Development Charges Are a Ponzi Scheme - And It’s Time to Break It!
Development Charges: The Hidden Tax Driving Up Housing Costs
Let’s call Development Charges (DCs) what they really are - a municipal Ponzi scheme. They’re a convenient way for cities like Toronto to keep property taxes artificially low for existing homeowners by taxing new ones into oblivion. It’s an illusion of fiscal responsibility that’s finally breaking down because what we’re seeing now is the collapse of a broken funding model, and it’s taking housing supply down with it.
How It Was Supposed to Work
On paper, DCs make sense. They were designed to pay for infrastructure that new developments require like roads, sewers, parks, and transit. But here’s the problem: those funds often stretch far beyond “growth-related” projects and end up subsidizing infrastructure that benefits existing homeowners. So while new buyers and developers are footing massive upfront bills, long-time owners enjoy low taxes and city upgrades - paid for by people who haven’t even moved in yet.
The “Ponzi Scheme” Explained
The development charge model only works as long as new projects keep coming. It relies on a constant pipeline of new developers, buyers, and renters to keep municipal budgets afloat. But when DCs climb so high that new builds no longer make financial sense (like right now), the system breaks. Developers pause. Investors pull back. Projects stall.
Then, cities lose twice - first from the missing DC revenue, and again from the lost property tax revenue those unbuilt homes would’ve generated. That’s a double shortfall, and it’s exactly what’s happening today.
The Toronto Example
Toronto’s pre-construction market has hit a wall. Pre-construction sales have dropped over 90% from historical levels. In June, there were only 42 pre-construction condo sales across the entire city with a population of 2.8 million! Cities pushed fees higher and higher because the market tolerated it. But now? The market’s tapped out.
Here’s a great example - when I closed on a condo at Yonge & Eglinton recently, I paid $13,000 in park levies - there aren’t even new parks being built nearby. That’s the reality of how out of touch this model has become.
A Smarter, Sustainable Fix
Cities must lower Development Charges to reflect only the real infrastructure costs tied to new projects. The rest should come from other sources, like modest, predictable property tax increases spread across all homeowners. Sure, that’s politically risky. It means existing homeowners would pay slightly more each year. But the payoff is massive:
More projects move forward
More homes get built
The tax base expands
Municipal finances stabilize
And over time, everyone pays less because the city isn’t trying to squeeze decades of infrastructure costs out of a single upfront charge.
Also, DCs should be set when the project moves into construction - enough of this “capping” development charges because developers are guessing what they will be in 5 years from now when the building closes.
If you want affordability, housing supply, and sustainable growth, you can’t keep punishing the developments that make those things possible. If you’re a real estate investor, it’s time to speak up: Lower DCs. Grow the city. Grow the tax base. That’s the only sustainable path forward and the only way to break free from the Ponzi scheme that’s holding back our cities.
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