Development Charges (Municipal Government)
Development charges are levied by municipalities on developers to finance the infrastructure and servicing costs related to a new development.
(Bird and Slack 1993, 174)
Development charges are used in a number of Canadian provinces (Alberta, BC, Manitoba and Ontario) as well as in some foreign jurisdictions. Also known as development cost charges in BC and lot levies and impact fees in the United States, development charges can be imposed on a per lot, per dwelling unit or per acre basis. They are traditionally used to finance the capital costs of building hard infrastructure such as water supply systems, sewage treatment plants, trunk mains and roads that serve new developments.
From an economic perspective, while development charges bring forth equity questions around intergenerational burden and shared burden between new and existing residents, they can promote efficient allocation of resources and land use if they force developers to consider the full costs and benefits (social and environmental as well as economic) of the development. This is particularly relevant in discussions of urban sprawl. If development charges appropriately reflect the costs to the municipality of servicing communities, they will reduce the incentive to build in cheaper peripheral or suburban areas. In Ontario, the province with the most comprehensive provincial development charges legislation, municipalities must justify charges based upon long-term growth and capital cost forecasts.
While development charges are paid by the developer/builder, the burden of the charges can be shared among a number of parties. The predevelopment landowner might bear some of the charges through a lower sale price to the developer. The charges can also be passed on to the new home buyers in the form of higher housing prices. The literature suggests that the impact of development charges on housing demand is relatively inelastic, suggesting that homebuyers – particularly in highly desirable markets – are insensitive to the price increase they impose. Because development appears to be more sensitive to the higher costs they impose, the assumption is that charges are generally shifted forward onto the homebuyer. (Bird and Slack 1993, 105-9)
(Bird, Richard M. and N. Enid Slack. 1993. Urban Public Finance in Canada, 2nd ed. Toronto: John Wiley and Sons.)