Michael Lewis
Special to Ontario Construction News
Big city mayors say they are open to discussing changes to the municipal development charges that builders single out as a key obstacle to affordable house construction across the province.
“I don’t think there’s any mayor who is not willing to have a conversation about doing development charges differently,” London’s Josh Morgan said during a panel discussion among six Ontario mayors at the fourth annual Housing Supply Summit on Oct. 9.
Hosted by the Residential Construction Council of Ontario (RESCON) under the theme Accelerating Change: Tackling the Housing Crisis, the online conference saw elected officials, housing sector leaders and public opinion analysts focus on housing market challenges, and on policy changes needed to get the sector back on track. Sponsors include the LiUNA union and the Toronto Regional Real Estate Board.
“The problem is that we’re building in statutory exemptions,” Mayor Morgan said, “then municipalities have to find some way to finance that is completely unsustainable. (Statutes including Ontario Bill 23, the Build Homes Faster Act, require that municipalities exempt and discount development charges for eligible affordable rental units.)
“I don’t mind doing development charges in a completely different way. Let’s do that,” he said. “But we can’t provide a bunch of waivers and then provide no capacity for municipalities to backfill the development charges aside from property tax pressure, which nobody likes. There are some real, meaningful conversations we must have because this is not going away anytime soon.”
He suggested that as jurisdictions build more schools, hospitals and affordable housing “and we provide all of these exemptions you still have to fill up the fund in some way.” He added that London used its entire budget surplus this year to shore up the development fund to pay for capital projects including climate-change related storm water management ponds.
Guelph Mayor Cam Guthrie said municipalities need consistent funding from the province to support the housing infrastructure that the fast-rising development charges — paid by builders and passed on to consumers –are intended to fund.
Toronto Mayor Olivia Chow said the province should provide some sort of provincial building rebate to cities to offset development fees that have been waived to meet statutory requirements. “If we are to exempt development charges, we still need money to build sewers and roads.”
But Barrie Mayor Alex Nuttall said despite the fast-growing central Ontario municipality’s move to cut development charges by 12 per cent it still saw a significant year-over-year drop in housing starts as inflation and high financing costs put projects on hold.
“The cost of construction has impacted us severely and interest rates are killing projects for a time if not in totality. We are reliant on the building community and there’s no amount of compensation that can make up for what is a very difficult environment for builders.”
Mayor Guthrie noted that municipalities are facing a multitude of crises from housing shortages to environmental threats and the sharp growth in refugee and inner city homeless populations, suggesting that local governments are dealing with the fallout from macroeconomic and global challenges.
Corey Pacht, partner and executive vice president, operations at Fitzrovia, Canada’s largest developer of purpose-built rentals, said when it comes to getting shovels in the ground on high rise buildings, “the math doesn’t work.”
He told the conference that there has been an influx of what he called shadow rental condo projects that came on stream this year after going into the ground a few years ago.
Pacht said a couple of larger groups including Fitzrovia managed to get some projects going shortly after the Ontario government removed the eight per cent provincial portion of the Harmonized Sales Tax on qualifying new purpose-built rental housing, with 2,000 units “in the ground because of it.
“But we have a lot more today that are ready to go and I know a lot of our competitors do as well and the math doesn’t work. Those projects are really on pause. When you look out for the next 24 months there’s really nothing” in the high-rise pipeline.
“It’s a scary thought. We’re seeing some stress. It’s really hard for groups to raise capital today.”
He said Ontario’s rent controls, land costs and government fees have the institutional investors needed to backstop capital intensive condo and apartment projects looking to the U.S. and elsewhere.
He said Fitzrovia “has the ability to muscle through,” these tough times, but smaller developers are relegated to the sidelines.
Pacht offered kudos to cities, notably Toronto, for beginning to address approval times and allowing zoning for density and greater apartment tower heights, calling the high-rise zoning process faster, more efficient and collaborative.
For apartment builders he said measures to shorten construction times post approval are needed to save developers money since apartment owners are reliant on cash flow to service mortgage debt.
He said increases in globally sourced construction materials such as steel and concrete have slowed, land prices have moderated and labour costs are fixed, leaving the waiver of government fees — property taxes and development charges –as the available lever that could spur new building.
He called development charges “very expensive and a big needle mover” while acknowledging that they are sorely needed to support growth, with property taxes paying the cost of running a city.
“There is a practical reality that’s going to require co-ordination across all three levels of government. Everyone has to step up.”
Speakers at the conference said it will be at least a year to 18 months before declines in interest rates translate into more affordable housing development, with Mayor Chow suggesting that Toronto must act as a builder in the meantime.
RESCON president Richard Lyall said the residential construction industry is handcuffed by restrictive rules, cumbersome processes, and exorbitant fees. “It’s like a self-inflicted wound. Plans that have been developed lack focus and vision and it will take a serious epiphany to turn the situation around.
“We are in the midst of Canada’s worst-ever housing affordability and supply crisis,” Lyall added.
“Housing starts are down, the condo market is deteriorating to levels not seen since the recession in the 1990s, and we are falling far short of the number of homes that need to be built to make housing affordable and attainable.”
Ontario’s population expanded by 200,000 over the past six months, he said, while the province saw 37,425 housing starts, 6,577 fewer units than the same period in 2023.
“It’s like we are on the wrong track and witnessing a slow-moving train wreck,” Lyall said.
“Immediate and urgent action is needed.”