This type of development in turn necessitates investment in new, and more costly, infrastructure by municipalities. There are many factors that influence where development happens, including zoning by-laws, planning policies, and market factors that influence supply and demand. But development charges are a significant cost that can influence development location, timing and other decisions. As a result, more municipalities should consider better aligning the design of their development charges with growth management policies. This Brief will examine how development charges can be designed to provide the right incentive for more compact urban development, by changing the incentives for developers and consumers.

Key messages

  • Urban development in Canada in recent decades has been characterized by low-density, automobile-dependent construction at the far edges of the city centre, also known as ‘urban sprawl’. Although this urban form provides low-cost housing and offices, at the same time it contributes to many problems, including fragmented communities, increased automobile dependency and traffic congestion, loss of agricultural land, and increased smog and greenhouse gas (GHG) emissions.
  • Real-estate developers must pay municipalities a one-time development charge (DC), when developing a new project. This charge typically covers only the upfront municipal capital costs of infrastructure required for these projects, or a portion of those costs. The infrastructure covered by these charges varies by jurisdiction, but often includes roads, sewers and water (“hard” infrastructure) and fire stations, schools or community facilities (“soft” infrastructure). Development charges are currently assessed mainly based on average costs or area, or a combination of both, ignoring the marginal costs, which vary by type of development.
  • From the perspective of municipalities, development charges can be seen as both a fiscal and growth management tool. Currently, they are primarily used for cost recovery, making them an important fiscal tool for municipalities. However, they are increasingly also being viewed as part of a growth management strategy. Development charges can influence thetype of development that occurs, and could be used to encourage more efficient land use. Denser development in established urban areas typically has lower infrastructure costs than sprawling development on the urban fringe.
  • Development charges, even if widely deployed in different ways, cannot solve all growth-related problems. However, if municipalities use them in conjunction with other growth management strategies, they can be an effective and powerful tool for encouraging more compact and sustainable urban development. Provincial policy reform is required, in some cases, to give municipalities scope to effectively employ DCs.