Removing Development Charges for Purpose Built Rentals

Hey All,

Welcome to the first issue of The Middle Ground. This newsletter results from hundreds of hours of research, interviews, and studies to learn how to solve the problems that impact Toronto, Ontario, and Canada.

In the leadup to the upcoming Provincial Election on February 29th, I will publish 28 policy proposals in 28 days. These will be a mix of analysis of existing proposals by candidates and my proposals.

Please share this newsletter with as many people as you know in our community. The objective here is to provide a thorough analysis of policies at a level anyone can understand so that we all know the type of plans we should expect from our elected leaders. Any way you can help amplify this research and these ideas is greatly appreciated.

Today’s first issue will focus on Development Charges for Purpose Built Rental Units.

What are Development Charges?
Development Charges are fees charged by municipalities to developers for building new housing units. In Toronto, Development Charges are currently:

For Non Rentals:

• Single House/Semi-Detached House: $137,846

• 1 Bedroom/Studio Apartment: $52,676

• 2+ Bedroom Apartment: $80,690

For Rentals:

• 1 Bed Apartment: $33,497

• 2 Bed Apartment: $48,299

• 3 Bed Apartment: $45,280

Why do these fees matter?
These fees add costs to the price of creating new housing. Ontario needs 1.5M new houses in the next six years to meet demand. Assuming all of that demand can be met by 1-bedroom apartments, that is $79B in Development Charges alone, never mind the cost of materials, land and labour. We’ll never solve the crisis if it's this expensive to build. If we removed development fees entirely, we could instantly reduce the cost of solving the housing crisis by $79B. 

When did this become a problem?
Development Charges in Toronto have risen 17% annually since 2015. For a 2+ bedroom apartment, the charge in 2015 was $17,293; today it is $80,690. If we continue this trend by 2051, it will cost $4M in development fees alone to build a 2-bedroom apartment. 

To add additional context, since 2010, Development Charges in Toronto have risen by 993%; at that time, inflation was up 41%, and home prices were up 104.8%. 

In real terms, if the cost of a Big Mac Meal had increased as much as Development Charges in Toronto since 2010, you’d be paying $46.45 for lunch. 

How does this impact rental price?
To show this in practice I will use simulated figures based on an actual project I’ve been involved with in Toronto. This project would include 10 residential units and would be located just outside the downtown core:

If you remove the costs of the Development Charges, the project costs decline by 17%, and the monthly mortgage paid by the landlord decreases from $14,071 to $11,726. That is $234.50 less per month per unit, meaning the landlord can lower rent by over $200 and make the same profit.

Also, when you factor in the cost of loaning, interest, financing, etc., removing development fees increases profit margins and encourages more developers to build, meaning more housing is available. 

How can we fix this?
We can start by removing all Development Charges on purpose-built rentals. This should instantly create an uptick in the amount of developers that start to build rental units instead of luxury housing, condos, etc. Rental units are an essential part of any healthy housing system. When there aren’t sufficient rental units, rent prices increase, and tenants are left with fewer options, meaning landlords have more power in their relationships. 

If rental units are abundant, tenants can be more selective, meaning poor landlords won’t be able to rent their units (or at least not near market rent). 

Onwards and Upwards,

Liam Gill

P.S. - Please share this with as many people as possible to help grow our community and help us hold our elected officials responsible for implementing these policy initiatives.