A recommendation to nearly double development fees for new homes in Toronto is facing resistance from developers who say the city’s market is too precarious to take the increase and politicians who say they need more time to consider the options.
The proposed higher development charges, part of a long-anticipated review by city staff released Tuesday, would see fees on a Toronto townhouse jump to $30,648 from $15,695. Charges on a two-bedroom unit in Toronto’s booming condo market would go up to $23,036 from $12,412 – a level that staff stress would still put Toronto well behind the average for the Greater Toronto Area.
Several councillors are saying that while development fees are likely to see some increase, the question remains when and by how much.
Councillor Peter Milczyn, a member of Mayor Rob Ford’s executive committee, said he plans to move at the committee next week that the report be deferred until September and will call for a working group to be established to study the issue over the summer.
“Development charges will be going up. There is no doubt about that,” said Mr. Milczyn, who heads the city’s planning committee.
As the report points out, there are more high-rise towers under construction in Toronto than anywhere in North America. Policy-makers in Ottawa have been concerned that too many are being built, and the Bank of Canada cautioned again this month that it remains one of the biggest risks to the economy. Federal Finance Minister Jim Flaherty cited the Toronto condo market as one of the key reasons he tightened mortgage insurance rules last July.
The new mortgage rules, coupled with warnings from Ottawa and economists, have contributed to a steep drop in condo sales. The number of new units sold in the Greater Toronto Area in the first five months of this year was 6,150, compared to 9,005 a year ago and 11,459 in the first five months of 2011, according to RealNet Canada Inc. Last month’s sales were 33 per cent lower than a year ago and 22 per cent lower than the 10-year average.
Developers, especially those in the condo sector, are mobilizing against the city proposal, saying it will jack up the cost of homes and further dampen sliding sales. Steve Upton, vice-president of planning and development at Tridel and current chair of the Building Industry & Land Development Association (BILD), was at city hall Tuesday, asking that the matter be deferred until early fall.
“Doubling of development charges does not work,” he said. “Trying to do something now at such an awkward time in the market is troublesome to us.”
Councillor Karen Stintz – who got a visit Tuesday from BILD – said some increase is likely in order, but not as much as the report recommends. “We have to think about what makes sense in the current context,” she said.
The staff report says the fees are needed to pay for new and improved infrastructure, from roads to sewers to transit, based on the principle that “growth pays for growth” – so the existing taxpayers do not shoulder the cost of newcomers. Toronto would continue to exempt industrial and commercial developments from the charges – except for ground floor properties, which are mostly retail, where fees would rise by 32 per cent.
Many condo developers have been cutting prices and offering incentives to keep sales going, and argue higher fees will further eat into sales and decrease construction down the road because it will be harder to pass the higher costs on to consumers.
“Doubling that [fee] will be a huge factor in the market, one should not underestimate the impact of development charges on the motivation to build,” said Canadian Imperial Bank of Commerce chief economist Benjamin Tal.
He added that he thinks the city is unlikely to raise as much money as it hopes once the decline in activity is factored in.
Councillor Adam Vaughan, whose downtown ward includes many condo developments, said the city needs to be strategic in how it applies all its fees, suggesting area-specific charges might be in order.
Developers generally need to sell roughly 70 per cent of a building’s units before the bank will give them funds, leading Mr. Upton to suggest the changes could potentially throw some projects that have not hit that mark into limbo.
“I think it’s a mistake, I think it’s huge,” said Riz Dhanji, vice-president at Canderel, developer of the 78-storey condo tower at Yonge and Gerrard. “We’re probably the biggest engine of growth in the economy right now.”
The degree to which housing has been keeping the economy humming is something Mr. Flaherty has been mindful of as he’s sought to cool the market without sending it off the edge.
“One nail can shut the coffin,” said Barry Fenton, CEO of Lanterra Developments.