Ontario’s new housing legislation, Bill 23, has put a spotlight on how cities pay for growth, and there are some misconceptions that need to be corrected.
Yes, cities collect fees from developers. Yes, these fees are used to build parks and infrastructure like transit, community centres, roads, sewers, and so much more. Cities collect what is needed to support new growth.
No, these fees do not add to the price of a new home — the market determines housing prices. No, there is no guarantee that reducing these fees will make developers build more housing or make it more affordable – Bill 23 does not require them to.
Yes, developers will still make a profit.
The reality is, municipalities own and maintain two-thirds of the nation’s infrastructure but only receive about nine cents of every tax dollar collected. The math just doesn’t add up. To make matters worse, municipalities have very few funding tools to pay for the cost of running their cities. In general, our revenue tools are limited to property taxes and user fees.
That is why the provincial government allows municipalities to collect fees from developers to help offset the cost of growth. The province tells us how much we can collect and how we can use the funds.
With Bill 23, the province plans to cap these fees, which puts severe limitations on our ability to pay for the infrastructure and parkland needed to meet the tremendous growth targeted by the province.
What You Need to Know
Since municipal fees – or Growth Charges – can be complicated, here are five key points to keep in mind.
- The Province sets strict rules for Growth Charges and cities must follow them.
Cities follow a public process involving extensive consultation with residents and developers. The process is outlined in the Planning Act and Development Charges Act, and only after a lot of public discussion do we determine the amount of Development Charges and Parkland Cash-in-Lieu a developer is required to pay. There are many checks and balances in place such as:
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- The amount of charges is calculated using long-term growth and park planning projections in consultation with the development industry.
- Cities can only collect development charges for the percentage of the costs that apply to new growth. For example, since a new transit line also benefits existing residents, the amount of development charges we can collect for it must be reduced so that the benefit to existing taxpayers is not included in the calculation.
- Growth charges are one-time fees that developers pay – but taxpayers are on the hook for life
Developers are required to contribute to the cost of infrastructure and parks when they build. This helps ensure that growth pays for growth – not existing taxpayers. However, the amount cities collect from developers rarely covers what is needed to support new growth. That means we must use tax dollars to cover the gaps.
At the end of the day, when the development is complete, taxpayers are also required to help pay for the ongoing costs for the new parks and infrastructure through their annual property tax bill and service fees.
- Growth charges have increased but remain a relatively small percentage of overall building costs.
Growth charges have increased due to the same cost pressures faced by the building industry – rising construction and engineering costs and land values for new parks. If fees don’t increase, the City won’t have the funds to support new development.
Municipal costs, including development charges and parkland fees make up a small percentage of overall building costs but have a huge impact on the quality of life in a city. In Mississauga, our residential development charges range from about $17,000 for the smallest unit up to a maximum of about $48,000 for single detached homes.
Once these charges are paid, developers continue to earn a healthy profit from their projects.
According to a July 2022 study by the Canada Home and Mortgage Corporation (CMHC), developers typically earn between 10 and 15% profit once all other costs, including government fees, are paid.
- Reserves are important when planning for large infrastructure projects in an urban city.
The fees we collect go into reserves that are assigned to projects in our 10-year capital plan. This is a public document that is discussed publicly every year during Budget negotiations. As we are required to spend the funds in a set timeframe, the City is not sitting on huge reserves of unspent growth charges.
Mississauga only collects what is needed for growth and we manage our reserves carefully. The aim is to:
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- Make sure we build infrastructure and services at the most appropriate and cost effective time to support new growth.
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- Keep one year’s worth of DC revenue in reserve in case there is a downturn in the economy.
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- Have parkland funds that reflect market value and are ready when land becomes available to acquire new parks.
- Park funding helps ensure the City has the right amount of parkland for everyone.
When they build, developers must provide the City with land for a park (Parkland Conveyance) or, if a piece of land isn’t feasible or suitable for parkland, they pay a fee instead (Parkland Cash-in-Lieu). New parks and public spaces make our community livable – they are just as important to building a great city as the roads, sewers and fire stations needed to service it.
The province wants Mississauga to build 120,000 new homes in the next 10 years. According to our Parks Plan, we need about 94.6 acres of new parkland to support those homes. With Bill 23, we will receive only 18.9 acres of new parks.
As a city, we know how to manage our finances. Taxpayers expect prudent financial management and we deliver. Mississauga has received the highest credit rating – AAA – from Standard & Poor’s Ratings Service every year for the last 19 years. The City has also won the prestigious Government Finance Officers Association award for our Business Plan and Budget Book 33 times – more than any other municipality in Canada.
Mississauga is ready to work with the Province and developers to build more homes but reducing municipal fees is not a cure-all for Ontario’s housing crisis. That’s one of the reasons why we’re calling on the Province to Fix Bill 23. Learn more: Mississauga.ca/Bill23
SOURCE City of Mississauga
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