Development Charges and Housing Affordability: A False Dichotomy?
Critics of municipal development charges often argue that these one-time levies on property development make housing unaffordable by raising the cost of housing production. Yet, over the past 30 years, Ontario’s municipalities have increasingly relied on development charges to recover growth-related capital costs, as provincial grants for expansionary capital works servicing new housing have declined.
In a new paper for the Institute on Municipal Finance and Governance (IMFG), Adam Found argues that properly formulated development charges actually improve housing affordability. Development charges, Found writes, are an efficient way for municipalities to recover an appropriate share the costs of growth-related capital works. Without development charges, residents would face either inefficiently high property tax rates and user fees or inefficiently low levels of municipal service, or both.
To discern the effect of development charges on housing affordability, one needs to consider not only housing production costs but also the municipal finance context (such as property taxes and service levels). With that broader approach in hand, Found finds that, on balance, the introduction of properly formulated development charges improves the welfare of the average household and thus housing affordability.