C.D. Howe Urges Phasing Out Development Charges, Shifting Infrastructure Costs to Existing Homeowners Through Water Fees

A development charge is a one-time levy a municipality collects on new construction, calculated to cover the infrastructure that growth is expected to require — water and wastewater capacity, roads, transit, parks, fire and police facilities. The charge is paid by the builder, typically at building permit or occupancy, and it is set through a municipal bylaw supported by a background study. The governing principle has a name that most councils have used at some point: growth should pay for growth.

Sancton's account is that the tool was uncontroversial for decades and has become a flashpoint only recently, as charges on new homes climbed and housing affordability deteriorated. The scale is regionally lopsided. According to the C.D. Howe Institute paper, development charges commonly add well over $100,000 to each new single-family home in most large Greater Toronto Area municipalities, exceed $50,000 in some Metro Vancouver municipalities, and sit in the $10,000 range in Calgary. Those are not rounding errors on a purchase price. At GTA levels, a development charge is large enough to move a mortgage payment.

The mechanics of how those levies get calculated and passed down the chain are worth understanding on their own, and we cover them in detail in our guide to how Ontario housing development charges show up in new-home prices. For the purposes of this story, the relevant point is narrower: the charge is levied on the builder, but the paper's review of the literature finds the conventional Canadian view is that it is passed through to the buyer, particularly in strong markets where neighbouring growing municipalities all charge comparable amounts.

The critique in the paper is not simply that development charges got too expensive. It is that the fairness logic used to justify them rests on two assumptions that are difficult to sustain.

The first assumption is that growth-related infrastructure mainly benefits new residents. Sancton's argument is that it does not. A widened arterial road, an expanded water treatment plant or a new fire hall serves the whole municipality, including households that have lived there for thirty years. The second assumption is that growth-related costs can be cleanly separated from ordinary municipal expenditures. In practice, capital budgets do not divide that neatly — most projects deliver a mix of new capacity and replacement of aging assets, and the allocation between them is a judgment call embedded in a background study.

There is a distributional consequence the paper draws out that existing owners should sit with. Higher prices and rents for new housing can spill into the broader market, raising the cost of existing housing. That imposes an uncompensated burden on renters. It also means incumbent homeowners may be realizing capital gains from a policy that is billed as making growth pay its own way. The affordability pressure is no longer confined to the two most expensive metros, either — CMHC's Housing Affordability Composite Index now tracks the problem well beyond Toronto and Vancouver.

Here is the part that gets less attention. Sancton's alternatives are greater municipal borrowing and expanded water and wastewater user fees, potentially through independent utility authorities that recover costs over the life of the assets. Both spread infrastructure costs across everyone who benefits from growth. That is precisely the design intent — and it is also precisely why existing homeowners should read the proposal carefully.

The table below sets out the three routes and who carries each one.

Read across the rows and the shift is visible. The current model concentrates a very large cost on a small group at a single moment. The proposed model distributes a smaller annual cost across everyone, indefinitely. Neither is obviously fairer in the abstract. But they are not the same trade for a household that bought its house in 2004.

This is not a hypothetical policy environment. Ontario's Development Charge Reduction Program already offers municipalities infrastructure funding in exchange for lowering their charges, as part of an $8.8 billion Canada–Ontario commitment.

We covered the terms of that agreement — including the requirement that reductions hold for at least three years — in our report on the $8.8 billion federal-provincial deal to halve development charges.

The paper puts arithmetic behind the shift, and the arithmetic is where the story stops being abstract.

Ontario municipalities collected $2.77 billion in development charges in 2023. Sancton's illustration is that if that amount had instead been borrowed over 30 years at 4.5 percent, annual debt charges would run roughly $164 million, translating to an average property-tax increase across the province of slightly more than 0.5 percent. Modest, on its own. But if similar borrowing recurred every year, the cumulative effect reaches about 15 percent by the end of the 30-year period. He is careful to describe this as an order-of-magnitude illustration, not a forecast.

Fast-growing regions carry more of it. In Halton Region, combined 2024 development-charge revenues for the region and its lower-tier municipalities came to $384 million. Borrowed on the same terms, the paper estimates an average property-tax increase of slightly less than 2 percent. And for the water and wastewater portion specifically, it cites an estimate that user fees in Halton would need to rise by an additional 5 percent in each of the following 10 years if those costs were shifted into rates.

Five percent a year for a decade compounds. That is roughly 63 percent higher by year ten, before any of the ordinary inflationary increases a utility would have applied anyway.

To put that on a real rate structure: the City of Toronto funds Toronto Water entirely through rates and user fees, with a Block 1 rate of $4.8629 per cubic metre effective January 1, 2026. The city's 2026 interim rate approval put the 3.75 percent increase at about $40 more annually for a household using 230 cubic metres, for an estimated total of $1,118 in 2026. Toronto is not one of Sancton's worked examples, and a growth-driven rate shift is not what produced that increase. But the scale is instructive. A cumulative increase of the size modelled for Halton, applied to a bill of roughly $1,100, would add something in the neighbourhood of $700 a year.

Utility-line pressure is also arriving from other directions at the same time, which is why these changes rarely land in isolation. Ontario's move to strip municipal green building standards, for instance, drew warnings about higher long-run energy bills and retrofit costs for the same households.

Sancton's proposal would extend a trend rather than invent one. Provinces have been adjusting development-charge burdens for several years, through three distinct levers: exemption, deferral and offset.

• Exemption. Ontario has exempted affordable and select attainable residential units from development charges effective June 1, 2024, with those units required to remain affordable for 25 years under the terms of the provincial development and community benefits charges framework.
• Deferral. Ontario law also allows development charges on rental housing and institutional development to be paid in equal annual instalments beginning at occupancy and continuing on the following five anniversaries — spreading payment across six years rather than demanding it up front.
• Instalments elsewhere. British Columbia takes a similar approach. Under the province's Development Cost Charge and Amenity Cost Charge (Instalments) Regulation, a developer liable for a charge of $50,000 or more pays one-third at approval or permit issuance, with the balance due within two years.

None of these eliminate the charge. They change who is squeezed and when. Federal money has begun flowing toward the same objective as well, including the housing supply legislation we covered when Ottawa tabled Bill C-26 to send $1.7 billion to provinces with development-fee reductions among its targets.

Development charges are among the few municipal decisions with a statutory consultation process attached, which means there is a defined window rather than a vague invitation to email a councillor. Under Ontario's Development Charges Act, a municipality must make its development-charge background study public at least 60 days before passing a bylaw, hold at least one public meeting with a minimum of 20 days' notice, make the proposed bylaw and the study available at least two weeks before that meeting, and then allow a 40-day appeal window after passage.

The borrowing side has its own guardrail. Provincial guidance on municipal debt sets an Annual Repayment Limit — for most municipalities, 25 percent of own-source revenues such as property taxes, user fees and investment income, less existing long-term obligations. Exceeding it requires additional tribunal approval. That matters here for a specific reason: user fees are inside the revenue base used to measure borrowing room. Raising water rates does not only fund infrastructure directly. It also expands how much a municipality is permitted to borrow.

Two honest caveats belong in any coverage of this report.

The first is methodological. Sancton states plainly that the commentary presents no new empirical findings. It is a critical review of the existing literature, written for readers who may assume development charges are the obvious or only way to fund growth infrastructure. Its value is in the reasoning and the synthesis, not in fresh data collection. The property-tax and utility-rate figures in it are illustrations built on published revenue totals, and they should be read that way.

The second is about who actually captures the savings. The paper acknowledges the difficulty directly: if competition among developers is limited, lower charges may not translate into lower home prices at all, with some or all of the savings accruing to developers or landowners instead. It also flags that recent purchasers who financed high development charges through their mortgages may reasonably regard a transition as inequitable — they paid the old way and would then contribute again through rates and taxes under the new one. That concern about incentives being absorbed rather than passed through is not unique to this file; CMHC has raised a parallel warning about homebuyer incentives pushing prices higher without a corresponding increase in housing starts.

For existing homeowners, the takeaway is not that the proposal is wrong. It is that the cost does not disappear when the charge does. It moves — to a utility bill, a tax levy, or both — and it arrives quietly, in percentage terms, on a notice most households skim.