(58) Development Charges; A (Painful!) Growth Story

Okay, so let's start from top.

What are development charges? If you want to go by the definition, a development charge is a one-time fee that is collected on a new development to help pay for the infrastructure needed to support the growth.

In plain English, if a developer is building a new project and that project brings new needs to the system of a municipality and in the infrastructure that is existing over there, The idea is that the development fee will help fund the infrastructure and services needed for that growth.

That sounds great, right? It's not that crazy.

These growths could include and do include roads, transit, wastewater, stormwater, parks, recreation centers, libraries, emergency services, child care, and other growth-related services.

And we'll talk about this a little bit further down the road, that there are nuances to this and different municipalities have different breakdowns.

So in theory, in a high level, this is pretty reasonable.

It makes total sense.

If the growth is creating new burden on the infrastructure, then growth should pay for it, right? That's the logic that has been going on for a long time.

And you might have heard it before that says growth pay for growth.

And that's part of the problem these days that we're dealing with.

These fees, they're usually paid by developer and different points in time, but most commonly at the issuance of permit and just before the start of construction.

And traditionally, developers have been forced to pay these things.

And it forces the developer to consider these DCs as a significant chunk of the project economics and how they run their performance.

And at the end of the day, development is a system and it has a process.

And if you're adding costs up front, there's a very good chance that it will get baked in the system, pass through different stages and end up with the end user, the purchaser, the renter, whoever gets to carry that.

burden of this additional cost for the long term.

And that's where one of the issues is.

So it's not as simple as saying the developer pays it, because basically developer is paying it up front and then transitioning to other people down the road.

So the cost doesn't really disappear, just moves through the system.

When the market was good, which it was for a very long time in Toronto and Ontario for the most part, and even in Canada, the market was really good.

Anything you built was being absorbed at a very high rate and people could afford it.

Money was cheaper.

The buyers and renters were able to come up with the difference and this formula worked until it just didn't.

A lot of market forces have moved in the other direction over the past few years, as you know.