Ontario municipalities feel impacts of housing law, worry over little audit progress

New homes are built in a housing construction development in the west-end of Ottawa on Thursday, May 6, 2021. THE CANADIAN PRESS/Sean Kilpatrick

It has been more than three months since Ontario promised to make municipalities "whole" on a loss of development charge revenue due to a new provincial law, and they say they're concerned they've seen little to no movement.

One large city says it is already feeling the impacts of the law financially, another is delaying a housing-related project due to the uncertainty, and municipalities across the province are passing budgets on the assumption they will be made "whole" with a dollar-for-dollar replacement.

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Municipalities have been sounding the alarm for months about a housing law, that, in part, freezes, reduces and exempts fees developers pay on certain builds such as affordable housing. Those fees go into municipal coffers to pay for services to support new homes, such as road and sewer infrastructure, and the changes will leave them $5 billion short, they say.

Municipal Affairs and Housing Minister Steve Clark has expressed some skepticism about the impacts, saying the municipalities hold billions in development charge reserves.

In late November he announced a third-party audit of "select" municipalities "to get a factual understanding of their finances."

"Together, we can use this process to get the facts, make improvements, and better serve taxpayers by exploring alternative tools for growth to appropriately pay for growth rather than continuing to raise development fees on new homebuyers," Clark wrote to the Association of Municipalities of Ontario.

• READ MORE: Ontario passes housing bill despite criticism from municipalities over funding

"We are committing to ensuring municipalities are kept whole for any impact to their ability to fund housing enabling infrastructure because of Bill 23."

But since then, a list of "select" municipalities has not been finalized, auditors have not been appointed, and communities have received few updates, if any. Toronto has been in discussions with the province on the terms of reference for an audit, but that is the only municipality to report progress so far, and the city says it is awaiting a response from the province.

The Association of Municipalities of Ontario says there has been radio silence.

"We are in wait-and-see mode," said Brian Rosborough, AMO's executive director.

"We're eager to find out what the province meant by its November 30th letter. We've followed up, we've asked, we've mentioned it in our pre-budget submission. We have been relentlessly asking the question, 'What is meant by offsetting the costs of development charges?' And we are waiting to hear."

Mississauga Mayor Bonnie Crombie, who is also the chair of the Ontario's Big City Mayors group, said she is concerned the audits haven't started yet. She is also concerned that language in Clark's letter suggests the promise to make municipalities whole is contingent on them meeting housing targets set out by the province in the law - 120,000 homes for Mississauga, for example.

The letter says there should be no funding shortfall for housing-enabling infrastructure as a result of the law, "provided municipalities achieve and exceed their housing pledge levels and growth targets."

Crombie wonders what happens if Mississauga falls short because developers are hampered by labour shortages, supply chain issues, or financing challenges.

"I can ensure 120,000 - 12,000 per year - permits are given to the developers who are requesting them," she said in an interview. "However, we're not the ones who actually put shovels in the ground."

Crombie said she has received signals from the government that it will follow through on the promise to compensate for development charge revenue loss, but in the meantime the city is already feeling the law's impacts.

"There have been development applications and we're looking at site approvals on major projects," she said.

"So this is the time when development charges would be paid to the city and this is when we're going to start facing real losses."

In Waterloo, Ont., council voted to delay for at least one year a $68-million reconstruction project for infrastructure to support 800 new homes because of uncertainty over how the city will pay for it.

"We certainly share the same goal as the province, that we want to see additional housing units being constructed, but we need to know how we can afford to pay for that," Coun. Diane Freeman said in an interview.

"I can't ask the current taxpayers, the current tax base in Waterloo, to front the capital for a development that I don't know if we're going to be able to recoup development charges on."

A spokesperson for Clark said the government will engage municipalities through the audit process.

"To be clear: Municipalities will still be able to collect development charge revenues on most new market housing projects," Victoria Podbielski said in a statement.

"Our changes simply ensure that rates will rise in future at a reasonable and predictable rate."

Development charges have been rising too quickly in some municipalities, putting home ownership out of reach for many Ontarians, she said.

However, Crombie noted that there is nothing in the law that requires developers to pass those savings along.

"We think it's really important that if they're going to take away revenue from the cities, to incentivize the development community, that somewhere in the legislation there's a guarantee that the savings be passed on to the homebuyer," she said.

"We truly feel that we shouldn't be the ones penalized, because at the end of the day, we have to continue to build infrastructure and build cities."

This report by The Canadian Press was first published March 13, 2023.