area.

Gentle Density

To encourage the supply to gentle intensification, a new parkland dedication exemption and refined DC exemptions are proposed to align with proposals under the Planning Act to implement an enhanced “additional residential unit” framework. A second unit in a primary residential building and up to one unit in an ancillary building would be exempt from DCs and parkland dedication requirements. Similarly, a third residential unit in a primary residential building would be exempt from DCs and parkland dedication requirements as long there are no residential units in an ancillary building.

Encourage the supply of attainable housing

To incent the supply of attainable housing units, a residential unit, in a development designated through regulation, would be exempt from development charges, parkland dedication requirements and community benefit charges.

The Lieutenant Governor in Council would be provided with regulation-making authority to prescribe any applicable additional criteria that a residential unit would need to meet to be exempt from municipal development-related charges.

The parkland dedication and community benefits charge exemptions would be calculated based on the same approach proposed for affordable housing exemptions.

Analysis of Regulatory Impact:

• The proposed changes are designed to incent increased housing supply and affordability by providing greater cost certainty with respect to municipal development related charges – i.e., development charges (DCs), community benefit charges (CBCs) and parkland dedication requirements. The changes would reduce these charges and slow their growth over time, helping to provide cost savings for home builders, home buyers and renters. The proposals would incent the development of family-friendly rental housing by reducing charges to build these units and no charges could be levied on non-profit housing developments and affordable housing units meeting defined criteria (for charges not levied on a per-unit basis, the maximum charge would be lowered to reflect the affordable housing units). The proposals would have an impact on municipal revenues with associated administrative costs for compliance.