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A condo building under construction in Toronto on July 13.CARLOS OSORIO/Reuters

Toronto is increasing development charges by nearly half, adding tens of thousands of dollars to the costs of building most new homes even as the city suffers a housing affordability crisis.

City council voted on Tuesday to raise development charges (DCs) for residential buildings by 46 per cent, with the increase phased in through May, 2024, arguing the money was needed to pay for new infrastructure associated with the added homes. The charge for non-residential buildings would go up by 40 per cent.

Development charges would be waived on the second, third and fourth residential units on a single property, provided there are no more than four units, in an attempt to encourage small-scale density.

Builders warned that higher charges for most homes would lead to less construction. And critics say that the move would unduly shift costs to new residents as a way to prevent property tax rises for current home-owners.

“The burden will fall on renters and new homeowners,” argued Jacob Dawang, with the advocacy group More Neighbours Toronto, in its formal submission on the change. “The city budget should be shared more equitably between those property owners who have lived in Toronto for decades and newer residents.”

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Mayor John Tory said that Toronto’s hands were somewhat tied by the limited options it has for generating revenue, and that he was well aware of the tension between protecting affordability and increasing development charges.

“The development charges that are applied … don’t even begin to pay for the infrastructure that we have to put in place to deal with a growing city,” he told council “But we have to achieve a balance, between that and impact on the affordability of new homes.”

Councillor Shelley Carroll noted that the city will continue to have development charges below the Greater Toronto Area average, even once the new and higher levels are phased in.

The raising of development charges came in the wake of a change in provincial law, which required the city to review and update its charges. A report from Toronto municipal staff says that the city faces a $67-billion capital bill over the next two decades, and that $14.9-billion of that is associated with costs created by new development.

Under the plan approved on Tuesday, development charges for detached and semi-detached houses would rise from $93,978 to $137,040. For an apartment with two or more bedrooms, the charge would rise from $55,012 to $80,218. For apartments with fewer than two bedrooms, it would rise from $35,910 to $52,367.

Such a shift could have a profound effect on the amount of housing that is built in the city, critics say. But Toronto chief planner Gregg Lintern argues that the additional cost is just a part of a bigger and more complicated development picture, one that includes inflation pressures as well as supply chain and labour issues

“The city’s charges are only one aspect of a very large financial decision” developers must make, he said.

The Greater Toronto Apartment Association noted that the city already falls far short of the amount of building required. Within Toronto, an average of about 1,500 rental units are completed annually, while more than 4,000 are needed to meet demand.

The group called for the first phase of the development charge raise to be delayed two years – starting in 2025 instead of 2023 – and said the industry needs assistance, not roadblocks.

The rise also resurfaced long-standing criticisms of the development charge regime. Such charges are calculated at a flat rate across housing units of a specific size, with no relationship to the infrastructure needs in the specific area in which a project might be located.

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