Development Charges in Toronto: What They Are and How They Work

Development Charges in Toronto: What They Are and How They Work

Development charges (DCs) are fees imposed by municipalities to help fund the infrastructure required to support growth.

In Toronto, as in the rest of Ontario, development charges are governed by the Development Charges Act, 1997 and form a major component of the cost of new residential and non-residential development.

Understanding how DCs work is essential for developers, investors, builders, and even homebuyers, as these charges ultimately influence project feasibility and housing affordability.

What Are Development Charges?

Development charges are one-time fees collected by the City of Toronto when new development occurs.

Their purpose is to ensure that growth pays for growth. As new residents and businesses move into the city, they place additional demand on municipal services such as roads, transit, water systems, parks, libraries, fire stations, and community centres.

DCs help fund the capital costs of expanding or improving these services so that existing taxpayers are not burdened with the costs of new growth.

In simple terms, development charges shift the cost of growth-related infrastructure from current residents to those creating or benefiting from new development.

Legal Framework in Ontario

In Toronto, development charges are regulated under the Ontario Development Charges Act.

The Act establishes:

• Which services are eligible for DC funding
• How DCs must be calculated
• How often rates can be updated
• When DCs are payable
• Transparency and reporting requirements

Toronto updates its DC by-law approximately every five years following a comprehensive background study that forecasts population and employment growth and determines the infrastructure needed to support that growth.

What Services Do Development Charges Fund?

Toronto development charges are used to fund growth-related capital costs only. They cannot be used for day-to-day operating expenses or to fix existing infrastructure deficits.

Eligible services include:

• Roads and related infrastructure
• Public transit (subways, streetcars, buses, and facilities)
• Water supply, wastewater, and stormwater systems
• Fire protection services
• Police services (limited)
• Parks and recreation facilities
• Libraries
• Long-term care facilities
• Public health infrastructure
• Childcare facilities

Some services, such as schools, are excluded from DCs and are funded separately through education development charges imposed by school boards.

How Development Charges Are Calculated

Development charges are calculated based on a per-unit or per-square-foot basis, depending on the type of development.

For residential development, charges are typically applied per dwelling unit and vary by:

• Unit size (small, medium, large apartments)
• Housing type (condo, rental, townhouse, single-detached)

For non-residential development, DCs are generally charged per square metre of gross floor area.

Toronto’s background study estimates future population and employment growth, identifies the capital projects required to service that growth, subtracts grants, reserves, and ineligible costs, and then allocates the remaining costs across anticipated new units and floor area.

When Are Development Charges Payable?

The timing of DC payment is a critical consideration for developers.

Traditionally, DCs were payable at building permit issuance. However, recent provincial changes have altered payment timing, especially for residential development.

In Toronto:

• Rental housing and institutional developments may be eligible for DC deferrals, often payable over multiple years after occupancy.
• Condominium and ownership housing may have a portion of DCs payable at building permit and the remainder at first occupancy.

• Non-residential development typically pays DCs at building permit issuance.

Interest may accrue on deferred payments, depending on the structure and applicable regulations.

Geographic Variations Within Toronto

Toronto does not use a city-wide flat DC rate for all services.

Some charges vary based on geography, particularly for:

• Transit
• Water and wastewater services

For example, developments in areas benefiting from major transit expansion projects may be subject to higher transit-related charges.

Additionally, certain servicing costs differ between the downtown core and suburban areas due to infrastructure capacity and growth patterns.

Development Charges and Housing Affordability

One of the most debated aspects of development charges is their impact on housing affordability.

DCs increase the hard cost of development, and these costs are generally passed on to end users—homebuyers or renters—through higher purchase prices or rents.

In Toronto, development charges for a single condominium unit can reach tens of thousands of dollars, making them a significant line item in pro forma calculations.

Supporters argue that DCs are necessary to maintain service levels and prevent existing residents from subsidizing growth.

Critics contend that high DCs discourage development, slow housing supply, and worsen affordability, particularly during periods of rising construction costs and interest rates.

Exemptions, Discounts, and Incentives

Toronto offers limited exemptions and incentives to encourage certain types of development, including:

• Affordable housing units, which may receive partial or full DC exemptions
• Non-profit housing providers, depending on eligibility
• Industrial development, which may receive discounted rates compared to other non-residential uses
• Redevelopment credits, where existing floor area or units are demolished and replaced, reducing DCs payable

These incentives are designed to align DC policy with broader municipal goals such as affordability, intensification, and economic development.

How Development Charges Are Collected and Used

Once collected, development charges are placed into reserve funds dedicated to specific service categories.

The City of Toronto is legally required to track DC revenues and expenditures separately and publish annual statements.

DC funds must be used within a prescribed timeframe, and if funds are not spent as intended, they may be subject to refunds.

This accountability ensures that DCs directly support growth-related infrastructure rather than general municipal spending.

The Role of Development Charges in Toronto’s Growth Strategy

Toronto is one of the fastest-growing cities in North America, with hundreds of thousands of new residents projected over the coming decades.

Development charges play a central role in financing the infrastructure required to support this growth while balancing fiscal responsibility.

At the same time, policymakers continue to adjust DC frameworks in response to housing supply challenges, affordability concerns, and provincial legislative changes.

As a result, DCs remain a dynamic and evolving aspect of Toronto’s planning and development landscape.

Conclusion

Development charges are a foundational tool in Toronto’s approach to managing growth.

They ensure that new development contributes fairly to the infrastructure it requires, protecting existing taxpayers while enabling the city to expand responsibly.

However, their size, structure, and timing have meaningful implications for development viability and housing affordability.

For developers and investors, understanding how DCs are calculated and applied is essential to accurate financial planning.

For residents and policymakers, the challenge lies in striking the right balance between funding infrastructure and encouraging the housing supply Toronto urgently needs.