What to know
- Toronto will receive $1.5 billion over 10 years to offset development charge reductions of 40 to 60 per cent and encourage new housing construction.
- Housing experts say lower development costs could help more projects move forward as the GTA housing market remains relatively slow.
- Whether buyers and renters ultimately see lower prices will depend on market demand, with developers typically pricing homes based on what buyers are willing to pay.
- The funding also supports a new phase of the city’s purpose-built rental incentive program for projects that include affordable housing.
- Experts caution the initiative is only one piece of the solution, saying Toronto’s affordability crisis is driven by multiple factors and won’t be solved by reducing development charges alone.
The City of Toronto has announced a $1.5 billion deal with the provincial and federal governments to reduce development charges, and experts say whether it will make a difference for renters and buyers depends on market conditions.
As part of the deal announced earlier this week, the city will receive $1.5 billion in funding, in recognition of its commitment to reduce development costs by 40 to 60 per cent.
The funding will be distributed over the course of 10 years, and aims to reduce the city’s reliance on development charges, allowing it to reduce them from 2026 until 2029.
The funding will reduce the City’s reliance on development charge revenues to fund existing capital investments. As a result, the City will be able to implement development charge reductions of 40 to 60 per cent between 2026 and 2029, depending on the unit type, exceeding the program requirement of a 30 to 50 per cent reduction.
With the announcement, the city said it’s also launching a new phase of its Purpose-Built Rental Housing Incentive Stream, an initiative that provides indefinite deferral of development charges for projects that include a minimum of 20 per cent affordable housing.
Now Toronto spoke with two affordable housing experts to find out whether the initiative will actually be helpful in promoting cheaper alternatives for renters and buyers in the city.
Developers price properties based on market conditions
Although developers do translate charges into property prices, Frank Clayton, a senior research fellow at the Center for Urban Research and Land Development at the Toronto Metropolitan University (TMU), said the final sales prices are usually determined by market conditions.
Before finalizing pricing for the projects, developers consider market conditions to determine whether there is strong demand for it. If demand is strong, prices will be higher, and allow developers to make extra profits. However, if the market is slower and demand is lower, they might price the property in a way that covers their costs and makes reasonable profit, making it cheaper for the buyer.
On the other hand, if demand is extremely low, developers might choose to stay out of the market altogether, as they won’t be able to make considerable profit.
“If the market was [like it was] back in 2022 [with] extremely strong demand, or during the pandemic [when] demand was extremely strong for houses of all kinds, they could probably benefit from being windfall for them, but the market isn’t that way anymore and it’s unlikely to be for a long time,” Clayton explained
“So, developers have to accept prices rather than determine prices.”
Will the development charges cut make a difference under these conditions?
Echoing Clayton’s explanation, David Amborski, the founding director of the Center for Urban Research and Land Development at TMU, said that whether the city’s development charges cut would make a difference depends on the conditions of the market.
If the market was in fact as strong as it was a few years ago, when there was strong demand from buyers, the cut would be likely to make minimal difference in the final price.
Right now, with the market slower and fewer buyers jumping in to purchase in the GTA, Amborski said the incentive could lead more developers to invest in new projects.
“With [the] market dropping, developers can’t build sometimes, because the costs don’t meet the lower market prices. So, by reducing some of the costs, such as this, it means that some new product will be built that wouldn’t have been built without the reduction in development charges,” he explained.
In addition, Clayton said he would expect the final costs to also come down under the current market conditions. With developers being forced to lower their prices to meet market conditions and attract buyers’ interest, the expert said he would expect them to take the opportunity to reduce their prices as much as possible, utilizing the development charges discount to bring the overall cost down.
“They got to sell it at a price in the market to go for it. So, if they can reduce the price of their product by not having to pay development charges or paying a half of development charges, they would benefit, so they would do that,” he said.
Clayton also said he expects the market to remain under slower conditions for at least two or three more years, with the discounts eventually being passed onto the buyer.
Will this make a huge difference for affordable housing?
Toronto is currently under an affordable housing crisis, with recent reports finding that homelessness has more than doubled between 2021 and 2024 in the city.
Another study by the Canadian Centre for Policy Alternatives, published last September, found that in some markets across the city, tenants need to make well above minimum wage to afford rent, or dedicate the majority of their income to housing.
In Toronto, the study indicates someone would need to make $44.80 per hour to afford an average two-bedroom apartment to spend less than 30 per cent of their salary on rent. Meanwhile, someone making minimum wage would have to work 135 hours per month to afford the same rent.
Read More
As pointed out by Clayton, StatCan data released last year indicates that Toronto’s metropolitan region grew by about 268,911 people between 2023 and 2024 alone. According to him, the rapid population growth contributed to housing affordability issues.
Although the lack of available housing supply contributes to the issue, both Clayton and Amborski emphasized that the city’s housing crisis is driven by not one but several factors.
Under these conditions, putting up incentives for developers to build is an important step towards increasing affordability, but it will not be enough to completely fix it.
“Things are getting better, but it’s not going to get back to what [it was] 10 or 15 years ago… In the short term, that’s not going to happen, so a lot of people are going to have an affordability crunch,” Clayton said.
“It’s a long solution to the housing problems in the Toronto region, there are several, but it’s not just one thing. But this is a small, very, very small step. It’s not going to make much difference to overall affordability.”
