Development Fees Are a Distraction. Here's What Actually Drives Housing Costs.
Development Fees Are a Distraction. Here's What Actually Drives Housing Costs.
The Bank of Canada's policy rate sits at 3.75%. A developer financing a mid-rise project in Mississauga pays that rate plus at least 200 basis points. That's 5.75% on a construction loan that runs eighteen months minimum. On a $40 million project, the carrying cost is roughly $3.5 million before the first unit closes.
Municipal development charges on that same project might run $4 million. Politicians love talking about cutting that number. It's visible. It's something they can blame on the other level of government. And it changes almost nothing about whether the building gets built or what it sells for.
CMHC's latest analysis confirms what builders have been saying quietly for years: slashing development fees doesn't make housing affordable on its own. The reason isn't that fees don't matter. It's that the fee is being blamed for a cost structure it doesn't control.
The Tax Shift Nobody Wants to Name
Development charges fund sewers, roads, community centres—the infrastructure required when a city adds 5,000 new residents. The principle behind them is simple: growth should pay for growth, not existing taxpayers.
Eliminate the charge and the infrastructure still needs funding. That leaves two options: raise property taxes across the board, or don't build the infrastructure. Neither polls well, which is why the conversation stays focused on the fee itself rather than what happens after you remove it.
In the GTHA, municipal fees and taxes account for 20% to 25% of the cost of a new home. That's real money. But it's applied to a base cost that has been climbing faster than the fees themselves. Non-residential construction price indices have seen double-digit annual increases in recent years. Labour shortages mean a framing crew that cost $85,000 in 2019 now costs $140,000. Interest rate swings affect project financing more than a $30,000 fee reduction ever will.
The fee is a fixed cost the developer knows up front. The financing rate, the lumber price, the timeline to get a building permit—those move, and they move in ways that dwarf the fee. A six-month delay costs more than most municipalities collect in charges.
What the Market Will Bear
Removing a $50,000 development charge doesn't lower the sale price if ten buyers are bidding on the same house. Developers price units based on what the market will bear, not cost-plus-margin. In a supply-constrained market—Canada needs 3.5 million additional units by 2030 beyond current trends—the buyer's maximum budget sets the price, not the builder's invoice.
That's the piece of the argument politicians skip over. Fee cuts might increase developer margins. They don't guarantee price reductions unless supply catches up to demand, which requires solving the labour shortage, the zoning gridlock, and the infrastructure funding gap all at once. Cutting one line item and declaring victory is theatre.
There is one case where fees matter more: marginal projects. Purpose-built rentals, triplexes, small infill developments—these run on thin margins where a $40,000 fee can make the difference between viable and dead. For those projects, fee relief isn't symbolic. But those aren't the projects driving the political conversation, because luxury condos are what get built when margins are tight and only high-end units pencil out.
The Revenue Trap
Ontario's More Homes Built Faster Act tried to curb fees for affordable housing. Municipalities immediately lobbied for revenue neutrality. They weren't being obstructionist. They were looking at a $2 billion infrastructure deficit and a provincial government that had cut most direct capital funding years earlier.
Force cities to waive fees without replacing the revenue and you don't get more housing. You get projects sitting in limbo because there's no trunk sewer capacity to serve them. Service-ready land beats cheap land every time. A fee holiday is useless if the city can't afford to build the pipes.
The real cost drivers—financing, labour, zoning delays, land scarcity in job-rich regions—require coordination across three levels of government and changes to how cities fund growth. Development charges are an easy scapegoat. They're just not the constraint.
