CMHC chief economist suggests other provinces follow Alberta’s lead in reducing development charges to boost supply, reduce home prices.

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The cost of housing has long been a challenge in Canada, especially in larger markets like Toronto and Vancouver. Yet even in Alberta where prices are comparatively lower, challenges remain.

One key lever to reduce price pressure has been adding more supply from new construction, but often new homes — detached or multi-family — come with higher price tags than the resale market. Many factors go into pricing, including higher material, labour and land costs.

In some markets, development fees substantially increase new home costs, notes the chief economist Mathieu Laberge at Canada Mortgage and Housing Corp.

He recently discussed the impact of fees and the potential cost savings from reducing them in an interview with Postmedia.

“There’s been a lot of talk for years, but there was no single source of truth on development charges on a case-by-case comparison basis,” he says. That is until CMHC recently published data on development charges for municipalities in Ontario, Alberta and British Columbia. Laberge also authored a companion report on the findings, showing that reducing or even eliminating development fees could increase the financial viability of residential projects in some cities by as much as 14 per cent.

Laberge says the impact of fee reductions would be greater in some provinces than others.

“In Alberta and Quebec, for example, development charges are already much lower than in Ontario and B.C.”

In turn, a reduction in fee costs in Calgary or Edmonton would be less impactful than in Toronto or Vancouver, he adds.

That said, Calgary and Edmonton have already seen development charge decreases, which Laberge notes “led to a positive impact on supply.”

CMHC did not provide development fee data for Edmonton in its recent reports, but Calgary was included. There, development fees range from $9,328 for a single-family detached home to as low as $3,860 for a one-bedroom high-rise unit.

In contrast, Vancouver’s range from $19,657 for apartments to $32,613 for single-family detached homes.

In Toronto, CMHC’s report only shows fee costs by bedrooms per unit where a dwelling with two or more bedrooms generates more than $67,000 in fees. There, the lowest fee charge is for a “dwelling room” of about $27,600.

“So if you look at Toronto and Vancouver, for example, eliminating development charges would increase the number of viable projects by 10 per cent, a which is pretty sizable,” Larberge says. “In Toronto, just to give you a sense of the magnitude, eliminating charges would actually fill half of the supply needs.”

Now, eliminating development charges is unrealistic as fees pay for administration, new roads, sewer and other infrastructure for new homes, he says.

“The optimal level is not zero,” Laberge adds, noting money to cover these fundamental expenses would come from elsewhere in government budgets.

Still, given the difference in costs between Calgary and Toronto, he suggests Canada’s largest city could reduce development charges substantially. He notes that a reduction of 50 to 60 per cent would reduce project costs by about 5 per cent. Cutting fees by 90 to 100 per cent would result in reductions between 9 and 10 per cent in those cities. CMHC found that the highest impact—close to 14 per cent—would be in Burnaby.

Notably, fees in the Lower Mainland municipality range from more than $116,000 for single-family homes to more than $60,000 for apartments.

Laberge argues that lower fees, especially on homes built for families, would address challenges larger markets face where constructing dwellings with three or more bedrooms often involves very high prices that exceed comparable dwellings in the resale market.

And those resale markets are already expensive. Single-family homes, for example, easily exceed $1 million in Vancouver and Toronto. Laberge adds those price levels put these homes out of reach for many young families.

“So our hypothesis is if you reduce fees, it will make the math work better.”