A huge increase in development charges will raise new home prices in 2005 across the Greater Toronto Area (GTA).
“The housing industry is seeing an increase in development charges, planning fees and application fees,” says Jim Murphy, director of government relations, Greater Toronto Housing Builder’s Association.
“This will have a significant impact, as 20 to 25 per cent of a new-home price is taken up by development charges, government taxes and fees. Municipal development charges are the largest component of this percentage.”
As of July 1, the City of Toronto development charges will more than double. For a single detached home, the charges for a six-month period will rise from $4,370 to $9,075. A townhouse’s charges for the same period move from $3,544 to $7,222.
Murphy says that most municipalities in the GTA recently updated their development charges bylaw, a process that takes place every five years.
On average, development charges will increase 40 per cent but there are exceptions, like Toronto and Brampton , jumping 75 per cent.
Development charges help finance capital infrastructure for population growth.
In Toronto charges cover childcare, shelters, emergency medical services, parks and recreation, libraries, fire, police, roads, transit, sewers and water.
In the 905 area, a GO transit levy was added in 2001 to cover new trains, buses and facilities, but it still catches new buyers by surprise.
“We had GO transit development charges we didn’t expect,” says Lori Royle, who moved into a new home in Oakville in December. These additional expenses plus others added up to several hundred dollars.
Michael J. Fisher, a Streetsville lawyer who specializes in real estate, says that a municipality in the GTA could increase its development charges between the date of purchase and the closing date. He advises clients to budget for this and other unforeseen expenses.
“It’s rare, but it can happen, especially with condos which take longer to close.
Builders have clauses in their contracts to pass along development charge increases to keep their profit margins and viability,” he says. “We try to delete the clause entirely but as a fallback we’ll put a cap on it.”
Murphy wants buyers to be aware they are paying these charges, so they’ll hold municipalities accountable for capital projects.
“Development charges raise several millions of dollars for municipalities which buyers pay,” Murphy says. “Our concern is making sure that GO Transit, for example, is justifying the cost and that it’s kept to a minimum for the buyer. As a building industry, growth should pay for growth.”
In the 905 area, which has experienced massive growth over the past 10 years, new schools have not kept pace with the population.
Murphy notes education development charges fund the purchase of land, not buildings. The province funds the buildings, which often creates delays in getting them built.
The province needs to be more open to other methods of financing schools that involve the private sector. Until something changes, he says buyers will continue to see vacant land slated for schools remain empty.
Though development charges appear to put new homes at a disadvantage compared with resale, new homes increase more in value during the first few years as neighborhood services develop.