Why development charges are the biggest underdiscussed factor in skyrocketing housing prices: Five takeaways

As Canada grapples with a profound housing affordability crisis, a little-known but powerful financial tool used by municipalities is drawing increased criticism for inflating home prices and distorting development. So-called “development charges”—fees levied on new construction to fund infrastructure—have surged to staggering levels in major cities, often adding tens of thousands of dollars to the cost of a single home. A new report from The Hub, presented in partnership with RBC Thought Leadership, argues that these fees have evolved from a reasonable “growth pays for growth” model into a system that threatens both housing supply and municipal solvency. The analysis examines how development charges have become a primary revenue source for cities while exacerbating unaffordability. Below are the five key takeaways from the report. 1. Development charges have ballooned, often exceeding inflation and even down payments In cities like Toronto and Vancouver, development charges are no longer minor line items—they rival a down payment. In Toronto, fees on a single-detached home jumped from $14,025 in 2011 to $137,846 by 2025, an increase of nearly 600 percent nominally. In Vaughan, Ontario, they approach $200,000. In Metro Vancouver, multiple layers of municipal and regional charges can total over $40,000 per single-family home. These fees have risen far faster than inflation, incomes, or construction costs, creating a structural barrier to affordable housing and pushing projects toward cancellation. 2. The true burden falls on homebuyers and renters, not developers A common misconception is that developers absorb these costs. Evidence shows that in strong housing markets, charges are largely passed through to buyers via higher prices, and can even lift prices for existing homes by raising the “replacement cost” of new supply. This dynamic widens the wealth gap: existing homeowners may see their assets appreciate, while new entrants face steeper entry prices. For rental projects, charges translate into higher rents, reducing affordable supply. 3. The system creates an intergenerational equity problem Development charges force today’s buyers to prepay for infrastructure—like roads, pipes, and community facilities—that will last 50 to 75 years. This front-loading of costs means younger households bear a disproportionate burden for assets that previous generations financed over time through broader taxation. When six-figure charges are folded into a mortgage, they increase debt loads, reduce borrowing capacity, and push buyers toward smaller, less desirable units. 4. Overreliance on charges fuels a vicious cycle for cities and housing Municipalities, especially in provinces like Ontario, face immense infrastructure demands but have limited revenue tools. Many are legislatively barred from issuing debt or levying new taxes, so they lean heavily on development charges. But as charges rise, housing projects become less viable, starts decline, and the expected revenue from new development shrinks. Cities then raise charges again or defer infrastructure, further constraining supply, a self-defeating cycle that undermines both housing goals and municipal finance. 5. Proven alternatives exist—such as tax-free municipal bonds and housing tax credits The report emphasizes that reform is possible without stripping municipalities of needed revenue. It highlights two U.S.-inspired alternatives: Tax-free municipal bonds: By making bond interest tax-exempt, cities could borrow more cheaply to fund infrastructure, spreading costs over decades and across a broader taxpayer base rather than loading them onto new buyers. Estimates suggest this could reduce housing costs by up to 20 percent. Low-income housing tax credit (LIHTC): Modeled on a successful U.S. program, this would attract private equity into affordable rental construction by offering tax credits to investors. Each dollar of forgone tax revenue can mobilize up to $10 in private capital, reducing reliance on public grants and enabling more below-market rental projects. Generative AI assisted in the production of this story.