Development charges are the hidden fees municipalities charge to developers to cover a variety of items. Infrastructure, including water management, road maintenance and sewer treatment and basically helping to fund the town’s growth. These fees are paid at the time of a building permit being received and ultimately get passed on to the Buyer of a new home. 

Over the past decade, development charges have grown dramatically. In the city of Toronto for example, the development charges for a detached house is $129,000. A decade ago, in 2013 the charge was $19,500. In Durham Region the development charges have risen from $32,000 to $86,000. Adding to that, a report done by the Canadian Centre for Economic Analysis this summer identified that the total tax burden for a new home in Ontario, based on the average sale price of $1,050,000 was 36% of what a Buyer paid for a property. The developers margin was just over 9%. It is the different levels of Government that share most in the sale of a home in Ontario. To put it in perspective when the average valued home in Ontario, here is how the money flows.

• Different levels of government: $378,000
• Developer: $95,500

Looking a little closer to home, in Durham Region the average detached home sells for $1,010,000 and out of that selling price $353,000 goes back to the government. 

One Ontario municipality is reducing the development charges as a way of reducing the costs associated with building homes. The development charges for residential applications are being rolled back to the amount that was charged in 2018. This will reduce the fees from $94,500 to $50,000. From a distance this should bring the price of new homes down, however as the building business is a for-profit business, most likely the developers will absorb the reduction without altering the selling price of the homes.

What would be a good plan would be for the Buyer of the new home to get a credit on closing for the reduction of the development charges. This will truly benefit the Buyer and not the developer. 

We are in an economy where the middle class are being stretched in all directions. The cost of groceries are at an all time high, gas prices have spiked and everything from car insurance to the cost of hotel rooms has skyrocketed. Development charges escalating as they are are just adding to the challenges of not only Buyers purchasing homes but Sellers selling. (As they are taxed on commissions and lawyers fees.) Development charges are hidden charges and the public rarely sees when increases happen and as they are added to the purchase price of a new home, all they see is the value of homes increasing.

Imagine how the lifestyle of a Buyer at $1,010,000 in Durham region would change if the value was reduced by the government taxes and was 35% lower. At today’s mortgage rates, this would mean that the monthly payments would drop by over $2,000 per month. This is not the only reason that the costs of homes in Ontario are high, but it is one of the biggest contributors. 

If you have any questions, I can be reached at lindsay@buyselllove.ca or 905-743-5555Connect with us on Facebook, Instagram, LinkedIn and YouTube.