Toronto's condominium market is bracing for a significant change as development charges are set to spike by 20.7% effective May 1. The average cost of development charges for a one-bedroom or bachelor unit will soar to $44,774, up from $37,081 previously. This increase exacerbates the challenges in an already supply-strapped and pricey housing market, where affordability remains a pressing concern.
Despite the urgent calls for increased housing supply from various quarters, including Prime Minister Justin Trudeau and municipal governments, actualizing new projects faces formidable obstacles. These include navigating through stringent regulatory processes, grappling with soaring construction costs, and contending with the dampening effect of high-interest rates on sales. Notably, construction costs in Toronto surged by a staggering 40% between 2020 and 2023, ranking among the highest globally.
The impending surge in development charges is not entirely unexpected, as Toronto City Council had previously approved a nearly 50% increase back in July 2022. The phased implementation aimed to alleviate the immediate impact on development activity, with half of the increase being applied in May 2023 and the remainder slated for this year.
However, the real estate and development sectors have expressed apprehension regarding the adverse effects of higher charges on project feasibility. Developers fear that escalating costs, compounded by development charges, could dampen their enthusiasm for launching new projects, further exacerbating the housing shortage.
Development charges serve as a crucial source of revenue for funding essential infrastructure to support burgeoning communities. These charges, collected by the City, contribute to the construction of libraries, parks, daycares, and other community amenities. While essential, the burden of financing such infrastructure projects cannot fall solely on new developments, necessitating support from various levels of government.
The hike in development fees is anticipated to impede efforts to tackle Toronto's housing affordability crisis. The added costs are likely to be passed on to buyers and renters, exacerbating an already unaffordable housing market. The resultant impact could be fewer projects being launched, perpetuating the supply-demand imbalance.
Recent data paints a grim picture of the new home sales landscape, with March recording record-low figures for the third consecutive month. New home sales in the Greater Toronto Area (GTA) plummeted by 16% compared to March 2023, representing a staggering 66% decline from the 10-year average. The persistently sluggish market conditions are prompting builders to curtail new launches until demand shows signs of recovery.
Amidst the prevailing uncertainty, numerous projects—representing over 21,000 housing units—have been put on hold indefinitely. This stagnation in project launches underscores the industry's growing concerns about the viability of new developments in the face of escalating costs and tepid demand.
In conclusion, while there is a consensus on the urgent need for more housing supply, escalating development charges pose a significant barrier to achieving this goal. Without concerted efforts to address the affordability challenges and alleviate the financial burden on developers, the prospect of a balanced and sustainable housing market in Toronto remains elusive.